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LIBF Unit 2 > Topic 2 - Savings And Investment Products > Flashcards

Topic 2 - Savings And Investment Products Flashcards

1
Q

Why do people save in medium and long term?

A
  • to make a decision now to save out of current income to finance future medium term or long term need, want or aspirations that require a significant amount of money
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2
Q

What 2 ways can people use savings or investment funds when it matures in the future?

A
  • hope for capital growth
  • use it to fund their income.
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3
Q

What is savings?3

A
  • savers deposit money in bank accounts and earn interest
  • sum of money deposited is not at risk
  • long term savings pay more interest than short term savings account
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4
Q

What is investment? 3

A
  • using money to buy assests that the owner hopes will increase in value.
  • this value can fall however their fore investments carry more risk.
  • higher risk means that the investment usually pays out a a higher return.
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5
Q

What are some providers of long term savings and investments? 6

A
  • banks
  • building societies
  • post office
  • national savings and investments

long term savings only - pension funds

Long term investments only - insurance companies

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6
Q

What does an investment company take into account when helping to achieve investments?3

A
  • attitude to risk
  • amount invested
  • length of time they can invest
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7
Q

What is a portfolio manager?

A

Look after financial instruments products on behalf of customers who have a sizeable sum to invest

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8
Q

What is a stockbroker?

A

Carries out deals for people who want to buy stocks and shares.

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9
Q

What are long term savings products? 6

A
  • fixed term savings accounts
  • called bonds
  • bonds usually mature somewhere between 6 months and 5 years
  • interest rate is fixed for the period
  • some providers do not allow withdrawals whereas others do do but at a price of a penalty
  • holder is unable to close or cancel the bond.
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10
Q

What are long term national savings and investment?

A
  • Childrens bonds bought for under 16 year olds bought by parents.
  • backed by the government thus less risky
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11
Q

What is the difference between savings products and investment products?

A
  • savings are less risky as investments can go up and down in value
  • investments are likely to offer a higher return.
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12
Q

How do investments bring income? 1+2

A

when the market value of the investment is higher when sold than when bought
- investment will pay out regular income in the form as property, dividends from stocks and shares etc
- some people want a combination of both capital growth and income. Thus may sacrifice one for more of the other If the investors take income out of their fund then the fund will have a a slower capital good

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13
Q

What is a shareholder?

A

Someone who is a part owner of a company that can benefit from capital growth or by receiving a dividend

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14
Q

What are stocks and shares?

A

Products bought either bought either directly from a company or on the stock market from a previous owner.

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15
Q

What are stocks and shares ISAs?

A

Holders put money into different types of investments in a tax efficient way
- putting the full allowance into a stocks and shares isa or split it in any proportion with a cash isa
- stocks and shares ISAs carry more risk as they can go up and down
- it is recommended people keep them for a few years to gain its full value

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16
Q

What are corporate and government bonds?

A

Bonds that holders relieve interest on as they lend funds to company or government.
- when the bond matured they receive full value of the bond back

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17
Q

What are government bonds?

A

Also known as gilts
- considered to be safe and low risk as it’s unlikely government will be unable to repay the capital

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18
Q

What are property investment products?

A

Property is buildings and land
- holders can receive income in the form of rent
- may also gain capital growth if the property is sold for more than it’s bought for.

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19
Q

What is a buy to let mortgage?

A

When an owner buys a property then receives income of it in the form of rent by letting the property

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20
Q

What are commodities

A

Products such as gold and silver

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21
Q

What are investment funds? 1+2

A

Funds consist of a range of investment assests described earlier
- financial provider meets with the client to ascertain their needs and attitudes to risk and reward
- providers use their specialist managers and extensive networks to combine various assets into funds

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22
Q

What are collective investments?

A

Fund management firms that carry out investments on behalf of their clients.

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23
Q

How do collective investments work?

A

Clients contribute money into a common pool and the funds are used to put into different investments assets.
- this means the investors money is diversified across several different assets helping to spread the risk

24
Q

What are advantages of collective investments? 4

A
  • risk to an individual investor is reduced as risk is reduced by the company investing in a large range of investments.
  • reduces the effect of one investment falling in value
  • spreading of risk is due to the diversified range of assets owned by the invested
    The investor benefits from the expertise of the investment fund managed , thus buying the best performing investments
  • cost of hiring the fund manager is spread across the many different investors.
25
Q

What is term assurance?

