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Boy stacking coins on table; image used for HSBC Singapore 4 type of investment tools you should know about article.

4 types of investment tools you should know about

Have you ever wondered how investment products differ from one another and which tools are more suitable for your wealth goals and risk appetite? Here's a quick guide to illustrate the differences between 4 types of investment tools.

Product 1: Unit trusts

What it is:
A unit trust will involve your money being invested in a diversified portfolio of investments alongside other investors by a professional fund manager. Depending on the fund strategy, your money could be invested in various asset types, ranging from stocks to bonds, and more. How your investment performs depends on the type of fund you've selected and how it performs under different market conditions.

The details:
The risk levels for unit trusts vary from fund to fund, but generally, your investment is spread over a number of securities, instead of just one. The beauty of diversification is that your investment exposure will be spread across several securities from different companies in the portfolio. You also have the choice of investing across a number of sectors, themes or countries, such as healthcare, tech, or even a specific country or group of countries.

If you're someone who is looking for some diversification in your investment portfolio, unit trusts are a good place to start. Not only does a professional fund manager select the securities for you to invest in, you won't be as dependent on the performance of any sole security as your investment risk is more spread out across the portfolio.

In fact, did you know an initial investment of just SGD1,000 is all you need to start investing in unit trusts? So it's really not true that you need a fortune to get started with investing!

Product 2: Foreign exchange

What it is:
Foreign exchange (FX) essentially involves transactions in different currencies, where your returns depend on exchange rate movements. It's the world's largest market, with an average of more than USD5 trillion being traded daily, so you can see just how actively investors are putting their money there.

The details:
Within the world of FX, exchange rates are impacted by ever-changing macroeconomic factors and sociopolitical factors globally. But that doesn't mean you'll need to stay awake to keep an eye on your investments 24/7. You can set up FX Order Watch1 to ensure that once selected exchange rates hit your targeted level, funds will be converted automatically. You can do this for FX pairings between 10 currencies, and anytime you want to check on your investments, you can easily do so through live rate streams, real-time data, FX news and text and email notifications customised just for you.

If you're constantly on the go and don't always have your computer or laptop by your side, you can also download the HSBC QuickFX app onto your mobile phone to manage your HSBC currency accounts and make conversions at your chosen target rates.

Product 3: Securities

What it is:
Securities are tradable financial investments that carry monetary value, such as stocks, bonds, mutual funds and exchange traded funds (ETFs). Generally, there are two types of securities - equities and debt - although there are also hybrid securities that are a blend of the two.

The details:
Equities are shares in companies or trusts that may offer investors regular dividends. A process called capital appreciation takes place if you invest in securities that see an increase in value as time goes by. Investing in securities usually reaps higher returns than the interest you'd earn by simply putting your money into a savings account, so this is something you could think about when you're planning to grow your assets.

With the HSBC Equity Investment Account, you can invest in a wide variety of securities, such as stocks, ETFs, real estate investment trusts (REITs), global depository receipts (GDRs) and American depository receipts (ADRs). With the account, you can get direct access to the Singapore, US and Hong Kong markets, where you can carry out securities trades with your online banking account and monitor your investments through its wealth dashboard.

Product 4: Bonds

What it is:
Bonds are investments where you are loaning money to the bond issuer, which is either a corporate or government entity. Issuers can use capital raised from bond offerings for many purposes, such as to fund their operations and projects, or to purchase other assets.

The details:
Bonds are a type of investment known as a "debt instrument" because when you invest money, the issuer now has a debt to repay. They are obligated to pay back the amount you invested, plus a certain extra percentage. This extra amount will be based on the bond's coupon rate. A fixed payment rate spells out very clearly how much the issuer promises to pay back. However, bonds with a floating coupon rate change the amount they pay out depending on the interest rate.

If the issuer of the bond doesn't default, you'll receive the principal amount of the bond at maturity, and possibly during stipulated intervals set by the issuer. Depending on your financial goals and risk profile, it may be a suitable investment choice for you if you're able to stick around for a medium- to longer-term period of time. But if you pull the plug on your investment earlier than the bond's maturity date, there is a risk that you'll lose some of your investment.

The beauty of bonds is that it offers some diversification to your investment portfolio. We offer a range of investment-grade and high-yield bonds with terms of up to 30 years, and which are available in a variety of currencies. You can also pick from a selection of issuers, such as corporate or supranational entities, as well as government/quasi-government bodies.2

So, when should you start investing?

Now that you have a better understanding of these 4 types of investment products, you may be in a better position to weigh out the investment options in Singapore, figure out which tools you'll want to include in your wealth portfolio, or how you might want to start your investing journey.

All in all, it's important to remember that every investment carries a level of risk, and you'll need to weigh out the risk-reward element carefully before deciding on the product that's most suitable for your risk appetite and longer-term wealth goals. You'll likely experience highs and lows in your investment journey, so it's important to consider your contribution and exposure carefully before starting your portfolio.

The good news is, if you start investing earlier rather than later, you'll have a longer investment timeframe, and you'll feel less negative effects of market volatility. This is because you'll have more time to recover from the lows and more opportunities to capitalise on the highs to maximise your returns.

Don't forget we're right here anytime you need a professional opinion on how to set your financial goals, and to get you started on investing or creating your wealth portfolio.

1 FX Order Watch is available to HSBC Premier and Advance customers with FX accounts.

2 Bond investments are available to HSBC Premier and Jade customers who are Accredited Investors. Other terms and conditions apply.