Adapted from Investing For Dummies, UK Edition

All your money decisions, outside of putting your family fortune on a three-legged nag running in the 3:30, involve making up your mind as to where to put your money. Thousands of choices exist but you can cut that number down to just five basic investment opportunities:

• Cash. Many ways of investing your cash are available, including building society deposit accounts, online cash accounts, telephone banks, and postal accounts. With all these options, you swap a higher interest rate for some of the flexibility benefits that come with a very low interest-paying account.
• Property. The property you live in is probably your biggest financial project — assuming that you don't rent it from someone. Property beyond your home can also be a worthwhile investment.
• Bonds. A stock-market quoted bond is basically an IOU issued by governments or companies. Bonds issuers promise to pay a fixed income on stated dates and to repay the amount on the bond certificate in full on a fixed day in the future. In other words, you pay the government, say, £100, and the Treasury promises to give you £5 a year for the next five years and your £100 back in five years' time.
• Shares. Shares are what they say they are becomeemdash a small part of a bigger picture. Buying shares (also known as equities) gives you partial ownership of a company. You can own as little as one share, and if that's the case and the company has issued one million shares, you have a one-millionth stake in that enterprise.
• Alternatives. This investment area covers a rag-bag of bits and pieces. For some people, alternative investments concentrate on items you can physically hold, such as works of art, fine wines, vintage cars, antiques, and stamp collections. But for an increasing number of people, the term means hedge funds, which are about as esoteric as investment gets. Put simply, you hand over your money to managers who, by hook or by crook, hope to increase it.

Sound Tips for the Cautious Investor

If you think the time is right, you may want to try one or some of the following:

• A tracker fund. This type of fund follows a stock market index such as the FTSE 100 (the Footsie) up and down. This option is a good idea if you want to be in shares but have no idea which ones to buy or which fund manager to back.
• A no-lose fund. You put your money in a special fund, usually for five years. At the end of the specified time, you either get your money back without any deduction or, if the index has risen, your original money enhanced by the percentage rise.
• A bond fund. Your money goes into fixed-interest securities tied either to governments or companies.
• A distribution fund. This type of fund focuses on a mix of lower-risk shares, bonds, cash, and property.

Knowing Your Bonds From Your Shares

Lots of investors mention shares and bonds in the same breath, but there are plenty of differences:

• Shares are permanent. Once issued, they carry on until the company ceases to exist, either because it goes bust, is absorbed by another company, or buys back its own shares to cancel them out.
• Bonds usually have a fixed life, which is shown on the paperwork you get. You know when they'll stop paying you a regular amount and give back the original cash instead.
• Shares pay dividends, which can go down as well as up. Sometimes dividend payments are missed altogether. The rate of dividend depends on the profits of the company and what it needs to do with the cash it generates.
• Bonds pay interest. This interest is fixed whether the company is doing well or not. Bond interest must be paid before any share dividends are issued.
• Shares give holders a say in the company proportional to their holding. Shareholders are the legal owners of the company, and they get to attend an annual general meeting where they can quiz the board.
• Bondholders, in most circumstances, have no ownership or annual meeting voting rights. Bondholders are only active when the bond issuer (company or government) is in financial trouble.
• Share prices can be very volatile.
• Bond prices vary less from day to day.
• Shareholders have to worry about how well the company is doing. Share prices depend on profits.
• Bondholders have to worry more about credit risk becomeemdash the chance that a company will do so badly that it'll default on loan repayment or on an interest payment.

What to Look At When Selecting a Stockbroker

You may need to do some shopping around to find a stockbroker who's right for you. Areas to research include:

• Size of portfolio. Make sure that your personal wealth is well within the broker's parameters. If the broker wants a minimum £25,000, then having £25,001 isn't much help because you could easily fall below the line if markets turn against you. Ask what happens if your fortune shrinks either through bad decisions or because you choose to spend some of your money.
• Level of service. Consider the experience of your contact or account executive, as well as whether e-mail alerts and regular newsletters or other forms of stock recommendation will be sent out. Find out whether the broker offers a portfolio based on unit trusts, investment trusts, or exchange traded funds.
• Costs. This shouldn't be your first consideration, but it's essential all the same. Excessive costs can wipe out gains from a clever investment strategy. Very excessive costs can turn good decisions into instant losses.
• Protection from churning. Unscrupulous brokers try to earn more from your investments by over-frequent buying and selling. You could agree to a limit on their trading activity.

What Fund Managers Can Do for You

Fund management companies will perform a number of useful tasks if you're a hands-off investor:

• They carry out all the purchase and sales dealing with stockbrokers, taking advantage of economies of scale.
• They deal with all the paperwork associated with dividends.
• They take care of taxation within the portfolio.
• They offer access to a diversified portfolio for a small sum of money.
• In some cases, they make asset allocation choices, such as moving from shares to bonds.
• They provide you with the comfort factor of being able to blame someone else if your investments head nowhere.