To start with, we need to protect our capital against inflation. It is now below 3 per cent, but not long ago it was roaring ahead at 10 per cent plus a year. But as well as inflation protection, we would like capital appreciation, genuine growth.
The lowest risk investments, such as inflation-linked gilts, guarantee our original capital as well as increasing its value. Other low-risk vehicles include the normal high-street savings accounts available from banks and building societies.
Over time, however, investment in equities has proved the best means of growing capital. Whether we invest directly in shares or do it via collective, managed funds such as unit and investment trusts, more fortunes have been made on the world's stock markets than anywhere else.
Equity investment means higher risks. This can mean losing as well as gaining in the growth stakes, as we are seeing in South-east Asia. Over the past six months some of these markets have fallen by more than 50 per cent, which means that anyone who invested in them a year ago could now see their investment halved in value.
This survey, edited by Tony Lyons, takes you through the best means of ensuring capital growth through equity investment. Invest wisely, and like Captain Spock, you will be able to "Live long and prosper".
The outlook for equities everywhere is uncertain. Share prices in developed economies were unusually volatile during the last quarter of 1997, and in Asia, currency and banking crises traumatised the region's stock markets. But short-term volatility shouldn't put investors seeking growth off equity investment altogether. Investors looking for real capital growth over an extended period can't ignore equities. Over the past 50 years, equity investors have enjoyed higher returns than anyone else.
Investors who put money into a number of markets around the world tend to do particularly well, partly because some overseas markets have produced fantastic returns in recent years. And having exposure to several markets protects you when shares in one country aren't doing so well.
World stock markets fall into two categories, developed and emerging. The developed markets (the UK and the US, for example) tend to be less volatile, but less exciting. Emerging markets (such as Mexico) often move sharply up or down in short spaces of time. The question is which markets to go for in the search for growth.
The UK market has done well in recent times, up 26 per cent during 1997. But that's not so impressive compared to Russia, where share prices rose 88 per cent last year. Equally, though, how would you feel having invested in Thailand, where a series of economic disasters forced share prices down by 74 per cent in 1997?
The key to successful growth investment is twofold. First, be patient. You must be able to invest for the long term (five years or more, say) and avoid short-term reactions to sudden market developments. Second, invest in a diversified spread of worldwide equity investments. That doesn't mean putting 1 per cent of your money into 100 stock markets around the world.
Big institutional investors, such as pension funds, tend to allocate their assets by region. And most of their money goes into developed, less risky markets. They would have a large chunk of their money in the UK, for example. They might have some exposure to the US, the largest stock market, and a smaller amount of money in really racy areas, safe in the knowledge that the core of their portfolio is in less volatile equities.
Small investors can adopt a similar strategy, but they won't have the expertise to evaluate the prospects of, say, Brazilian smaller companies, so in practice most small investors will use collective investments - unit and investment trusts - for exposure to overseas markets.
Be wary of specialising too much. Investing in a region tends to be less risky than buying into a single country. That way you have some protection if one market collapses. Growth investors should seek to assemble a portfolio of global equities in this fashion. As a rough guide, cautious institutions are putting about 70 per cent of their money into the UK, with a further 20 per cent or so going into other developed markets. The final 10 per cent is split between emerging markets in Asia, South America and Eastern Europe.