What are the two types of investments?
- Indirect investment - made through 3rd parties
- Direct investment - purchasing assets directly
List the significant disadvantages of direct investment.
- Reliance on personal knowledge and ability
- Potential for significant or total losses
- Costs and charges may be uneconomic
- Time-consuming monitoring
These disadvantages can deter some investors from pursuing direct investments.
What is the main attraction of direct investment?
Substantial rewards achievable
When done correctly, direct investments can yield significant financial returns.
What are the two types of investment services mentioned?
- Advisory investment service
- Discretionary investment service
Advisory services provide guidance, while discretionary services involve professionals making all investment decisions.
What does diversification in investing refer to?
Holding a range of different types of assets
Diversification helps to smooth out fluctuations caused by economic and financial events.
Name the four main recognized asset classes.
- Cash
- Fixed-interest
- Equity
- Property
These asset classes represent different types of investments available to investors.
What is the potential fifth asset class mentioned?
Alternative investments
This includes hedge funds, cryptocurrencies, commodities, and tangible assets like gold and fine art.
Define positive correlation in investment returns.
Returns move up and down together
Positive correlation occurs when investments are affected by the same factors.
Define negative correlation in investment returns.
Returns move in opposite directions
Negative correlation can enhance diversification by offsetting losses in one investment with gains in another.
What is the risk associated with cash investments?
Low risk due to capital not exposed to investment risk
Cash investments typically provide interest but no potential for capital growth.
What is the Financial Services Compensation Scheme (FSCS)?
Protects depositors in the UK
It ensures that depositors can recover their money in the event of a bank or building society failure.
What is the annual equivalent rate (AER)?
Standard method for representing interest rates
AER allows comparisons of different deposit-based products based on their interest returns.
What is the Personal Savings Allowance (PSA) for basic-rate taxpayers?
Up to £1,000 of savings income tax free
Higher-rate taxpayers have a PSA of £500, while additional-rate taxpayers do not have a PSA.
What distinguishes banks from building societies?
- Banks: Owned by shareholders
- Building societies: Owned by members with share accounts
Building societies may demutualize and convert into banks.
What are the two main categories of instant access accounts?
- Current accounts
- Savings accounts
Instant access accounts allow immediate access to funds, but may have different features and interest rates.
What is a notice account?
Requires a period of notice before accessing funds
Longer notice periods typically yield higher interest rates.
What is a term account?
Offers fixed interest rates over a fixed term
These accounts provide higher interest for investors willing to leave money on deposit for a specified period.
What is a cash ISA?
Tax-free investment account for savings
Cash ISAs allow individuals to save without paying income tax on the interest earned.
What is the Help to Buy ISA?
A cash ISA for first-time buyers with a Government bonus
The scheme has closed to new applicants but existing savers can continue to add money until 2029.
What is the Lifetime ISA (LISA)?
Savings account for first home and retirement with a Government bonus
It allows contributions up to £4,000 annually and provides a 25% bonus until the saver turns 50.
What are NS&I products?
Government investments backed by HM Treasury
NS&I products are secure investments that contribute to government spending.
What does NS&I stand for?
National Savings and Investments
NS&I products are Government investments that are secure and backed by HM Treasury.
How can NS&I products be purchased?
- Online
- By phone
- By post
NS&I products can be bought directly from NS&I.
