Starting Out - Investment Fundamentals
Our advisers will take the time to consider and understand your personal situation including your liabilities, your investment goals and, most importantly the level risk you are happy to take. You might be looking for an investment to provide money for a specific purpose in the future or you might want an investment to provide extra income, we have designed this section of the website to provide you with some basic information to help you understand the investment process as well as some of the options available.
Savings accounts are generally for times when you need access to your money quite quickly and they’re often for a specific purpose such as a holiday or a new car. The most common way of saving is with a bank account (deposit account) which can be accessed freely, and for every £1 you put in, you will get £1 back with a small amount of interest.
Investments are different because they’re designed to be held for a longer term. You need to be comfortable with tying your money up for a period of time, and should not consider investments unless you have some savings in place. Most investments are not guaranteed to return your money in full, although do offer potentially higher returns than deposit accounts.
There are different types of risk involved with investing, so it’s important for you to think about how much risk you’re willing to take. There are also many different types of investment, some will be right for you and some won't. It all depends on your attitude towards risk, whether you can afford to lose any capital value and what you are trying to achieve with your investments. Just because an investment has worked well for somebody else does not mean it is right for you.
Investing is all about choice and making sure that the investments you choose are the right ones to meet your personal objectives. One of the first decisions you’ll make will be whether you are looking to generate an income or if you would prefer to achieve growth or a combination of the two. Growth simply means increasing the value of your investment over time, while income means you’ll receive regular payments coming in.
Governments are keen to encourage people to save and they normally achieve this by offering tax incentives on a range of savings products. These incentives vary from reduced levels of Income Tax on deposit accounts for most taxpayers through to tax efficient investment growth on products like ISAs (Individual Savings Accounts).
There are different types of investments that are designed to have different levels of risks. On a basic level, the main ones are:
Cash – the safest option. Forms of cash include bank and building society accounts; cash ISAs (Individual Savings Accounts), guaranteed income & growth bonds and National Savings & Investment accounts. The only risk of loss is if the institution collapses, although provided you don’t have more than £50,000 with any one Provider, you’re protected through the Financial Services Compensation Scheme.
Fixed interest securities – these include Corporate and Government bonds which are ‘loans’ to the government or companies that pay you interest in return. If all goes well, you receive interest (at a rate fixed at the start) and on a set date, you get your capital back.
Shares - you can invest in shares directly or through a unit trust, OEIC (Open Ended Investment Company - pronounced Oik!) or investment trust (known as collective investment funds). By using a collective investment fund, you can invest in a large spread of companies with the benefit of contributing only a small lump sum or monthly contribution.
Property – investments could be in residential property, holiday houses or rental property. Alternatively, you can invest through a property. Property funds can be illiquid and their value can be dependent on valuer's opinion investment fund.
You can also put a tax wrapper around certain investments. For example, you can invest up to £11,520 in a stocks and shares ISA (2013/2014 tax year) without having to pay any Income Tax or Capital Gains Tax. Tax relief is also available on pension contributions. Levels, bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
Our advisers offer advice and guidance on a wide range of savings and investments, their recommendations will be tailored to suit your very own financial goals, short, medium and long term.
'The value of your investment can go down as well as up and you may get back less than you have invested'