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finance unit 2 > 2 - savings and investment products > Flashcards

2 - savings and investment products Flashcards

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1
Q

why do people save in the medium and long term

A

make a decision to save out of their current income to finance medium/long term needs/wants/aspirations

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2
Q

what happens if the economy performs badly

A

they may not get as good a return as they’d hoped, may even get less than they paid in

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3
Q

2 main ways which people use their savings or investment fund when it matures

A

hope for capital growth: that the market value of the investment is greater when sold than when they paid, when they cash in the investment they receive a lump sum (full value)
use their fund for income: the investment will pay out a regular amt that they can use as a part of their monthly income

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4
Q

what are the risks with savings and investments

A

the risk taken that they might lose money and the return they might earn
usually, higher risk = greater return

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5
Q

which are more risky?

A

investment products are more risky

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6
Q

where are savings accounts held? are they at risk?

A

held at financial services providers like banks and building societies where saver deposit money and earn interest
the capital sum they deposit is not at risk - a saver will not get back less money than they paid in

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7
Q

do savings accounts have high interest rates?

A

no because there is less risk, but long term accts usually pay a slightly higher interest than short term ones as long as savers give notice before withdrawing

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8
Q

who are investments suitable for

A

people who are prepared to invest for the medium to long term - investors hope that the capital value of the investment will grow over the period they hold it

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9
Q

what is the risk of investment products

A

they are at higher risk because their value at any time dpends on the performance of the assets in which they money has been places and also on general movements in the financial markets
but, this means that the returns can e higher than savings products

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10
Q

what is a portfolio

A

the combination chosen by any one investor of different long term savings and investment products

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11
Q

what is a volatile investment

A

one whose value varies often and widely

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12
Q

what is a friendly society

A

mutual organisations that offer their members a wide range of financial products
all offer short term savings accts and some provide long term savings, investments, life insurance, pensions and annuities

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13
Q

what do insurance companies provide

A

range of long term investment products that incorporate life assurance and pensions

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14
Q

what do pension funds do

A

accept peoples savings throughout their working life and invests the money so that they will eventually get a pension

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15
Q

what are investment products divided into

A

those that aim to grow the money overtime
those that provide a regular income from the money invested

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16
Q

what is a clear investment objective

A

choosing a products according to whether they want growth, income, or a combination of both

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17
Q

what is an annuity

A

someone who wants to retire will buy an annuity which means they hand their lump sum to an insurance company and they are paid an income for the rest of their lives (example of income)

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18
Q

what needs to be considered when investing

A

someone’s investment objective, attitude to risk, amount to be invested, length of time which they can invest it

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19
Q

hwta are different types of investment providers that offer packaged producs

A

can be tailored for the private investor
include unit trusts, open ended investment companies (OEICs) and investment trusts which pool the money of many investors

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20
Q

what do portfolio managers do

A

look after a portfolio of various types of financial instrument eg shares and bonds, on behalf of customers who have a sizeable sum to invest
make investment decisions on behalf of the investor in order to try meet an agreed investment objective

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21
Q

what do stockbrokers do

A

carry out deals for people who want to buy and sell share, bonds, and other instruments

22
Q

what are some long term savings products

A

fixed term savings accounts, NS&I

23
Q

what are fixed term savings accounts

A

if money is instantly available, there is lower interest. if someone wants to put money away for a fixed preiod, can earn higher interest without taking a lot of risk by buying a fixed term savings acount from a provider, many are called bonds

24
Q

what is offered with fixed term savings account

A

maturity periods usually between 6 months and 5 years, fixed interest rate for period, some not allow withdrawals, some allow withdrawals but with an interest penalty

25
Q

who are fixed term savings accounts useful for

A

people who need to accumulate a medium sized lump sum but ned the disciplnie to not allow then to spend the money in the mean time

26
Q

what does NS&I offer

A

small range of savings accounts (most short term)
eg. Children’s Bonds bought for an under 16 by a parent that pay a fixed interest rate for a set term, min investment £25 and max £3000 per child per issue, bonds can be cahsed in early but there is a pentalty

