So what type of investment suits you? Before you can decide, you will have to ask yourself a series of questions in order to ascertain what you want from the product you are buying.

The first step is looking at risk.

Your approach to risk

No investment is completely risk free so before you invest you will need to decide how comfortable you are with the prospect of losing some or even all of your money.

Although you cannot eliminate risk from your investments, you can manage it by having exposure to a broad range of assets, the principle of not putting all your eggs in one basket always applies and is very wise advice. The experts call this diversification and it involves splitting your money up and investing in a variety of financial products in the hope that losses suffered by some will be balanced out by gains made elsewhere.

The following are types of investments which could be considered by those with different risk appetites.

Lower-risk investors

These are people who prefer to put their money in safer investments, as they are concerned about losing their money. There is no such thing as a completely safe investment, but lower-risk products include deposit and savings accounts, National Savings, government bonds and gilts as well as guaranteed investment products that protect your original investment.

Medium-risk investors

These are people who accept that they will have to embrace a certain level of risk in order to have a chance of growing their nest egg but do not feel comfortable about putting all their money into funds that focus on more volatile areas of the world. They might choose UK income funds, funds which track particular stock markets and corporate bond funds.

Higher-risk investors

Higher risk investors are people who want to generate the highest possible returns on their investment and to that end are happy to run a significant risk of losing the lot in unfriendly market conditions. They might invest in emerging markets, commodity funds such as oil and metals and even consider derivatives (investing in parts of shares) or high risk hedge funds.

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