Savings and Investments
Contents
Welcome to‌Savings and Investments Here you can read topics that will help you make the most of your money within savings and investments. Big or small savings and investments will hopefully have been a part of your life since you were young. Within this brochure we will discuss most savings, some of which you will probably already have heard of and give you some helpful hints and tips if you are thinking about investing. We will help guide you through the process of savings, investments and getting your money on track. There is a wealth of further information available to you which talks about the many different topics highlighted here. (You can find this information on our website; www.beaconwealthmanagement.co.uk)
If you would like a complimentary first meeting, with one of our advisers, you can find our details on page 17. T: 01480 869466
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E: info@beaconwealth.co.uk
Savings and Investments: 1. Introduction to Savings and Investments 2. Things You Need To Know a. Safety b. Fee Breakdown 3. Structured Deposits and Investment Products 4. Regular Savings Accounts 5. Savings Bonds 6. ISAs Explained Investments 7. Shares Explained 8. Pooled Investment Funds 9. With-Profits Fund 10. Investment Trust 11. Investment Bonds 12. Property Investment
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13. Ethical and Sustainable Investments 14. What To Do Next? Contact Us
The content in this publication is for general information and use only and is not intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon the information without receiving appropriate professional advice through examination of their particular situation. We cannot accept responsibility for any lose as a result of acts or omissions taken in respect of any articles. Mortgages are not regulated by the Financial Conduct Authority (FCA). Your home maybe repossessed if you do not keep up repayments on your mortgage. The value of your investments can go up as well as down. Beacon Wealth Management Ltd
Introduction to Savings and Investments We understand that you want your money to work hard for you. We also know how confusing the world of investing can be with everyone seeming to offer the same, but very different, products. New to saving As with any investment, it is always a good idea to create a plan before you start researching different investment types. See the checklist below as to how to set out your plan. It does not matter if it is £1 or £10,000, as saving is always better than keeping money hidden away. Once you know where your money is, it is easier to narrow down your search for savings and investment accounts that will suit your criteria. Already saving If you already have savings and investments, still read on as these could be maturing and you may need to switch providers to get a better deal. Also your needs may have changed and you may feel you can contribute more each month, so it may be beneficial to enter into a higher interest account to make your extra cash work harder for you. See the checklist below to set out your current investments. Investments are constantly changing, therefore it is a good idea to keep ahead of what is happening compared to different providers. You may feel that you would like to take more/less risk with your money and therefore you will need to change the types of investments you put your funds into.
Checklist
Checklist
New to saving:
Already saving:
□ What are you saving for?
Make a detailed plan of:
□ When will you need the funds?
□ Income
□ How much can you afford to save?
□ Expenditure
□ Decide on your risk tolerance □ Do you have money available for emergencies?
□ Savings and Investments □ Contributions □ Dates of when fixed terms end
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Things You Need To Know Savings and investments can seem
somewhat of a scary place to enter, if you have not had dealings with them before. As with most savings and investments there is some form of risk. The risk will depend on: -
How much money you invest
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What you invest in
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The length of term
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Restrictions on the product/policy
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The amount of information you receive about the product
The risk will vary from policy to provider, but you MUST be aware of the amount of risk you are taking before you choose to save or invest your money. How safe are your savings and investments? Terms and conditions from the provider should provide a section on safety/ protection, and what will happen to your savings if the provider were to liquefy. As long as your money is in a UKregulated bank or building society account, it should be protected under the Financial Services Compensation Scheme (FSCS). This entitles you to be covered for a maximum per person, per financial institution.
For those who have more than the limit to save, it is a good idea to spread your money out across different institutions; this way your money is protected and you are covered for the maximum sum. As well as savings, some investments are also covered under the FSCS; this is why it is vital to read through all terms and conditions before entering into a policy. If you are unsure, an Independent Financial Adviser will be able to tell you if your money is protected. Fee Breakdown As with any investments (and some savings), there are charges: -
Initial charge/Entrance/Opening fee Investing or opening a new account for the first time
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Commission/Flat rate fee – Charged as and when the service processes that trade (mainly charged on shares)
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Annual management charges – To check whether your money is performing and communicate this with you
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Exit fees – May occur when withdrawing your investment before the term end
NOTE: These charges are subject to each provider’s terms and conditions, so be vigilant and check before entering into an agreement.
