Investing your money needs your consideration and you need to be absolutely sure of the risks involved.
This information is intended to provide a general appreciation of the topic and it is not advice.
You’re making a major decision when you opt to invest your money, so you need to carefully consider all your options and make sure you fully understand the potential risks. The value of investments may fall or rise depending on many different factors, so it is important to be aware that you may not get all your original investment back.
Here we will provide you with a quick overview of some of the different kinds of asset-backed investments. This is just a general guide, so if you need detailed advice and guidance, be sure to get in touch with our team of financial advisers and we’ll provide you with all the information you need.
ISAs (Individual Savings Accounts) provide an appealing tax-efficient way to save or invest money. The interest on a cash ISA is not taxed, so you will keep all the interest you earn. Stocks and shares ISAs also offer tax benefits.
Anybody aged 18 or over can invest in ISAs, and you only have to be 16 or over for cash ISAs. You may invest up to £15,000 into either a cash ISA or a stocks and shares ISA, and you can make transfers between the two.
These are sold by businesses who want to raise money by allowing investors to purchase a share in their company. When you become a shareholder, you will usually receive a reward twice a year. The amount you receive will depend on how profitable the company has been, and is decided by the board of directors. In the short term the amount you receive may rise, fall, or even stop altogether, but in the medium to long term, share values tend to rise.
Many shareholders sell their shares on for a profit, waiting until their values rise before selling them on for a higher price than they paid for them. If you make a profit from selling shares, you may have to pay Capital Gains Tax. It can be a risk to invest in individual shares, as they may lose their value, meaning that you lose some or all of your initial investment.
These investments can be bought from a stockbroker or from the Bank of England, and they offer a high level of security as they represent Government borrowing. Investors are guaranteed a fixed yield for the entire life of the stock, which they usually receive twice yearly. Gilts are traded on a daily basis, and the market price will fluctuate depending on current market conditions and interest rates.
Most gilt-edged securities come with a redemption date, when the Government repays the investor the full par value of their stock. The investor will make a profit if the price they paid for the stock was below par value. However, on the other hand, if the market price was greater, then they will make a loss. There is no tax to pay on any profits made from Gilts.
These are single premium life assurance policies with a high allocation to investment and comparatively low life cover. Small amounts of money are invested by individuals and pooled to create large funds, which are maintained by a life assurance company. These funds are then spread across various different assets such as shares, Government and company stocks, and property. This reduces the risks of investment, but it is important to remember that these bonds are not short term investments and you should not consider committing to them for any period of less than five years.
Investment trusts are extremely popular with investors. They are limited companies often directed by investment experts or professional fund managers. They make profits for their shareholders by purchasing and selling financial assets such as stocks and shares, using the pooled funds gathered from investors.
If an investment trust wishes to acquire more investments than they can afford with their current share capital, they may turn to ‘gearing’, or borrowing money to invest. A ‘highly geared’ investment trust with large borrowings could be considered a higher risk, particularly in a falling marketplace.
Open Ended Investment Companies (OEICs)
An OEIC is an incorporated company which is essentially a combination of a unit trust and an investment trust company. As with investment trusts, investors will buy the company’s shares and make a profit from their growth.