A
  • term assurance is an insurance plan that runs for a fixed amount of time and pays out if the person dies during this time.
26
Q

What is an endowment?

A

Life insurance contrac that pays a lump sum after a specified date or pays out if the holder dies within the date.
- making endowments a form of savings.

27
Q

What are pensions?

A

Tax efficient long term savings bought by an individual to save for their retirement.
- can be personal of occupational

28
Q

What are occupational pensions?

A
  • pensions operated by employers who may pay contributions into them for their employees
29
Q

What are the 2 main types of occupational pensions?

A

Final salary schemes
Money purchase schemes

30
Q

What are final salary schemes? (1+2

A

An employee is paid a pension based on the number of years they’ve worked for the employer and linked to the amount of their salary at the time they retire
- employee will make regular contributions from their salary.
- employer will make regular contributions to ensure the benefits agreed are paid into the retirement

31
Q

What are money purchase schemes? 5

A

Where the employee pays into the pension plan over their working life
- scheme is invested and provides the employee with the resulting lump sum on retirement
- the amount the employee receives depends how the scheme has performed.
- the employee can then take the pension pot and use it to purchase an annuity to provide an income in retirement
- the employee does not know in advance the size of the final pension pot thus is a greater risk.

32
Q

What is a personal pension plan?

A

Long term money purchase products provided by banks, insurance companies and other providers to help customers build up a pot of money that they can use or buy an income when they retire.
- tax efficient because the race relief is t the basic rate I’d income tax on the payments made into the plan.

33
Q

What Is term assurance?

A

An insurance plan that runs for a fixed period of time and pays out a lump sum if the insured person dies during the time.

34
Q

What is an Annuity?

A

Fixed sum of money which can be paid as part of an individuals pension
- provides holders with a monthly income when retired

35
Q

What is Auto - enrolment?

A

When the government believes that people are not saving enough for retirement so introduced auto enrolment into work place pensions.
- most workers must be automatically enrolled by their employer into a work place pension scheme; they have then the option to leave if they wish.

36
Q

When was auto enrolment introduced?

A

in the pensions act 2008

36
Q

What does the auto enrolment ensure money purchasing schemes have?

A

employers are paying a minimum level of contributions

37
Q

What does the auto enrolment ensure final salary schemes have?

A

minimum level of benefits

38
Q

Where do auto enrolment schemes stand now?

A

employers are phasing out final salary schemes replacing them with ones purchase schemes thus only money purchase schemes will be offered to new employees in the coming years

39
Q

What does NEST stand for?

A

National Employment Savings Trust

40
Q

What is NEST?

A

A large trust based, defined contribution, multi-employer pension scheme that sims to ensure workers are enrolled in an occupational pension

41
Q

Why are NEST’s helpful? 2

A
  • When employees retire, they will not have to rely solely on the state pension
  • It makes ut easy for working people to save because they have a single retirement pot into which they can continue to contribute even if they move to a new employer or stop working
42
Q

What is a state pension?

A

Regular payment made by the government to people when they reach state pension age and as long as they have paid or been paid or been credited with sufficient national insurance contributions.

43
Q

Why does the basic state pension increase?

A

to compensate for inflation

44
Q

What is the current pension age

A

66 for men and women born between 6 December 1953 and 5 April 1960

45
Q

Why does the state pension age increase?

A

to keep pace with life expectancy increasing

46
Q

What do current government proposals aim to raise the state pension age to ?

A
  • from 66 to 67 gradually between 2026 and 2028
  • then to 68 between 2037 and 2039
47
Q

What does OEIC stand for

A

open ended investment company

48
Q

What is an OEIC? 3

A
  • having corporate structure and issue shares
  • open ended so investments can expand with more funds
  • overseen by corporate directors
49
Q

What do people who reached state pension age before 6 April 2016 receive dependant on?

A

dependant on the NIC’s they’ve made over the last 30 years

50
Q

What do people who reached state pension age on or after 6 April 2016 receive dependant on?

A

receive the new state pension scheme if they have 35 qualifying years on ni contributions

51
Q

What is risk and reward?

A

The higher the risk the higher the reward when positive however when negative the loss is grater.

52
Q

What are dividends?

A

Share of profits paid by a company to its ordinary shareholders.
- dependent on the amount of product earned by the company, thus if it makes a loss shareholders get not return for the year

53
Q

What is capital gains tax?

A

Tax on any profit made when someone disposes of an asset
- when they sell it they give it away

54
Q
A

LIBF Unit 2 (9 decks)

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