What is investing?

14 August, 2025

We’ve all heard the term ‘investing for the future’. But what does it actually mean?

How does investing work, and why is it so important? Crucially, what’s in it for you – the investor?

Investing is when you use your own money to buy assets which, you hope, will increase in value over time, including any income generated. These could be ‘real’ assets such as a house, art or gold coins. Or they could be ‘financial’ assets such as shares in companies, or bonds issued by companies (“corporate bonds”) or by governments (“government bonds”).

In the UK, investors can buy shares in companies, corporate bonds, and government bonds on stock markets including the London Stock Exchange. Company shares that are listed here include household names like Sainsburys, Easyjet, and Rolls Royce.

Shares can also be bought in companies listed on stock exchanges in other countries, for example shares in Toyota can be bought on the Tokyo stock exchange, and BMW on the Frankfurt stock exchange.

Investors can also invest in funds.

What are funds?

A fund is a single structure, managed by a professional fund manager, which invests in lots of different assets. Funds can invest in different asset classes, including:

Equities - shares in companies. When a fund buys shares, it effectively owns part of the company. As co-owners of the company, the fund and other shareholders are entitled to a share of the company’s profits, paid as a dividend.
Bonds - debt issued by companies or governments. Bonds issued by the UK Government are known as Gilts. Funds purchase bonds in return for fixed interest payments, known as coupons, paid regularly through the bond’s life. The debt will be paid back on what is known as the bond’s maturity date.
Property - Properties can be purchased by funds, including offices and commercial buildings or shares in companies investing in commercial property.
Cash / Money Market - including cash deposits at banks and other money products.

Some funds will be made up of just one asset class. Other funds combine the different asset classes, holding equities, bonds, cash and property together in one fund. These funds are known as multi-asset funds, an example of which is the Zurich Managed Fund.

As well as investing in different asset classes, funds may also differ from each other because of the markets they invest in around the world. Some funds will only invest in UK companies, others will invest in US, European or Asian companies. Other funds will invest in companies all around the world - these funds are called Global funds.

Remember you can choose and change which funds you are invested in at any time, from the range of funds we have on offer. While we can offer you educational content like this to help your investment understanding, and information on how each fund is performing, ultimately you have to decide which fund(s) you invest in.

How funds work:

Each fund is divided into units of equal value
The value of the units may rise and fall depending on the fund’s investment performance
The number of units you hold and the value of each unit are used to calculate the overall value of your investment.

What are the benefits of investing in a fund?

It saves you time as the investment work is done for you
It allows you to have an affordable, diversified portfolio
It may give access to some assets not normally available to individual investors
The fund benefits from the quality and depth of research and analysis
The fund managers can speak to and influence the managers of the companies they invest in
Lower transaction costs are made possible by the size of the fund

Why do funds invest in different asset classes and geographies?

One of the benefits of investing in different asset classes and geographies is that they behave in different ways at different times: if equity markets go down in value, bonds may perform better, and vice versa. Similarly, assets in one country may perform well while assets in another country may go down.

Funds that hold different asset classes in different countries will be more ‘diversified’, which means that the risk of your investment is spread more widely.

For example a UK equity fund may invest in shares of a wide range of companies operating in different industries, such as airlines, construction, and supermarkets.

A global multi-asset fund will hold a number of different asset classes from around the world. It will therefore provide additional diversification.

You can learn more about diversification here.

What are the benefits of investing?

Investors may be looking for their investments to generate an income, or to grow in value, or to achieve a combination of the two. They may also be seeking to mitigate the effects of inflation.

1. Income

Funds and other investors may receive regular ‘income’ payments from their investments in the shape of ‘dividends’ from shares, or ‘coupons’ from bonds. Funds may either pay the income directly to investors, or use the income to buy more assets.

In the case of dividends from shares, the amount received is variable. And while many companies aim to generate steady and rising dividends, in difficult times they may temporarily stop paying dividends.
In the case of coupons from bonds the amount received is constant, provided the borrower remains solvent.

2. Growth

The value of a company will generally grow over time as the amount of profit it makes increases. This increase in value will generally be reflected in the price of the company’s shares (and therefore the value of your investment). However the share price can change quite freely and may be affected by many other factors. A company could also lose money or get into financial difficulty, in which case the value of its shares could go down, rather than up.

3. Reducing the effect of inflation

The price of goods and services going up over time is referred to as inflation. A moderate amount of inflation is a sign of a healthy economy; it shows people are buying things and their demand is tending to support prices. Too much inflation is seen as a bad thing, especially when expectations of higher inflation leads to demands for higher wages, and higher wages create greater demand for goods and services, which pushes prices and expectations up further, creating a vicious circle.

Over time, inflation erodes the purchasing power of your money. Investing is one way you can try to protect your savings from the effects of inflation, especially if the value of your investment increases at a greater rate than inflation.

Investing in shares is generally considered to offer a better chance of beating inflation over the longer term, compared to bonds or cash based investments.

Are there any risks?

Most investments carry the risk of falling in value, and some tend to fall by more than others. It is important to take no more than an appropriate level of risk considering your own circumstances and your overall investment objective.

Not all risk is a bad thing when it comes to investing - learn more

Please refer to our Investments section for information on the funds available to you.