Investing for distinct and different needs
If you have money in a bank or building society account it is relatively easy to understand. Your cash is “safe” and at any point you should be able to withdraw exactly the amount you have placed on deposit.
The reward you get for lending your money to the bank or building society is interest either a fixed or variable rate.
If you decide to move some of your cash to a different type of investment asset then things become very different.
We always consider four distinct investment asset classes (there are more but the key four are cash, fixed interest, commercial property and shares or equities).
The rewards that you might then receive are a combination of capital growth and income. In the case of fixed interest securities the income is unsurprisingly interest, with property the income reward is rent and with shares the reward is dividends.
I write this because we often help trustees to invest trust fund monies for beneficiaries who have two distinct and different needs.
One of the beneficiaries may require income for the rest of their lives and then on their death the capital will pass to the other beneficiaries.
It follows then that the trust fund needs to be invested in a way that achieves the best results for both types of beneficiary. A combination of all four asset classes may well be the best mix.