Topic 2: savings + investments products

Question 1

why save

Answer 1

• finance medium/long term needs, wants + aspirations
• grows over time

Question 2

uses for savings/investments fund when it matures

Answer 2

• hope for capital growth (market value > than when bought) receive a lump sum
• use fund as income (regular payouts)

Question 3

differences between savings + investments

Answer 3

• S: less risky, capital sum isn’t at risk, £85,000 protected by FSCS if provider fails, low interest rates, longer term=slightly higher interest rates
• I: higher risk, based on financial markets/assets

Question 4

portfolio

Answer 4

• combination of different long term savings + investments products

Question 5

credit unions

Answer 5

• don’t offer long-term savings products
• some include life insurance with savings accounts

Question 6

capital growth

Answer 6

• make total sum grow over time
• usually to fulfil a long-term want/aspiration

Question 7

income

Answer 7

• using an already accumulated sum to gain an annual return
• buy an ‘annuity’

Question 8

managing investments

Answer 8

• some providers offer tailored packaged products for investors: unit trusts, open-ended investment companies (OEICs), investment trusts
• portfolio managers: look after various financial products on behalf of customers with a sizeable sum + make design on behalf of investor to meet agreed objective
• stockbrokers: do deals for people who want to buy + sell shares/bonds

Question 9

fixed term savings accounts

Answer 9

• short term
• easy access
• low interest

Question 10

bonds

Answer 10

• higher (fixed) interest
• low risk
• fixed term savings account from a provider
• maturity: 6 months - 5 years
• withdrawals not possible or incur penalties
• good for those who require discipline

Question 11

main investment products

Answer 11

• stocks + shares
• stocks + shares ISA
• property
• corporate + government bonds

Question 12

stocks + shares

Answer 12

• part-ownership in a company
• bought directly from company or stock market from previous owner
• hopefully receive dividends too
• high risk

Question 13

FTSE 100

Answer 13

• series figures showing movements in value of shares of the 100 biggest companies (acc to London Stock Exchange)

Question 14

stocks + shares ISA

Answer 14

• put money in different types of investments tax-efficiently
• usually for 5yrs+
• fluctuates with market value
• investor can: buy readymade product from a provider or choose/buy own shares + put in an ISA ‘wrapper’ (earmark shares up to permitted limit for ISAs so is tax-free)

Question 15

corporate + government bonds

Answer 15

• can fluctuate
• creditors not part-owners as investors lend money to issuer so lend money to companies
• traded on a financial market
• usually for set time period
• receive interest twice/year
• can sell before maturity

Question 16

gilts

Answer 16

• issued by uk government
• very safe as unlikely they wont be able to repay capital or keep up interest payments

Question 17

property

Answer 17

• land/buildings (residential+commercial)
• can be included by individuals or companies in portfolio
• good long term investment
• risky

Question 18

commodities

Answer 18

• eg. gold, silver, art, antiques, wine
• risky
• only for very wealthy + experienced

Question 19

investment funds

Answer 19

• investors who don’t want to manage their own portfolios can buy ready-made products or discuss with a provider
• combines various assets
• some are packages, some more flexible
• set time periods

Question 20

collective investments firms (fund management firms)

Answer 20

• specialists carry out investments on behalf of clients
• £1000+
• pooled investments
• risk is spread: diversification
• eg. unit trusts