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Structured Deposits and Investment Products To understand savings and investments products, you need to know certain terms that are used to group savings and investments under different headings. Structured products tie up your money for a set time and are designed to give you income and/or growth. These products can be quite complex, so it is wise to research your provider fully or seek professional independent advice. Structured deposits are savings accounts that are offered by banks and building societies, where the rate of interest you receive depends on how the stock market and other measures of index perform. Usually, the money you invest has the same protection as you would get with other savings accounts under the FSCS. Structured investments are slightly different and are commonly offered by banks and insurance companies. The money you invest will buy two underlying investments, one of which is to protect your capital and the other is to provide you with a lump sum during or at the end of the term.
These structured investments and deposits are also called: -
Protected investment funds
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Guaranteed stock market bonds
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Growth deposit plans
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Guaranteed capital plans
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Structured cash ISAs
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Guaranteed income bonds
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Guaranteed equity bonds
‘Guarantee’ does not necessarily mean that everything you invest will produce a return. You are only ‘guaranteed’ to get the returns offered if the index/investments perform as stated in the products terms and conditions. Often, charges can affect the amount you receive when the plan matures as they are usually included within the product. That is why it is so important to check the terms and conditions of each policy and provider. An Independent Financial Adviser would do this for you.
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Regular Savings Accounts Instant and easy access savings accounts These accounts are an easy way to start saving your money. Usually they will not charge you to deposit or withdraw money, and the interest rates are often slightly higher than normal current accounts. Most of these accounts can be opened with a deposit from as little as ÂŁ1 and it will enable you to save at your own pace, when you can afford it. Low risk The money you save is not locked in over long periods of time and is always accessible depending on your provider.
With most providers you are expected to save between ÂŁ10 and ÂŁ500 a month with continual payments over the year(s). For this reason, you may be receiving a higher interest rate as the provider guarantees your money over one, two or three years plus. Another important fact to remember, is that when the fixed term ends on your savings account, it will probably be transferred to a low interest account and will not continue to receive the higher interest rates previously experienced.
Monthly saver / Regular savings accounts
This is the time to consider switching providers. Include the date your account matures into your plan, so you can keep track of when you need to start looking or seeking advice.
Monthly and regular savings accounts are slightly different to the instant access accounts. You agree to save a set amount each month. These are perfect to get into a regular habit of saving and will ultimately help you reach a specific goal much more quickly.
Most accounts of this type will have set conditions on charges. Usually there are not any charges for opening the account but you may incur a penalty (sometimes a decrease in interest earned for that term) if the money is withdrawn earlier than the agreed date to end the payments.
They also help spread your savings over a period of time, which means you will not have to invest a huge lump sum, this may suit your income and expenditure better.
Some providers will allow a set amount of withdrawals over the term. Check with your provider for full terms and conditions.
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Savings Bonds Saving bonds Saving bonds are suitable for people that have £2000 £500,000 to invest. Your money will be locked into a bond from 6 months – 5 years and the providers usually do not allow withdrawals. The interest rates are significantly higher than other savings accounts and you should also be given a structured breakdown of how much you will receive when the bond matures. Tracker bonds A Tracker bond is a slightly different type of savings bond; interest rates will fluctuate depending on the base rate. You will take the risk of receiving a lower amount than you invested when the bond matures due to the fluctuation of these rates.
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ISAs Explained About ISAs
The Facts
Individual Savings Accounts (ISAs) are a great
ISAs are very easy to keep track of, usually via the internet or in branch. Many ISAs will allow you to withdraw a certain amount of money, a set amount of times. There is very low risk with ISAs and the interest rate is usually better than a standard current account.
way to save, tax-free, and are open to most people with as little as ÂŁ1 to start saving. ISAs work the same as regular savings accounts; there are limits as to how much you can put into an ISA over the financial year (April-April), limits are regulated by HM Revenue and Customs. Fixed ISAs Fixed ISAs offer slightly better interest rates as your money is tied in over a period of time (often a one to five year period), and some providers do not accept withdrawals without incurring high penalties. Cash ISAs Cash ISAs are an easy saving solution. They can be opened with as little as ÂŁ1 and many offer unlimited withdrawals without incurring penalties. It is always a good idea to shop around for the best deals. Make sure before you agree to any set conditions that you know what you can afford to save; this is where your plan will come in. If you are not sure whether you will need the money at a later date, it may be better for you to opt for an ISA that has unlimited or set withdrawals so that you do not face penalties when accessing your funds.
