Make sure there's an amount and a timescale. This is important because it will help you determine how to invest your money to reach your goals.
meaningfulmoney.tv/myrisktolerance
a bond is an IOU. In return for your money, you receive an IOU, which states the amount you have lent Marks & Spencer, the interest rate, called the coupon, which Marks & Spencer will pay you while they have your money, and the date at which Marks & Spencer will pay you back.
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These bonds are traded
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Pension trustees approach you and offer you £1100 for your bond. You just made £100 profit, because you paid £1000 for it. In 2025, when Marks and Spencer pay back the money on the bond, now owned by the pension trustees, they will only pay back £1000, so the pension fund has lost £100 on the deal. That is the price they pay for securing that income of £30 per year until it is bought off.
It's a little simplistic to say that bonds are lower risk than shares, though historically they have been less volatile and their returns a little smoother than shares. It is more accurate to say that bonds behave differently to shares, and that's why it's usually a good idea to hold some of each in any portfolio, to benefit from the return of both kinds of investment.
When companies issue bonds they are called corporate bonds. When governments want to raise money, they can also issue bonds. In the UK, government-issued bonds are called giltz, in the US Treasury Bills.
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Finaly you may hear bonds as an asset class called fixed interest or fixed income investments.
A share is a tinye slice of a company. Shares are often called equities. Returns come in two forms. Firstly, if the company makes a profit, a dividend may be issues, which is a distribution of the profit to the shareholders.
Secondly, the price of the share itself will rise and fall depending primarily on sentiment.
Private equity: involves companies which buy up other companies
Hedge funds: they make money when stock markets are falling.
A fund offers similar benefits to investors who want to buy shares, bonds, or other assets. If you invest on your own, you will probably buy a handful of different shares before it becomes too much work. Get your friends involved and you have a larger pot of money to invest with. Scale this up so that now there are hundreds of thousands of joint-owners.
The most common type of fund in the UK is an open-ended investment company, called an OEIC. The open-ended part of the name means that i more people want to invest, the fund can create more shares in the fund for those people.
Unit trusts work similarly to OEICs but have one key difference in the form of something called a bid-offer spread. This means there is a difference between the price at which you buy units (offer price) and the price at which you sell them (bid price). Most investors do well to avoid unit trusts.
Investment trust are closed-ended companies. Finite number of shares; you have to find someone willing to sell. This reduces the liquidity compared with open-ended cousins, OEICs
Exchange Trade Funds, ETFs, low-cost funds to track a particular share market. ETFs are still funds which hold underlying investments, but rather than the fund holding assets chosen by a fund manager, they aim to track a given asset price, like gold, or an index, like the FTSE 100. TAKE CARE. Two types. PHYSICAL EFTS actually hold underlying shares. SYNTHETIC ETF uses complex algorithms. Should avoid.
Active investment requires research and insight, skill, experience and luck; will have a very well-paid fund manager backed by a team of analysts.
Passive investing simply requires fund manager to match the fund's investment with the market as a whole each day; can be done largely by computer algorithms; often known as index funds, tracker funds, or just trackers.
Active investors try to beat the market. Passive investors aim to track or match the market.
I believe most ordinary investors are best served by opting for a passive investment strategy. Keeps your cost down and reduces the amount of research.
you invest into assets by buying funds to get benefits of economies of scale. wrappers are the next level up. key thing that distinguish one wrapper from another are tax treatments and access.
General investment account (GIA) - basic form. no special tax advantages or access limitations. use only if you exceed the amounts you can put into other wrappers
Individual savings account (ISA) - these accounts are entirely free of both income and capital gains taxes. Form the backbone of your wealth building process.
Pension - save money until you retire. you pay tax when you take money out eventually.
Investment bond - technically contracts of life insurance. fallen out of favour. some benefits particularly when used within trusts.
Venture capital trust (VCT) - wrappers in which you hold investments in small companies. in return for boosting economy, government gives very beneficial tax breaks. Risky and money is locked in.
Enterprise investment schemes (EIS) - similar to VCTs but w/ slightly different limits and tax breaks. minimum term of three years. designed to be invested into specific assets which can be less liquid and more volatile.
[wrapper chapter] Decide on the split between pensions and ISAs. Depends on your life stage.
Best place for non-financial advisers to research platform marketis the lang cat.
[tax chapter] majority of people will never be in a position to save full ISA allowance and full pension allowance in one year. saving into ISA and pension is the best way to avoid income and capital gains taxes
Choose a multi-asset portfolio fund: spread your money across different kinds of assets, and across the whole world in one convenient off-the-shelf package.
Four investment sectors, as divided by the Investment Association. All funds in a given sector will have a similar approach, idea is by grouping them you can easily compare similar funds.
1. mixed investment 0-35% shares
2. mixed investment 20-60% shares
3. mixed investment 40-85% shares
4 flexible investment
