Unit 3
Risk and return; Selecting a mix of investments; Maintaining records and monitoring investments
Table of Contents
Rate of Return
The profit you receive on your investment as a percentage of the original investment.
Profit from the
investment 100
Rate of return = ––––––––––––––––– x ––––––––––––––––––
Original Period (years)
investment of investment
There are two types of investment:
- Growth assets (e.g shares and property) – higher return, higher risk
- Income or defensive assets (e.g government bonds and term deposits) – lower return, lower risk
Every asset’s price will fluctuate. This is the risk of investing – the higher the return, the greater the risk.
An investment portfolio is all the investments an individual has.
Selecting a mix of investments
Diversifying a portfolio is important. Different investment types perform well at different times. If you put all your eggs in one basket you might lose money!
Maintaining records and monitoring investments
There are three main records shareholders need to prove ownership of shares (incl. for taxation purposes):
- contract note
- CHESS holding statement (Clearing House Electronic Sub-Register System)
- Dividend statements
Buying and selling shares for a profit is subject to Capital Gains Tax. It is also important to monitor investments so you can sell and buy for the best price. You can complete an investment tracker such as the one below to monitor investments. Usually this is done every month but some investors do this every day!
