Equities invest in company shares. They are an important component in a portfolio as they have traditionally produced good long-term growth. They produce returns either through paying dividends to shareholders or through capital growth in the share value. In the short term as the value of shares can rise and fall quite dramatically, higher risk portfolios will have a bigger weighting of equities.

Bonds are loans to Government or large corporates. They are generally used to reduce the overall risk in a portfolio. Investors in these bonds are entitled to a fixed income (coupon) up to a maturity date and also get their original capital back at maturity (subject to issuer’s ability to pay). Bond funds are likely to show lower growth potential than equity funds but are considerably less volatile.

Manufacturers and consumers across the globe require everyday commodities like wheat, corn and gold to conduct their business. The price of these commodities will rise and fall due to supply and demand. Investors look to make money by speculating on these rises and falls. Although they have a similar risk profile to equities, commodities behave differently and therefore mixing these can help reduce overall risk.

Cash funds are generally used to keep liquidity in a portfolio, or as a temporary position whilst timing a re-entry into the markets. Cash can also be held as an investment in its own right if it is paying an attractive rate of interest. When looking at investing in cash or deposits, it is important to consider the financial strength or credit rating, of the institution involved.