Stock market-linked investments have the potential to earn great returns, and offer savers the chance to make a lot of money if they are prepared to risk their capital and the market reacts in their favour. It is possible to invest in the stock market and earn returns tax-free, or invest in a portfolio which is carefully monitored by independent advisers and adheres to strict government rules. Many stock market-linked investments are linked to a stock market index, such as the ASX 100, which tracks the success of the one hundred most valuable Australian companies: if one company's stock falls, the index will be protected from falling by the success of other companies.
However, any investment in the stock market involves an element of risk. There is almost always a chance that you could lose your money, perhaps even a significant amount if your capital is invested in risky companies. You may be required to leave your money invested for a long period of time, usually between three and ten years, and accessing your funds before the investment period is over will generally result in penalty charges. You will also be required to pay administration charges for the management of your investment portfolio.
There are many advantages and disadvantages to stock market-linked investments. It is inadvisable to invest capital in the stock market that you cannot afford to lose. For detailed information on the different types of stock market-linked investments available, see Stock Market-Linked Savings. The main advantages and disadvantages of stock market-linked investment are summarised below:
Advantages:
> Potential for high investment returns
> Tax-free investment options
> Long-term investment possible
> Flexible investment options
> Government monitored 'safer' stakeholder options
Disadvantages:
> Money must often be left untouched long-term
> May be minimum deposit requirements
> May be high charges which reduce earnings from investment returns
> No guarantee of returns
> Risk of losing your money
