Guide to investments

Finding yourself with a large sum or some spare money each month is a nice feeling, but what do you do with it? Spend it, save it in a bank account where it's safe - or invest it where it has more opportunity to grow?

If you decide to invest your money, you should be aware of the risks involved. There's often no guarantee that you'll make any money or even get back the amount you invested in the first place.

Investment plans normally invest in one or more types of asset classes (such as equities or bonds) and the level of risk involved usually depends on what asset class or range of assets you're invested in.

But within the same asset class there can be different risk levels. For example, the shares of large companies are generally considered to be less risky than the shares of smaller companies.

If you invest in funds that aren't denominated in sterling, the value of these funds will also go up and down according to changes in exchange rates.

Some investment plans are designed to reduce risk. They can do this in a number of ways, such as investing in a broad spread of asset classes or only investing in those asset classes with a lower level of risk.

It's up to you to decide on the level of risk you're prepared to take. Companies which sell and advise on investment products will give you clear warnings of the associated risks.

Deciding to invest your money, rather than leaving it in a bank savings account, usually depends on your attitude to risk and how much access to your money you need.

If you're risk averse, and want to get your hands on your money at short notice, you could be better sticking with a savings account.

But if you're looking for greater investment variety, and the potential for higher growth, there's a range of investment products for you to choose from.

There are generally two main reasons why people invest - to let their money grow or to use their investments to generate an income.

Investing for growth means aiming to achieve the best possible return on your investment, consistent with the level of risk you’re prepared to take. Equity funds and commercial property bonds are generally considered to offer the greatest opportunity for growth.

Many investment products let you structure your investment to match your own risk profile by investing in a balanced portfolio of equities, government and corporate bonds, property and cash.

People who are in or approaching retirement often have a lump sum to invest. This could be from a pension scheme or perhaps the profit from the sale of a house. Typically, they'll be looking for an investment which pays out regular amounts without too much risk to their capital.

Cash deposits and government bonds can both be used to generate income payments. Cash deposits give little or no investment risk, while government bonds are considered to be low risk investments.

Investment products usually invest in one or more asset classes. The asset classes you'll come across most often are:

• Cash
• UK Government bonds
• Corporate bonds
• Equities

Cash is generally considered to be the safest of the asset classes. Cash funds pay a rate of interest which can go up and down daily. Cash funds are often invested in bank deposits and are generally regarded as safe.

However, the returns you receive might not be very attractive over the long term.

These are sometimes called gilts or gilt edged securities, and are loans to the UK Government. The UK Government (as the issuer of the bond) agrees to pay a fixed rate of interest and to repay the loan at the end of a fixed term.

UK Government Bonds are relatively secure since the interest rate is fixed. However, the actual price of the bond can go up and down.

These are similar in structure to government bonds but they're issued by companies. These are generally riskier than government bonds but carry the potential for higher returns.

There are different categories of corporate bonds. Investment grade bonds are judged to be very likely to meet their payment obligations. Riskier high yield, or junk, bonds are not.

Often referred to as stocks and shares, these are shares in companies. Shares are traded on stock markets and the share price can go up and down on a daily basis. Companies usually pay a dividend to share holders.

Equities are generally considered to be the riskiest mainstream asset class. Overseas Equities provide some spread of risk but add currency risk.

There are a number of different types of lump sum investment products available. The main ones are:

• Individual Savings Accounts (ISAs)
• Investment trusts
• OEICs (Open Ended Investment Companies)
• Investment bonds
• Structured products

Stocks and shares ISAs let you invest up to £10,200 a tax year. You don't pay any personal tax on the growth in value of an ISA. More on stocks and shares ISAs in our ISA guide

These are companies which exist solely to invest in the shares of other companies. Shares in investment trust companies are traded on stock markets. Returns on these investments are normally subject to capital gains tax.

These are a type of collective investment scheme and fund management companies usually run them. Your investment buys you shares in these schemes. The price of the shares can change daily, up or down, according to changes in the value of the assets they're invested in.

One advantage which OEICs have over investment trusts is that they can invest in different asset classes such as bonds and property. In this way they can spread the investment risk. Returns on these investments are normally subject to capital gains tax.

These are really life assurance plans with a large investment element. Like OEICs, they give you the opportunity to invest in a range of asset classes at the same time, spreading your investment risk. Returns on these bonds are normally paid net of basic rate income tax.

These are usually fixed term investment products which offer performance related to equity returns but aim to provide protection of the original amount invested as long as you keep your money invested for the full term. Returns on these investments are normally subject to capital gains tax.

• How can I keep track on the value of my investments?
• Are there any limits to how much I can invest?
• Can I get my money back whenever I want?
• Why should I invest rather than put money in the bank?
• I'm looking for more adventurous investments such as individual company shares and spread betting. Where can I get help?
• Where can I get some advice about the right investments for me?

A. Depending on what type of investment product you've selected, you may be able to find the unit or share price published in a number of national newspapers or online. You are also likely to receive a statement at least annually which shows the value of your investments.

A. If you're investing in a stocks and shares ISA, the limit is £10,200 each tax year. See the ISAs made easy guide for more information on ISA limits. There are usually no upper limits on other types of investment product. Most investment products will have a minimum investment level.

A. Normally, yes you would get back the current market value of your investment, minus any applicable exit penalties. It's important to remember the market value of your investment may be less than you invested, and also that investments are typically recommended for a term of at least 5 years. If you’ve invested in a fixed term product you may not get all your money back if you cash it in before the maturity date. To help decide if an investment term is right for you, you can discuss the recommended term with a Financial Planning Manager.

A. Bank savings accounts offer greater capital security, however it's worth remembering the effect of inflation on the real value of cash over the long term. Other investment products don't usually offer this level of security but can carry the opportunity for greater rewards.

Generally speaking, higher risk products offer a higher reward potential and work best when you can keep your money invested for five years or more. Finding the right balance between saving and investing will depend on your needs and your attitude to the risks and potential returns involved.

A. NatWest Stockbrokers offer a range of services to investors who want to access global stock markets and specialist investment products. NatWest Stockbrokers

A. NatWest's Financial Planning Managers can give you a no obligation financial planning review. They will look at your existing investments, your attitude to risk and your investment aims.