Types of Investment

There are many kinds of investment a self-directed investor can use. We leave aside insurance-style and annuity products, which fall outside ShareSoc’s remit. Our purpose is to support investors who want to avoid the fees and opaque structures such products usually carry.

The instruments below are roughly ordered from lowest to highest risk. Each has its own section further down this page.

1. Cash and bank deposits. These are secure up to the compensation limit. They are the right home for emergency funds and cash awaiting investment.
2. Government securities (gilts). UK government debt is about as safe as investment gets, provided you hold to maturity.
3. Corporate bonds. These are loans to companies. They pay more than gilts because the issuer can default.
4. Shares (equities). You own part of a business. ShareSoc focuses on direct share ownership, and most of the Investor Academy covers it.
5. Collective investments. Funds and investment trusts pool money to buy shares, bonds or other assets.
6. Property. You can own it directly or through listed companies and funds.
7. Peer-to-peer (P2P) lending. You lend to individuals or businesses through an online platform.
8. Structured products. These are packaged bets on an index or share, with returns set by a formula.
9. Derivatives. Options, futures, contracts for difference (CFDs) and spread bets. They are mostly leveraged and mostly unsuitable for beginners.
10. Precious metals. Gold and silver produce no income, so it is debatable whether they are investments at all.
11. Alternative investments. This covers everything else, from venture capital trusts to crypto, wine and art.

1. Cash and bank deposits. These are secure up to the compensation limit. They are the right home for emergency funds and cash awaiting investment.
2. Government securities (gilts). UK government debt is about as safe as investment gets, provided you hold to maturity.
3. Corporate bonds. These are loans to companies. They pay more than gilts because the issuer can default.
4. Shares (equities). You own part of a business. ShareSoc focuses on direct share ownership, and most of the Investor Academy covers it.
5. Collective investments. Funds and investment trusts pool money to buy shares, bonds or other assets.
6. Property. You can own it directly or through listed companies and funds.
7. Peer-to-peer (P2P) lending. You lend to individuals or businesses through an online platform.
8. Structured products. These are packaged bets on an index or share, with returns set by a formula.
9. Derivatives. Options, futures, contracts for difference (CFDs) and spread bets. They are mostly leveraged and mostly unsuitable for beginners.
10. Precious metals. Gold and silver produce no income, so it is debatable whether they are investments at all.
11. Alternative investments. This covers everything else, from venture capital trusts to crypto, wine and art.

This ordering is a guide, not a rule. A well-diversified portfolio of large-company shares is probably less risky than a single corporate bond from a weak issuer. A gilt bought at a high price and sold before maturity can lose money.

Cash and Bank Deposits

Bank and building society accounts are the most familiar home for money, and the most secure up to the compensation limit.

If a UK-authorised bank fails, the Financial Services Compensation Scheme (FSCS) repays eligible deposits up to £120,000 per person, per banking licence. That limit rose from £85,000 on 1 December 2025. Brands that share one licence share one limit, so check before spreading money between them.

With Bank Rate at 3.75%, competitive savings accounts now pay a meaningful return. Over long periods, however, cash has lagged inflation, and it offers no prospect of capital growth.

Cash is best used as:

• an emergency reserve for short-term needs;
• a temporary home for money waiting to be invested; and
• a reserve to buy shares when markets fall sharply. Markets are unpredictable in the short term, so it is wise to keep some cash available.

Interest is taxable above the personal savings allowance unless the money is in a cash ISA. From April 2027, under-65s will be limited to £12,000 a year in cash ISAs, within the overall £20,000 ISA allowance.

Government Securities

UK government bonds are known as “gilts”, short for gilt-edged securities, and are the main way the government borrows. The UK has borrowed in this way since 1694 and has never failed to pay interest or repay a gilt when due. Holding a gilt to maturity is therefore close to risk-free in cash terms.

Gilts are priced per £100 of “nominal” (face) value, though you can buy any amount. Each has a fixed redemption date, when the nominal value is repaid. Most pay a fixed “coupon”, an annual interest rate on the nominal value, in two instalments six months apart.

Index-linked gilts adjust both the coupon and the redemption amount for inflation. They protect purchasing power, but their market prices can be more volatile than those of conventional gilts.

The repayment is only certain if you hold the gilt to maturity. Gilt prices move with interest rates, falling when rates rise, so selling early can mean a loss. Long-dated gilts are the most sensitive: some fell by more than half in value between 2020 and 2023.