Interest rates for ISAs are usually quite competitive as most banks and financial companies will offer different types of ISAs depending on your needs. Usually when you open a new account you will receive an introductory interest rate for a certain period of time. However, be aware when these run out your money will roll over into a regular savings account until you choose to reinvest your money. Not only can ISAs be used to store cash, they can also be used for stocks and shares. These can be placed within an ISA which holds some key advantages. Benefits of Stocks and Shares ISA: -
Any profits earned from the shares are not liable for capital gains tax
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The full amount of the stocks and shares can be reclaimed (depending on what stocks and shares are owned)
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Cash ISAs VS Stocks and Shares ISAs The question stands: should you use your allowance for cash or stocks and shares? If you have been toying with this decision, here are a few helpful tips to get you started: -
You can have both a cash and a stocks and shares ISA at the same time
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Limits are set on both of these per financial year
Transferring your ISA Not all providers allow you to transfer your ISA to another provider and some do incur penalties. Always check with your provider Junior ISAs Junior ISAs were introduced to replace the Child Trust Fund. They are much the same as adult ISAs but they allow a parent or relative to save on behalf of their children.
Junior ISAs usually offer a higher interest rate than normal ISAs as the terms are often longer and the plan will mature at a set age (e.g. at the age of 16). It enables parents to make sure their children have tax-free savings in a bank account which will help them in the future when they want to start saving independently. Hopefully, it will also give them an early start in understanding savings and investments. Fees Some providers may charge an initial opening fee and penalties if you withdraw money earlier than planned. Always check with your provider. It is worth doing your research and shopping around for the best deals.
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Investments Shares Explained What are Shares? Shares (also known as equities) are like tiny parts of a company; if you own one, you will hold a little bit of the company and a proportion of the company’s value.
Earning money from shares is not as complicated as it may seem: -
If the company grows and becomes more valuable, your share will essentially be worth more (so will your investment)
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Some shares will allow you to be paid part of the company’s profits. This is called a dividend; you may pay tax on this if you are liable
How they work You can own shares yourself or you can pool your money with other people in a collective investment (pooled investment funds). Owning a share directly makes you a shareholder, which can mean that you have the right to vote on some company decisions. This however, does not happen if you invest within a fund.
As with most investments, the value of the share will fluctuate. This means when the company value increases your share will be worth more. Likewise, if the company value decreases, your share will be worth less.
Most shares are bought and sold on the stock exchange. Listed shares are traded on the London Stock Exchange, often for big companies. Other smaller companies are traded on an Alternative Investments Market (AIM).
It is a good idea to have your shares spread across different companies, so that your money is not vulnerable to the changes in just one company - potentially avoiding huge losses.
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Pooled Investment Funds Pooled Investment funds
Safety/Protection
These are group investments, often for people who want to invest in stocks and shares but do not have the time to research all products themselves. There are a variety of pooled investment funds. We have selected a few to discuss.
Your investment is usually protected under the FSCS up to a certain limit per person; this will depend on the terms and conditions of the shares.
Open Ended Investment Companies (OEICS) and Unit Trusts A fund manager will take all the investments into one pot and invest it in the fund’s underlying assets. The overall fund will fluctuate depending on the buying and selling of shares within the OEIC or Unit trust. You will own a share of the grouped fund and will see the return dependent on the fluctuation of interest rates. Criteria for funds like these are: -
You want to invest in shares but do not necessarily have the time to sift through all the shares on offer
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You appreciate that you may get back less than what you invested due to the nature of buying and selling.
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You can save at least £25 a month and have a minimum lump sum to invest of £500 (although these figures can alter depending on the fund type)
Some funds are riskier than others. Be sure to check this with your provider. Ethical Investing Ethical investments cater for the ethically savvy investors; the fund manager can pick and choose where they invest your money, depending on an ethical criteria. If you have specific ideas of where you want your money to go on an ethical basis, add it to your plan; you can check with your adviser or the provider to see if they do offer this service. More information on ethical investing can be found on page 16. Fees As with any investments, there are charges (shown in the Fee Breakdown section on page 3).
