2.5 Investment Products - Assets Flashcards
What is investment?
A process by which people with surplus funds lend their money to companies and governments that want to borrow it over a long period.
Name the main categories of investment product
Stocks and shares.
Stocks and shares NISA.
Property.
Corporate and government bonds.
How can people invest their money themselves?
By choosing and buying specific assets, eg shares/ property
Do people usually choose to invest their money themselves?
Why?
No.
- don’t have enough money to allow them to spread their risks over a well diversified range of assets.
- lack of knowledge.
- lack of time to select suitable shares/properties and to track their performance on a daily basis.
Who do people often choose to hand over their money to?
A specialist investor, either a collective or a fund.
What are shares also known as?
Equities.
Ordinary shares.
What is a share?
A part-ownership in a company
Where can shares be bought?
Directly from the company (if it is a new issue of shares).
On the stock market from a previous owner.
What will someone who buys shares pay?
They will pay the market price at the time but this price will change subsequently and may rise or fall.
How do shareholders get a return on their share?
Capital growth.
Dividend - a share of the annual profits made by the company.
What is a dividend? How often is it paid?
A share of the annual profits made by the company.
Paid usually half-yearly or yearly.
Are shares high risk or low risk investments?
Why?
High risk.
Because they offer the potential of both capital growth and income -> high reward. Yet there also may be no dividends and the share price may fall -> capital loss.
What does a stocks and shares NISA allow a person to do?
Put money into different types of investment on a tax-efficient basis
Does every adult in the U.K. Have a NISA allowance each tax year?
Yes
What can someone do with their NISA allowance?
Either invest the entire amount in a stocks and shares NISA, or split it between a cash NISA and a stocks and shares NISA in any proportion they like
What should someone who uses a stocks and shares NISA be willing to do?
Willing to tie their money up for at least five years
How can the investor select and buy a stocks and shares NISA?
- They can buy a readymade product from a provider and let the provider manage the investment for them.
- They can choose and buy their own shares and put them into what is known as a NISA ‘wrapper’.
What does using a NISA ‘wrapper’ mean?
Means they can earmark shares up to the permitted limit for NISAs, and receive a tax free return on these shares, regardless of any other investments they may have.
Are stocks and shares NISAs tax efficient? Why?
Yes.
They are free of uk income tax and capital gains tax that would have been paid on an investment outside a NISA.
Do investors have to pay charges for their stocks and shares NISA? Who to?
Yes.
Charges to their financial advisers and to the fund managers in the investment company they use.
Bonds are issued by….
Companies
Governments
Other bodies that need to borrow money
How do bonds work?
Investors lend their money to the issuer by purchasing the bonds.
But they are lending money to the company.
This means they are ‘creditors’ and not ‘part-owners’ as shareholders are.
Is a fixed term savings bond a type of short-term or long-term savings account?
Long term
Is the capital sum safe, in a fixed-term savings bond?
Yes