The price you pay matters. A gilt bought “above par” (for more than £100) still repays only £100, so part of the coupon effectively returns your own capital. The figure to compare is the “yield to maturity” (YTM), the annual return if you hold to redemption. It allows for the price paid, every coupon and the final repayment. Our compound interest page links to tools that calculate it.

Gilts have two tax advantages:

• Gains are exempt from capital gains tax. Coupons are taxable as savings income, so low-coupon gilts bought below par can be tax-efficient for investors outside an ISA or pension.
• Gilts can be held in a stocks and shares ISA or a self-invested personal pension (SIPP).

Gilts are bought and sold through a stockbroker, much like shares. For official information, see the UK Debt Management Office.

Corporate Bonds

Corporate bonds work like gilts: they pay a regular coupon and promise to repay the principal on a set date. The difference is who stands behind the promise. A company can run out of money and “default”, failing to pay interest or repay principal.

Investors therefore demand a higher yield from companies than from the government, and the riskier the issuer, the higher the yield. Credit rating agencies grade bonds. Those rated below BBB– are called “sub-investment grade”, “high yield” or, less politely, “junk”.

The gilt points above apply here too. Prices move with interest rates, and above-par purchases repay only par. Sterling bonds that count as “qualifying corporate bonds” are also exempt from capital gains tax.

Private investors can buy many bonds through a stockbroker. That includes “retail bonds” listed on the London Stock Exchange’s Order Book for Retail Bonds, which trade in small denominations.

Beware “mini-bonds”. These are unlisted IOUs that usually cannot be sold before maturity, sold directly by small companies or their promoters. They are not corporate bonds in the normal sense. They are not covered by the FSCS, and investors lost heavily when London Capital & Finance collapsed in 2019.

What happens if the company fails?

In a UK insolvency, assets are distributed in a fixed order of priority, broadly:

1. Fixed-charge holders, usually banks with security over specific assets, are paid from the proceeds of those assets.
2. Costs of the insolvency, including the administrator’s or liquidator’s fees.
3. Preferential creditors. Ordinary preferential claims are mainly employees’ arrears of wages, holiday pay and pension contributions, within limits. Since December 2020, HMRC has also been a secondary preferential creditor for VAT and for taxes the company deducted, such as PAYE.
4. Floating-charge holders. A “prescribed part” of up to £800,000 is first set aside for unsecured creditors.
5. Unsecured creditors. This includes most bondholders and suppliers. Senior bonds rank ahead of subordinated (junior) bonds, which is why junior bonds pay more.
6. Shareholders. These are not creditors and are paid only if every creditor is repaid in full. Preference shareholders come before ordinary shareholders.

In most insolvencies, unsecured creditors recover only a fraction of what they are owed and shareholders get nothing. Before buying a bond, read the prospectus to see which other debts rank ahead of it, and whether the company can add more.

Preference shares and perpetual bonds

These two are often confused.

• A perpetual bond is debt with no repayment date. It pays interest indefinitely, and you get your money back only by selling it in the market.
• A preference share is equity, not debt. It usually pays a fixed dividend ahead of ordinary dividends, but the company can normally skip it without defaulting. “Cumulative” preference shares carry missed dividends forward. In a winding-up, preference shares rank after all creditors.

Shares

A share is a part-ownership of a company. It entitles you to a share of the profits paid out as dividends, and to vote on matters such as board appointments. Over long periods, shares have delivered higher returns than cash or bonds. In exchange, prices can fall sharply and stay down for years, and an individual company can fail altogether.

UK-listed shares trade on the London Stock Exchange’s Main Market or on AIM, its market for smaller and growing companies. AIM companies face lighter regulation, which brings both more opportunity and more risk.

How you hold shares matters. Most UK platforms hold them in a nominee account, so the nominee, not you, is the legal owner. That can make it harder to vote and to attend company meetings. See our pages on nominee accounts and personal CREST accounts for the alternatives.

Outside an ISA or pension, dividends above the £500 annual allowance are taxed. From April 2026 the rates are 10.75% for basic-rate and 35.75% for higher-rate taxpayers. Gains above the annual exempt amount are subject to capital gains tax.

Click here for a fuller explanation of shares, equities and stocks.

Collective Investments

A collective investment pools many investors’ money in a portfolio run by a professional manager. It offers diversification and convenience, at the cost of ongoing fees and of giving up direct control and voting rights over the underlying holdings. The most important distinction is between open-ended and closed-ended funds.