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With-Profits Fund About With-Profits funds With-profits funds are not that well known compared to a lot of other investment funds. These funds are usually offered when you set up an endowment policy, an investment bond and/or a whole-of-life policy. These are usually for money you do not need to access for a long period of time, as there are large penalties for withdrawing your money early. The Facts As a type of pooled investment fund, it works much the same as an OEIC or unit trust in that: -
The money you invest is pooled together with money from other people
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This would be managed by an investment manager
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You own a share, therefore, a share of the profits is given to you
The difference is that it is invested in a specific insurance company’s with-profits fund, whereas normally it could be any number of companies your money is invested in. The costs of running the insurance company’s business are deducted from the fund, and whatever is left over is available to be paid to the with-profits investors. Some companies offer bonuses throughout the time your money is invested (also known as a ‘terminal bonus’). As with most investment funds, the amount of profit you earn depends on the amount you have invested.
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Investment Trust About Investment Trusts
How it works
An investment trust is a company that raises money by selling shares to investors and then, as with most pooled investments, will group that money together to buy and sell a wide range of shares and assets.
The difference with investment trusts is that they can borrow money to actually buy shares. This gives the investment an edge on most other funds. It also has extra buying potential which could increase the gains when the markets are increasing, but the investment could suffer significantly when the markets are falling.
Different investment trusts will have different aims and a mix of investment types. Criteria These investments are usually for people who want a potentially higher return than from a Unit Trust or OEIC and are willing to take more risk. However, these investments will fluctuate and your money is usually tied up for more than five years, which for some is a scary prospect, but it could allow you to access the higher returns.
You cannot technically withdraw your funds from this investment; you must find somebody else to buy your shares from you. Although it does not have to be someone you know, this can be done by selling them on the stock market. Unlike the OEICS, investment trusts distribute a fixed number of shares. After this they are closed to new investors. Again, with any investment, the risk you take is dependent on your tolerance to the fluctuating markets. Also the fees charged are similar to the other investments (found on page 3).
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Investment Bonds Investment bonds are very similar to savings bonds; you invest a lump sum usually ÂŁ5,000+ and you tie up your money for at least five years. The majority of these bonds are whole of life, meaning there is no minimum term but surrender penalties may apply in the early years of opening your account. At surrender or on death, a lump sum will be paid out. If the investment is not a whole of life bond, this would happen at the end of the term. These bonds will usually offer a better return than a standard savings account, but as with any investment, there is the risk that you will get back less than what you paid in.
Endowment policies: Usually they are set up as regular savings and at the end of the term will pay out a lump sum. The policy will include life assurance, so it will pay out if you die during the term. These policies are aimed at people who want to save for a specific goal or event for usually around 10 years. How they work They work by paying in a contribution monthly; part of the payment is used to buy life protection, and the other part is invested in a with-profits or unit-linked basis (pooled investments). The lump sum then correlates with how well your investments have performed over the term.
In terms of withdrawals, providers will sometimes allow you to withdraw some of your money without incurring penalties. Charges will often occur with investments of this type. Check with your provider so you know if you are paying any charges up front and what you could incur over the term of your investment.
With all investments there is the risk that the value of the investment will fluctuate and you may experience a decrease in the value of your investment. There is also little access to your money throughout the term as they are generally whole-oflife policies.
Investment bonds are also known as an array of different terms: insurance bonds, with-profits bonds, unit-linked bonds and single premium bonds.
Some charges are incurred and this is usually based around administration charges which may be incorporated into an entrance fee.
