Shares or Bonds?

By Paul Warren
In August 6, 2018
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One of our specialisms at Redwood Financial is helping our Clients invest their wealth. By becoming investors, they own shares or bonds in a portfolio of businesses in the hope that they will grow in value and provide a return greater than the original investment they made. Certainly, they want their portfolio of shares and bonds to create more than the interest they would receive by putting the money into a bank deposit or National Savings account.

 

What is a Share?
When you by a share, you are providing a sum of money to a company which they, in turn, can spend as it sees fit. Essentially, you are becoming the owner of a small part of the company. When a company needs to raise more capital it can choose to sell more shares.

When you purchase shares you are undertaking a level of risk with your cash, as the value of the share you hold can go up as well as down depending on the performance of the business and indeed the general stock markets performance. The company does not have to pay the money back, however, you can sell your share on to someone else when you need the cash.

Investors appreciate they might get some of the return from the dividend income, and some through the capital gains they hope to make if the shares go up. Owning a share usually gives you the right to any dividend the company declares, and the ability to sell it again to someone else when you want your money back.

Shares are fairly risky investments, that’s why people usually own a portfolio of shares. By spreading the risk across a number of different investment options, investors can help to reduce the risk of not getting all their investment decisions right. If you own a spread of shares you will get a performance closer to the index. The index can go up and down a lot but it should not go to zero or go bankrupt.

What is a Bond?
Some investors are more risk averse than others but still want to growth rates that better than just keeping their money in a bank with deposit interest. This is where Bonds come in. Instead of providing buying shares in a company, you lend money to a company or a government. This is called a Bond.

You can buy and sell small parts of a big loan to a government or company as you see fit. When you buy your bit of the loan the market price you pay will determine how much income you receive as a shareholder.

There are still risks with Bonds, however, you can purchase a bond which is far less risky. At Redwood, we would always recommend that you should seek professional advice before embarking on investments into Shares or Bonds.

Redwood Financial is one of the souths leading Investments, Pensions, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of investments, pension and financial wealth planning, we can advise on any situation. Join us at one of our Free Public Information Seminars: Book online Book Me A Place!,Call us on 01489877 547 or Email info@redwoodfinancial.co.uk to book a FREE Initial Meeting with us to review your financial planning needs.

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