Open-ended funds and illiquid assets

If many investors want their money back at once, an open-ended fund must sell assets quickly. For listed large-company shares that is easy. For property or small unlisted companies it may be impossible, so the fund suspends dealings and investors are trapped.

UK property funds suspended dealings in 2016 and again in 2020. The LF Woodford Equity Income Fund was suspended in 2019 and investors lost heavily; see ShareSoc’s Woodford campaign. In our view, open-ended funds are a poor vehicle for illiquid assets. Long-term asset funds (LTAFs), designed for illiquid assets with long notice periods, can be held in stocks and shares ISAs from April 2026.

Investment trusts

Investment trusts are a particular type of closed-ended investment company. If a company meets the conditions for approval as an investment trust, it pays no UK tax on gains made within its portfolio. Investors are therefore not taxed twice: once inside the trust and again when they sell their shares.

Because the share price is set by the market, a trust can trade at a discount to the value of its assets, which can be an opportunity or a trap. Gearing magnifies gains and losses. Shareholders can vote against the board, which makes trusts the collective investment most aligned with ShareSoc’s view of shareholder rights. More on investment trusts.

ETFs and index funds

Passive funds track an index rather than trying to beat it, and usually charge a fraction of the fees of actively managed funds. “Physical” ETFs hold the index constituents. “Synthetic” ETFs use derivatives and so carry counterparty risk. Exchange-traded notes (ETNs) and commodities (ETCs) look similar but are debt securities issued by a bank or specialist issuer, not funds.

Costs

Charges compound over time, so always compare the total ongoing cost, including transaction costs, not just the headline management fee. ShareSoc has campaigned for clearer and fairer cost disclosure; see our consultation responses.

Derivatives

A derivative is a contract whose value depends on the price of something else, such as a share, an index, a currency or a commodity. Experienced investors use derivatives to hedge risk or to take a position cheaply. Most products marketed to private investors, however, are built for short-term trading, not investment.

The main types are:

• Options. The right, but not the obligation, to buy (a “call”) or sell (a “put”) at a fixed price before a set date. A buyer can lose only the price paid; a seller can face large losses.
• Futures. An obligation to buy or sell at a fixed price on a future date, traded on an exchange.
• Contracts for difference (CFDs) and spread bets. These pay the change in an asset’s price without your owning it, usually with borrowed money (“leverage”). Spread-betting profits are free of UK tax because they are treated as gambling. Losses can exceed the money deposited.
• Covered warrants and turbo certificates. These are listed, leveraged products issued by banks, so you also carry the issuer’s credit risk.

Leverage is the central danger. With 5:1 leverage, a 20% price move against you wipes out your stake. FCA rules cap the leverage that can be offered to retail clients, and since January 2021 crypto derivatives cannot be sold to them at all.

CFD and spread-bet providers must also state the percentage of their retail accounts that lose money, which typically runs at well over half. ShareSoc’s view is that leveraged trading is speculation, not investment, and is unsuitable for anyone who has not first mastered direct share investment.

Structured Products

A structured product pays a return set by a formula linked to an index, such as the FTSE 100, or a basket of shares. A typical “autocall” or “kick-out” plan, for example, pays a fixed amount if the FTSE 100 is at or above its starting level on an anniversary date. If the index has fallen by more than, say, 35–40% at maturity, capital is lost.

The main risks are:

• Counterparty risk. Most are “structured notes”: unsecured debts of the issuing bank. If the bank fails, you can lose your money whatever the index does, as investors in Lehman Brothers-backed plans found in 2008. Structured notes are not covered by FSCS deposit protection. “Structured deposits”, issued as bank deposits, are.
• Complexity and hidden cost. The bank’s margin is built into the terms rather than shown as a fee, which makes value hard to judge.
• Missing dividends. The return is usually linked to the index level alone, so you give up the dividends you would receive by owning the shares.
• Liquidity. Plans are designed to be held for their full term, and early exit is usually at a disadvantageous price.

An investor comfortable with the risk of the underlying index can often do as well, more transparently, with a low-cost index fund and some cash.

Property

Property produces income from rent and may grow in value over time. Investors can own it in three main ways.

• Directly, for example a buy-to-let flat. You control the asset, but it is costly to buy and sell, illiquid, concentrated in a few properties, and hard work to manage. Buy-to-let has also become less attractive as tax changes have restricted mortgage-interest relief.
• Through listed property companies and real estate investment trusts (REITs). REITs must distribute most of their rental profits as dividends and pay no corporation tax on them. They trade daily on the stock market and can be held in an ISA. Like investment trusts, they often trade at a discount or premium to their asset value.
• Through open-ended property funds. As explained under Collective Investments, these have repeatedly suspended dealings when investors rushed to withdraw. Listed REITs or property investment trusts avoid that mismatch.

