Long Term Investment Options

If you are able to consider making a long-term investment, the first decision to make is whether you want your savings to provide you with income or growth, or a mixture of the two. Although many investments suit both these aims, some are particularly geared to producing an income while others will be better for producing a larger lump sum at a future date. You must also decide how much risk you are prepared to take on your investment - generally, the higher the risk, the greater the return over the long term.

Low to Medium Risk

With some investments you can be sure of what you get back, provided you hold the investment for a minimum period of time, although the value of your lump sum can fluctuate in the meantime. Long-term, medium-risk investments include:

• corporate bonds
• gilts (British Government Stocks)
• guaranteed income bonds (as above except that they guarantee to pay a fixed amount of monthly income for a fixed period of time)
• guaranteed growth bonds (offered by life insurance companies, these guarantee to return your lump sum plus a fixed amount of growth at the end of a fixed period)
• with-profits bonds (a unit-linked life insurance that offers a degree of certainty but not a guarantee. Your money grows by having bonuses added. Bonuses vary from year to year, which is why the return is not guaranteed).

Medium to High Risk

If you are happy to see the value of your lump sum go up and down, consider investments that provide capital growth - where the lump sum itself changes in value (as with shares) rather than growing by having interest added (as with money in a savings account). It's generally considered unwise to choose fluctuating investments if you can't lock your money away for at least five years. This is because in the short term there is a very real risk that you will get back less than what you put in. Options include:

• investment trusts
• corporate bond funds (investment funds that invest in corporate bonds)
• unit-linked insurance (like unit trusts with a bit of life insurance thrown in)
• unit trusts or open-ended investment company shares (OEICS, an investment fund that works like a unit trust)
• shares.

Variable, Fixed or Index-Linked?

The majority of investments pay a return that is variable, which means that the amount of money your investment pays you goes up and down in line with market conditions. However, if you want a degree of predictability, you can choose investments such as Savings Certificates from NS&I, where the return is fixed. This can work in your favour if, after investing, interest rates generally fall - but the reverse is true if they rise.

If you choose an index-linked return, the return is guaranteed to keep pace with inflation - usually with a bit on top. You won't normally get the highest return possible but you can be certain that your money isn't losing its spending power.