27
Q

what is an Income Bonds account (NS&I)

A

over 16s only, calculates interest daily, open with £500 minimum deposit and hold up ti £1mil in these accts

28
Q

why are NS&I less risky

A

100% guaranteed, but returns are not high

29
Q

what is the process of investment

A

people with surplus funds lending money to companies and governments that wat to borrow it over a long period

30
Q

what are 4 types of investment products

A

stocks and shares, stocks and shares ISA, corporate and government bonds, property

31
Q

what are shares

A

shares (equities or ordinary shares): a part ownership in a company

32
Q

where can shares be bought

A

directly from the company or on the stock market from a pervious owner

33
Q

what do shareholders hope to receive

A

capital growth, dividendsw

34
Q

what is a dividend

A

a share of the annual profits made by the company, paid on a regular basis (helaf yearly or yearly)

35
Q

what risks so shares have

A

quite high risk because offer potential of both capital growth and income, therefore a highreward
but, if company does badly, may be no dividends and share price may fall
so, shareholder receives no return and suffers a capital loss

36
Q

what is a stocks and shares ISA

A

allows a person to put money into different types of investment on a tax-efficient basis
can either invest entire ISA allowance in stocks and shares or split it between that and a cash ISA

37
Q

how long is advised that you are willing to tie up your money for with a S&S ISA

A

at least 5 years, because the value of the ISA flucutates with market changes and investor needs time to take advantage of periods when values risew

38
Q

what can S&S ISA investors do

A

buy a readymade products from a provider and let the provider manage the investment for them or choose and buy their own shares and put them into in ISA ‘wrapper’

39
Q

what is an ISA ‘wrapper’

A

can earmark shares up to ISA allowance and receive a tax free return on these shares regardless of other investments they have

40
Q

is there tax on ISAs

A

no, but tax is paid on dividend income where relevant and investors have to pay charges to their financial advisers an to the fund managers

41
Q

what are corporate and government bonds

A

lend their money to the issue but are lending money to the company so are creditors, not shaerholders

42
Q

difference between fixed term savings bonds, and corporate and government bonds

A

fixed term: sapital cum is safe
C&G: values fluctuate

43
Q

what are the best known bonds

A

glit edged bonds (glits)
issued by uk gvt and regarded as safe bc unlikely that uk gvt will be unable to repay caital

44
Q

what is property

A

residential property or commercial property
good investment proposition bc prices tend to move upwards in the long term
quite risky bc products can fall in an economic downturn and not east to sell asset

45
Q

what are commodities

A

gold, silver, art, antiques, wines: high capital gains but risky and only for people who are wealthy or experience d in those areas
gold is seen as safest bc relatively scarce, durable, and tends to keep value

46
Q

what are collective investment firms

A

(fund management firms): specialist organisations that carry out investment on behalf of their clients
sometimes called pooled investments as money contributed is pooled
may pay in a lump sum or by regular payments

47
Q

examples of collective investment funds

A

investment trusts, OEICs
offer growth and income
some allow people to choose what they want to put their money into, or leave it up to fund manager

48
Q

advantages of using collective investments

A

risk reduced bc fund invests in large no of diff types of company so impact of one investment falling in value is less
investor takes advantage f the expertise of investment manager so individual doesnt have to research or understand info
cost of hiring services is shared among all investors
find managers deal with millions of pounds worth of investments and can negotioate reduced dealing costs for investors
wide choice of ivestment funds and collective which cater to all types of ppl

49
Q

what are unit trusts

A

most common form of collective investment
for investors who want shares but are to small or inexperiences to invest on their own
unit trust established under trust deed
managers responsible for investing funds
trustees responsible for ensureing managers comply with terms of trust deed , hold and ctrl assets of behalf of unit holders
not allowed to borrow money
open ended: more units can be created when more money invested

50
Q

what is an endowment policy

A

a life insurance contract that pays a lump sum after a specifies term

51
Q

what is an annuity

A

a product that provides income for people when they retire

52
Q
A

finance unit 2 (1 decks)

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