During ‘ISA is King!’ I spoke about the variety of different ways in which members of Joe Public can invest. I concluded that in most cases the average investor should make use of their ISA because they are very easy to set-up, low-cost and are tax-efficient. However, an ISA is just a tax wrapper, it is not an investment of any kind. To take advantage of an ISA you must first invest.

Lets start by considering your options;

These assets all behave in different ways and so depending on your objectives you may want to invest in one over the other. Two simple and important characteristics to considers are risk and returns. As an investor you want to invest in an asset which gives you the highest possible return for the lowest amount of risk. Here is how these assets typically stack up.

A low risk individual would be interested in Cash, however as you can see, leaving your money in cash is not going to make you rich. An investor who is more willing to take risks to make some dough might consider Stocks and Shares (Equity) e.g. Apple Inc.

Over the long run, investing in Stocks and Shares is the best way to grow your investments and make £££. However, by combining a few of the assets above – i.e. creating a portfolio – an efficient trade-off between risk and return can be reached. By combining assets in a particular way, every investor can create a portfolio which suits their personal investment objectives.

In future I will detail the process of effectively combining assets into a portfolio – ‘Portfolio Construction’.