The risks and rewards of 7 diverse investment account types every investor may be considering

It’s a bit of a minefield out there when it comes to investing and protecting your money. So what are the options for investing and what are the are the pros and cons of each.

1. Stocks and Shares ISA

No diverse investor should be without a stocks and shares ISA Account.

Advantages of stocks and shares ISA accounts:

  • No tax on profits. You don’t have to pay any capital gains tax on profits made from share price increases. …
  • No tax on interest earned on bonds. So you get to keep it all.
  • No tax on dividend income. Inside an ISA, you don’t pay tax on dividends

Disadvantages of stocks and shares ISA accounts:

  • Your investment can fall in value and are subject to stock market volatility
  • Charges can be high. Make sure you compare stock brokers to keep fees low.
  • Some ISA accounts have limits on what you can put in them
  • There is max you can invest in a stocks and shares ISA

Compare stocks and shares ISA accounts here

2. Equity Crowdfunding

Equity crowdfunding platforms enable private investors to invest in unlisted growth and start-up companies.

Advantages of equity crowdfunding:

  • Invest from as little as £10 through an equity crowdfunding platform
  • Potentially invest in the next faFacebookGoogle or Apple
  • Substantial returns possible if a company successfully exits

Disadvantages of equity crowdfunding:

  • Very high high-risk of investing as many companies are not profitable
  • Difficult to sell shares as they are not listed on any public exchange
  • Crowdfunding industry whilst regulated by the FCA is still in it’s infancy

3. Debt P2P Crowdfunding

Debt crowdfunding offer a type of exchange to pool funds and lend to a broad range of individuals and businesses.

Advantages of debt crowdfunding:

  • Higher interest rate than bank savings accounts
  • Some debt crowdfunding platforms offer a secondary market to exit loans early
  • Lend money to a diverse range of borrowers

Disadvantages of debt crowdfunding:

  • No equity offered in exchange for capital so returns are limited to interest payments
  • Many loans are to start-up or growth companies who have a higher risk of default
  • Funds are not protected by the FSCS

Compare debt crowd platforms here

4. Social Trading

Social trading brokers allow investors to make money by automatically copying the trades made profitable traders.

Advantages of social trading:

  • Earn money as either a trader or a follower
  • Social trading platforms display performance tables of profitable traders to follow
  • Trade on margin to increase the reach of your capital

Disadvantages of social trading

  • If you follow an unprofitable trader you will lose money
  • Trading on margin means you can lose all or more than your account balance
  • Performance tables show past performance which is not a guarantee of future profits

Compare social trading accounts here

5. Spread Betting/CFD/Forex Trading

Spread betting brokers allow customers to bet on the performance of stocks, indices, currencies, commodities and fixed income products.

Advantages of spread betting/CFD/Forex trading:

  • Profits are free of capital gains tax through a spread betting broker
  • The ability to go short can be used to hedge exposure of an existing portfolio
  • Leverage trading means you can free up risk capital and trade on margin

Disadvantages of spread betting/CFD/Forex trading:

  • You cannot offset losses against other capital gains
  • It is possible to lose more than your account balance
  • Trading on margin is a very high risk of investing

Compare CFD, spread betting or Forex accounts by clicking the links

6. Currency Broker

At some point, all investors will have exposure to foreign exchange. Currency accounts allow customers to convert money and send it abroad at a fraction of the cost of using a bank account.

Advantages of a currency broker

  • Save up to 4% on foreign exchange compare to your bank with better exchange rates
  • Lock in an exchange rate for up to a year in advance
  • Personal service and expert advice from experienced dealers

Disadvantages of a currency broker

  • Funds not protected by the FSCS
  • Currency brokers are registered with the FCA rather than authorised and regulated

Compare currency brokers here

7. SIPP Accounts

If you want to manage part of your pension yourself you can open a SIPP (Self Invested Personal Pension)

Advantages of SIPP accounts:

  • Enables you to take control of part of your retirement pension
  • Provide significant tax relief over standard investment accounts
  • You can include an investment portfolio such as shares, trusts and property (excluding residential)

Disadvantages of SIPP accounts

  • Standard pension early withdrawal limits
  • You can potentially overtrade and take with products like CFDs
  • If you trade a lot your costs could be potentially higher than a low turnover pension

Compare SIPP accounts here

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