Property is sensitive to interest rates: higher rates push up borrowing costs and the yields investors demand, which lowers values. Commercial property also faces long-term shifts in how offices and shops are used.

P2P Lending

Peer-to-peer (P2P) platforms let investors lend directly to individuals or businesses, often secured on property, for interest typically above what savings accounts pay. P2P platforms have been regulated by the FCA since 2014. Since December 2019, they have been allowed to market to new retail investors only after an appropriateness check, and only if those investors put no more than 10% of their investable assets into P2P.

The risks are greater than the advertised rates suggest:

• No FSCS protection. This is not a deposit, and lenders bear any losses on bad loans.
• Platform risk. If the platform itself fails, recovering loans can take years and can be costly.
• Liquidity. Getting money out early depends on other lenders buying your loans, and secondary markets have frozen in difficult conditions.
• A shrinking market. Several of the best-known platforms have stopped taking retail money. The sector is now small and concentrated in property-backed lending.

P2P loans can be held tax-free in an Innovative Finance ISA. Always check that a platform is authorised on the FCA register before investing.

Precious Metals

Gold and silver pay no interest or dividends, so any return comes entirely from changes in price. For that reason it is debatable whether they count as investments. Gold has nonetheless been a store of value for millennia and tends to do well in periods of high inflation, currency weakness or financial stress. Some investors hold a small amount as insurance.

The main ways to hold them are:

• Physical coins and bars. Investment-grade gold is free of VAT. UK gold coins that are legal tender, such as Sovereigns and Britannias, are also free of capital gains tax. Silver normally attracts 20% VAT, which the price must recover before you make a profit. Physical metal must be stored and insured, and dealers’ buying and selling prices can differ widely.
• Exchange-traded commodities (ETCs). These are listed securities backed by metal held in a vault. They are cheap to deal in and can be held in an ISA, but gains are subject to capital gains tax outside one.
• Mining shares. These are geared to the metal price but bring the risks of an operating business. They can fall even when the metal price rises.

Alternative Investments

“Alternative investments” is a catch-all for assets outside the categories above. They are usually higher risk, harder to value and harder to sell.

• Venture capital trusts (VCTs). These are listed funds investing in small, growing UK companies, with tax incentives: income tax relief on new shares held for five years, plus tax-free dividends and gains. The relief fell from 30% to 20% from 6 April 2026. Shares often trade at wide discounts and are hard to sell, so the tax relief should be seen as compensating for real risk. See ShareSoc’s VCT Investors Group.
• EIS and SEIS. These give income tax relief of 30% and 50% respectively for direct investment in qualifying unlisted companies. Many such companies fail, and the shares are rarely saleable.
• Unlisted shares and equity crowdfunding. Information is limited, minority shareholders have little protection, and an exit may never come.
• Cryptoassets. These are highly volatile, produce no income, and most are entirely unregulated in the UK, so you have no FSCS cover or recourse if a platform fails. Since 8 October 2025, retail investors have been able to buy crypto exchange-traded notes (cETNs) on UK-recognised exchanges. A cETN is a debt of its issuer, not ownership of the coins. From 6 April 2026, new cETNs can be held tax-free only in an Innovative Finance ISA, not a stocks and shares ISA. Scams are rife: see our page on investment scams.
• Collectibles such as wine, art, classic cars, stamps and watches. These generate no income, carry storage, insurance and dealing costs, and depend on specialist knowledge. They are also a favourite of fraudsters.

If you are offered an alternative investment with high “guaranteed” returns, treat that as a warning sign, not a selling point.

A Note on Tax Wrappers

An ISA or pension is not a type of investment but a tax-efficient container that holds investments. Most of the instruments above can be held in one.

• Individual Savings Accounts (ISAs). These have a £20,000 annual allowance across cash, stocks and shares, and Innovative Finance ISAs. Income and gains inside are tax-free. From April 2027, under-65s will be limited to £12,000 a year in cash.
• Self-invested personal pensions (SIPPs). Contributions receive tax relief, but the money is normally inaccessible until 57 from 2028 (55 now).

The choice of wrapper is often as important as the choice of investment.

To learn more about different types of investment, try our SHARESOC Investing Basics series, and read Investment dos & don’ts before committing money.

This page is general education, not personal advice. Tax treatment depends on individual circumstances and may change.