Fund Selection

What can you invest in?

Hello and welcome to the third instalment in our series of Legal & General Investments master class videos.

In this episode, we ask the question: ‘What can you invest in?

While there are a range of options when it comes to what to invest in, there is no denying this is a world that can sometimes be confusing.

In this episode we will begin to run through some of the most common investment products available and start to explain the different characteristics that different investment types have. We’ll start by going through the different asset classes.

When talking about investing, you’ll sooner or later hear the term ‘asset classes’. So it’s worth getting to grips with what it means.

An asset class refers to a group of investments that exhibit similar characteristics.

There are many asset classes; here are the three main ones you need to start off with:

Cash – Relatively speaking it’s the least risky of the three asset classes, but the risk is often accompanied by modest returns as we saw in episode one.

Shares – This is what most people think about when they talk about investing. They are bought and sold on a stock exchange, and give you a slice of a company’s fortunes. Pick the right company and you’ll be rewarded with a rising share price, with an annual dividend payment in most cases. But, be aware that a company’s share price can also fall.   

Bonds – Companies and governments need to borrow money and many of them do so by issuing bonds for a fixed period. These pay an agreed interest rate each year and repay the capital at the end of the period. The more investment-worthy the bond issuer, the lower the interest rate they have to offer to entice investors. You should be aware that bond prices can however go up and down.

The nature of different investments will vary, but generally investing in shares is reckoned to be the most risky asset class, with bonds generally seen to be less risky than shares.  

Many people also invest in property, but for now we’ll focus on the assets previously discussed.

Now this is how you can invest in these assets, tax efficiently:

If you’re confident in picking your own stocks and shares investments then a self-select ISA might interest you. The self select product allows you, the investor, to buy shares in individual companies on the stock market you want within your tax-efficient ISA wrapper.

If you’d like a professional fund manager to choose your investments for you, then you might want to consider a stocks and shares fund ISA.

Put simply, a fund is just another way of investing in the stock market and other asset classes, but rather than buying individual investments, your money is pooled with other investors. Each fund has an objective and is managed by a fund manager who uses their expert knowledge to buy and sell investments to meet the objective.  

In very simple terms, there are two basic approaches to investing in funds – passive and active.

Passive investing means following the fortunes of a stock market index such as the FTSE 100. If the index does well, so will you. It’s a low-cost approach to investing.

Active investing is where a fund manager is continually using experience and knowledge to build a portfolio of investments with the aim of meeting the funds objective. This approach generally carries higher charges.

Before we end this video, let’s quickly recap the four main areas we have covered in this episode on what you can invest in?

One way to invest in the stock market is through a self select stocks and shares ISA.  This investment option puts you in total control but puts the decision-making burden firmly in your court.

If you haven’t used your full ISA allowance, you can invest tax-efficiently in a stocks and shares fund with an ISA wrapper. By investing in a fund you are not investing alone but instead pooling your money with others and investing into the market through a fund management company such as

Legal & General.

In very simple terms, there are two basic approaches to investing with funds – passive and active.  Passive investing involves following the fortunes of the stock-market, whereas active investing refers to employing a fund manager who will use their experience to pick investments to meet the funds objective.

And finally when looking at what you are going to invest your money in, the investment community likes to group investment in asset classes, the three main ones being: cash, ‘stocks and shares’ and bonds.

Thank you for watching this Legal & General Investments master class video.

In the next episode we ask the question – ‘How can I create an investment portfolio?

In the meantime, if you’d like to take a look at our range of stocks and shares ISAs, please visit our website.

All investments carry an element of risk. Please bear in mind:

• The value of your investment may fall as well as rise and you might not get back your original investment.
• If you choose an investment fund which invests overseas, changes in exchange rates between currencies may cause the value of your investment and the level of income to fall as well as rise.
• The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained and the value of the tax treatment depends on individual circumstances.
• These investments are medium to long term, ideally five years or more

Find out more about Legal & General investments