Page 27 - BoAML Plan Handbook 17 V2.0

Different types of investment

The table below gives an overview of the different asset classes. It sets out how, typically, Investment aims Investment diversification
these assets are expected to achieve one of two aims and are associated to certain types of risk. While everyone wants their savings to grow, it is not always Investing in different types of investment funds or asset
The higher the star rating, the more effective the asset class may be in achieving the as simple as that. To grow your Member Account in a less classes helps to diversify or ‘spread’ investment risk.
conservative way, you do need to be prepared for the value
This diversification means that you are less dependent
respective aim. The maximum star rating is five. of your savings to fall in the short term. Generally, the more on the performance of any one asset class by spreading
investment risk you are able to take, the more potential there the investment risk and reducing the impact if one or more
Aims to is for your Member Account to grow. asset classes suffer(s) from poor performance.
Deliver long-term Provide security Depending on your circumstances and attitude, you may not You can diversify your investments by choosing from the various
Asset class growth and stability be in a position to potentially take as much investment risk asset classes available to you through the Freestyle funds.
and may decide that protecting your Member Account is more
Equities or shares are stocks in UK and overseas companies. Equities are expected to important than growing its value. The Freestyle funds also include a single fund which provides
generate higher rates of return in the longer term than bonds or cash, but carry higher investment diversification: the Diversified Growth fund. This fund
investment risk because they are more volatile. You also need to remember that how you invest your Member invests in a wide range of asset classes including equities,
Account should align with how you plan to use your savings bonds, real estate, commodities, hedge funds, derivatives and
They are generally considered a good way to invest your money in the long term, since from the Plan. This will ensure that you get the best value cash/currencies around the world. Investing in the Diversified
you have time to weather the ups and downs of the stock market. for money when you come to retire. Read more on page 28. Growth fund therefore offers you the opportunity to diversify
the investment of your Member Account through one fund.
Property investments mainly invest in commercial property. Investing in property can
have risks related to the nature of buying and selling property, including the risk that their
value can go up or down and that it may not be possible to sell properties quickly, so there
can be times when there is a delay in processing requests to switch out of the fund.
Returns from property are generally higher than bonds but lower than equities and,
like equities, are subject to short-term volatility. Investing in property should best be
considered as part of a long-term investment strategy.
Bonds are loans to a company or governments; UK Government bonds are called gilts.
You typically receive a fixed return on your investment, or ‘interest’ on the loan, except for
index-linked gilts which pay a return that increases with inflation.
Bonds typically give lower returns over a longer period than equities, but they are generally
more secure and predictable.
Money market/cash refers to a range of money market instruments and cash. They are
considered better at protecting the capital value of your Member Account in the short
term than other types of investments such as equities.
However, money market funds typically provide lower rates of return in the long term
and there is still a risk that they can go down in value from time to time.

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