Whole-of-life policies: -
Monthly/Annual payments into certain investments that will continue until a certain age or death
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A lump sum is paid out upon the end of the term; this payment will be distributed among your specified trustees or beneficiaries (if your policy is written in trust)
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Your money will be tied up for life or an age you specify (for instance, upon retirement)
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Guaranteed pay out on death
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Some providers will offer you the chance to add insurance against critical illness and other health related insurances Beacon Wealth Management Ltd
Property Investment Returns from property investment will be in the form of rent or selling the house once you have improved it and increased its value. Indirect property investment is a way of investing in property markets without actually having to buy a house or flat yourself, and will usually allow you to commit to a long-term investment. The investment will fluctuate dependent on the market at the time. There are several types of indirect property investment: Real Estate Investment trusts (REITS) -
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A REIT is a property investment company that will be listed on a certain stock exchange that owns and manages property on behalf of shareholders Both residential and commercial properties can be invested in via a REIT
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You invest in these by buying shares in a REIT. If the investment does well, you will receive a proportion of the profits
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For tax purposes, a REIT has two separate elements; a ring-fenced
property letting business is exempt from corporation tax and non-ringfenced activities like property management services are not exempt -
Payments from the ring-fenced properties (tax-exempt element) are treated as UK property income for the investor and are paid net of basic rate tax (non-taxpayers can re-claim this). Payments from the non-ring-fenced properties (nontax-exempt) are treated the same as any UK dividend and paid with a tax credit
A positive aspect of a REIT is that, it pays less corporation tax and therefore may be able to return more profit to investors. You can also include a REIT in an ISA up to your annual limit. The only drawback with this type of investment is that listed property companies are not subject to direct supervision by the FCA, which means your investment is not protected under their rules and regulations.
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Ethical and Sustainable Investments
Ethical/Sustainable investments Sometimes it is difficult to understand where your money actually goes once it is invested. Something you will need to ask yourself if you do make an investment is whether they are ethical or sustainable. This would mean you want to invest in companies that have a positive contribution to the social environment and avoid companies that have a negative effect on society. How they work Many ethical funds have a panel or committee responsible for setting the criteria and establishing an approved list of companies from which the portfolio manager can select investments. Most ethical funds are invested mainly in shares; therefore the investment should be for a period of at least one to ten years. Also, some funds will be higher risk than others and their performance is still reliant on good investment management techniques. There are an array of investments that qualify for ethical status. This will vary between investment products and providers.
Most providers will have a set portfolio as to what they do and do not invest in. This basically means your money, whilst hopefully giving you a return, is not being invested into companies that fund foreign wars or unauthorised illicit activities. There are a whole host of areas that certain fund managers will not invest in such as companies that are associated with animal cruelty, gambling, and animal testing (to name just a few). This is a relatively new specification that investors have put on fund managers, enabling investments to become more ethical and informing investors where their money ends up. A portfolio manager would set out certain criteria to which portfolio they should be allocated, based on an ethical investment questionnaire. There are specific ethical portfolios so that clients know that their money is being invested sustainably. If this is something you would consider, it is always best to speak to an Independent Financial Adviser.
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What To Do Next?
Do have a look around yourself. As with many financial products, providers are quite open with what they will offer and for how long. A lot of the time it is a lengthy process sifting through financial jargon before you get down to what the actual product is offering. Ideally, it would be a good idea to contact a Financial Adviser who is independent and will have access to the ‘whole market’. This means they could find you deals and providers that you may not have access to on the open public market. Start planning now to get the most out of your money. Beacon Wealth Management are Independent and Chartered Financial Advisers.
Contact us for a free initial meeting
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About Us
Meet The Team Tony Larkins APFS Chartered & Certified Financial Planner. (Managing Director) Specialising in personal and corporate financial planning as well as Pensions and Investments tlarkins@beaconwealth.co.uk Adrian Banks Dip.PFS, Cert CII (ER & MP) SOLLA & Independent Financial Adviser
Chris Wills Dip.CII Independent Financial Adviser ..
Specialising in long term care and financial planning for later life clients
Specialising in financial planning ..
abanks@beaconwealth.co.uk
cwills@beaconwealth.co.uk
Martin Eaton BSc, CEFA, CeMAP Independent Mortgage and General Insurance Adviser
Mark Graddage Cert PFS, Cert CII (MP) Business Support Manager ………………………….
Specialising in mortgage and general insurance
Specialising in mortgage and general insurance
meaton@beaconwealth.co.uk
mgraddage@beaconwealth.co.uk
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Beacon Wealth Management Ltd Chartered Financial Planners The Old Chapel Thrapston Road Kimbolton Cambridgeshire PE28 0HW T: 01480 869466 F: 01480 869477 info@beaconwealth.co.uk www.beaconwealthmanagement.co.uk Authorised and Regulated by Financial Conduct Authority. Registered in England and Wales No.526604
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