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To help you make the most of your money and ensure that you choose the right investment for your particular needs and situation, Know Your Money has compiled a helpful rundown of the main types of investment available on the market.

Cash investments

- Building Societies
Building societies work like banks, except that in principle the amount you pay into your account buys you an equivalent share in the society itself.

They are traditionally the place where long-term savings are deposited, although many have demutualised to become banks and many banks offer savings accounts which compete with the classic building society portfolio.

- Interest available vs. time
It may be worth considering how urgently you need to see a return on your investment, as well as how immediately you need to be able to access it.

Some savings accounts offer a higher rate of interest but will only pay out in a month when you do not make a withdrawal, or will charge for drawing money out without observing a notice period.

Property Investments

- Pros
Investment property is generally considered to be a safe direction for long-term results. From an initial outlay, it can be possible to realise a good return with little risk.

While it is possible that house prices will fall, it is still likely that rental income will outperform mortgage costs, keeping the overall investment in the black.

- Cons of buy-to-let
Buy-to-let mortgages are taken out on a property which you do not live in, but have bought purely to rent out. There is a perceived risk that the house may stand empty, so most lenders will charge extra on a buy-to-let mortgage or ask for a higher initial deposit.

If you own your own home outright, it may be possible to remortgage in order to raise the funds for property investment without incurring the higher cost of buy-to-let.

- Factors that influence house prices
House prices are affected both on a national and a regional scale. The quality of the area in which the property is situated may have an impact on its saleability and desirability.

However, as rent is likely to be in proportion to the value of the house, the overall return on investment may be the same. Interest rates will affect prices nationally, so it may be worth checking the state of the economy before buying a house.

- Commercial property
Investment in commercial property may be more secure than residential letting, for a number of reasons.

First, it is possible that commercial tenants will sign long-term contracts over a number of years, rather than the one-year contracts usually signed by residential tenants.

Second, commercial tenants may be held responsible for repairs, whereas the landlord will generally repair residential properties. v Third, income from commercial property is typically based on rent, whereas a proportion of return from residential is based on capital gains from increased house prices.

Investment Bonds

- What are bonds?
Investment bonds are available from a variety of sources and in a variety of different formats. Banks will generally offer an investment bond which simplifies the process of investment and may be linked to the stock market.

Meanwhile, the government provides national savings and investments, including premium bonds, which do not pay interest but instead award monthly tax-free prizes of up to £1 million.

- Pros/cons
Any investment which is linked to the stock market has the potential to decrease in value. This is obviously risky, so it may be worth thinking carefully before committing to such a scheme.

While premium bonds are tax-free and risk-free, guaranteeing you can recoup your initial investment at any time, they do not pay interest and there is no guarantee of winning.

Shares

- How The Stock Market Works
The stock market represents the price people are willing to pay for a certain share in a company. Rather than being based on the assets a company owns, it is based on continuing profits. As such, the price of any shares you own will increase if the value of the company goes up.

- Markets
There are a number of different stock markets around the world, but the main ones are in New York and London. Stock exchanges are companies too, providing buying and selling services in one location, as well as reporting on the latest share prices.

- How to choose a stockbroker
Stock brokers handle share deals so you don't have to, which avoids trips to and from the stock exchange or private dealings with companies. Brokers are available depending on how much involvement you want in the process, the methods of access you want with your broker and the kind of investments you want to try.

Alternative Investments

- Spread betting
Spread betting is buying a share or product at a certain price and selling it at a different price, with the 'spread' the difference between the two. If the sale price is higher, you make a profit. If the purchase price is higher, you make a loss. As always, such a risk may only be wise if you can afford to make some losses over the course of your investment.

- Hedging
Hedging is when an investor chooses complementary products in which to place their money, with the intention that if one should perform badly, the others will compensate for the loss.

- CFDs
A CFD (contract for difference) is a method of investing in a market proposition without actually owning any shares in it. It offers similar characteristics to a traditional stock, but will usually incur a daily handling cost rather than charging stamp duty.

- Risks
Almost all investments will carry a risk of some form. It is the price you pay for a high rate of return. As always, it may be worth considering the impact any losses are likely to have on you and adjusting your investment portfolio accordingly.

Collective Investments

- Funds
Funds usually track a particular index or sector, such as the FTSE100, which is based on the leading 100 shares in the stock market. The price is based on the overall amount invested in the fund by everyone concerned and, as usual, can go up or down. Unlike most shares, there is no stamp duty to pay on transactions, only stockbroker commission.

- Unit trusts
Unit trusts are similar to funds, except that they have a fund manager who decides what to invest in. The trust is split into units, each of which has a price related to the overall investment. There is a charge, usually about five per cent, between the purchase price per unit and the sale price at any one time.

- Investment trusts
An investment trust represents an investment in a company whose sole business is to invest in others. In effect, you are giving the company your money to invest on your behalf. However, as more people do so, the risk of loss is spread between all investors and your own personal risk is limited accordingly.

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