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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):

  1. contract note
  2. CHESS holding statement (Clearing House Electronic Sub-Register System)
  3. 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!

Investment tracker

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