Saving & Investments

Savings and Investments

Why are we encouraged to save money?


From childhood, most of us are told to put away money to save for the future – perhaps for something special; or maybe to be sure that when we really need something we have the funds to acquire it, without taking on debt. People’s aims are broadly the same; to provide for future needs, and to protect ourselves against unexpected expenditure, events and inflation.


When planning your finances, it is important to distinguish between savings and investments. Savings are generally funds that you set aside that can be accessed relatively quickly. These savings are often for a specific need or purchase, like a holiday or a new car. The most common way of saving is into a bank account (‘deposit’ account) where the money can be accessed in an emergency, and for every £1 you put in, you will get £1 back and possibly some interest. In other words, the original capital is guaranteed.

Investing and Risk

Investments are designed to be held for a longer term, usually at least 5 years. You need to be comfortable with tying up this money for a period of time and should not consider investments unless you have some savings in place. Most investments are not guaranteed to return your money in full, although do offer the prospect of potentially higher returns than deposit accounts. Returns, risk and volatility are the factors that will determine a suitable place for your investments. The value of investments may fall as well as rise. You may get back less than you originally invested.


Whether you are looking at investing in a pension, an investment bond or ISA (Individual Savings Account), you might consider using investment funds. A fund is capital belonging to numerous investors, held in one place and used to collectively purchase securities, while each investor retains ownership and control of his own shares. Buying large numbers of shares or achieving a portfolio of investments may well be beyond most average investors so they effectively club together to increase their purchasing power.


Typically, these pools of money are run and managed by an investment specialist. The manager is paid to make the day-to-day decisions of where the pooled money is invested. The fund manager uses their expertise to make suitable investment decisions in order for the value of the pooled fund to hopefully grow over time.


Another advantage of pooled investment is being able to diversify.

Diversification and Risk

All investments carry some element of risk. The value of the fund can fall as well as rise and you may not get back the full amount originally invested. To enable funds to be able to manage risk, the manager will practice some level of diversification. This works on the premise that holding two different shares is better than two of the same shares. This is because all shares react differently to investment conditions and changes.


For example, imagine that there are only two companies, one company making t-shirts and one company making woolly jumpers. If the weather forecast is for sunshine, then investors would be wise to buy shares in the t-shirt company as they expect demand for t-shirts to increase and sales to rise, increasing the company share price. However, we know that it is not always sunny and therefore a good manager would buy shares in both companies, so when one share price is static or even falling, the other is able to support and perhaps offset the falls, meaning that the investor doesn’t suffer a loss.


The value of investments may fall as well as rise. You may get back less than you originally invested.

Bank Accounts

current accounts may offer a very low rate of interest (if any) but they are the most flexible in terms of accessing your money. Banks also offer savings accounts with higher interest rates and notice accounts with competitive interest rates, but you may have to give a certain amount of notice before making a withdrawal (60 or 90 days perhaps), or you must agree to invest the money for a set period.

National Savings & Investments

These are generally considered low risk as they are government-backed. Many of National Savings products are tax-free.

Bonds & Gilts

These are generally considered to be lower risk than direct equities, although the value can still fall as well as rise. Corporate bonds are investments based on business loans offered by private companies and are ‘rated’ based on the ability of the issuer to maintain interest payments and repay the loan. A corporate bond fund will invest in a wide range of these loans. ‘Investment grade’ stock within the bond fund is rated AAA to BBB, whilst stock rated a BB or below is termed ‘junk or non-investment grade’. Some funds also invest in government bonds (known as gilts).

The income yield that is available from fixed income investments varies according to the quality of stock. Lower quality (junk or non-investment grade) stock usually offers a higher yield to attract investors (as they may be otherwise put off by the increased risk/volatility) whilst gilts generally offer much lower returns, they are underwritten by the government and so the risk of default is much reduced.

Property

The long-term historic performance of commercial property has very little correlation with the performance of corporate bond or equity-based investments. For investors looking to diversify their portfolio, property funds have historically offered attractive returns. Income from commercial property funds is often derived from contractually binding contracts of rent paid by business tenants to occupy property. Consequently, leases are often arranged over a long period and generally include an ‘upwards only clause’ which ensures that rents are not negotiated downwards during the lease period, even in times of falling markets.

Added to the rental incomes, property has the added attraction of potentially appreciating in value over time, and although property values do fall, the ‘bricks and mortar’ assets of a fund remain. However, returns from a property fund are not guaranteed and the value of any investment can fall as well as rise.

Furthermore, because of the nature of property as an asset, it may not always be possible to immediately switch or cash in your investment, because the property in the fund may not always be readily saleable. If this is the case, then a fund manager may defer your request to cash in for a period of time. You should bear in mind that the valuation of property is a matter of the valuer’s opinion, rather than a matter of fact.

Equities (shares)

Over the long-term, equities have historically offered better returns for investors. Although this is not a guide to the future, it is felt that the increased risk of investing in company shares can potentially be rewarded by investment returns in excess of those available from traditional deposit accounts. However, there are no guarantees.

Investment ‘Funds’

Specialist investment managers will often manage a fund (a pool of investments) that invests in one or more of the above categories, the aim being to diversify the risk across a spread of equities, bonds, or both. There are hundreds of investment funds available, each with their own specific aims and objectives. Investment funds can also specialise in one particular sector, such as only investing in companies that are listed on the FTSE 100 index, or only investing in construction and mining companies. There are also funds that invest geographically, perhaps only buying shares in Japanese or American companies. Each sector has its own unique characteristics, and your adviser will be able to explain more about this.

All these types of investment are available through your financial adviser. You may be able to include your investment within a tax-efficient product such as an ISA (Individual Savings Account) or a pension. There is a vast array of products available, and choosing the most suitable one can be difficult, your adviser will be able to help you decide which are suitable for you.


THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE NATIONAL SAVINGS & INVESTMENT PRODUCTS


The value of investments may fall as well as rise. You may get back less than you originally invested.


Children's ISA

The Children’s ISA – Saving Up for when they grow up!

Looking to save for your Child’s future? The Junior ISA provider, The Children’s ISA offer a range of Stocks and Shares Junior ISAs options for you to choose from whether it be an actively managed option, a low-cost solution or ethical investing. The Junior ISA is like an adult ISA, providing tax-free savings for Children. You can open a Junior ISA with The Children’s ISA with a £10 minimum investment and pay in up to £9,000 per tax year.


Why invest in a Junior ISA?


  • Help your child save for education or their first home from an early age.
  • Provide a sum that will reduce the burden of debt on your child’s life.
  • Make saving rather than borrowing habitual for your children.
  • Provide for your children who have missed out on the government contributions – there is no government contribution to the Junior ISA.
  • Provide a savings vehicle for friends and family to pay into – no more unwanted gifts. Any parent or guardian can open a Junior ISA and anyone can make contributions to it.
  • Benefit from the tax advantages of a Junior ISA – pay in up to £9,000 per tax year.


Any UK resident Child under 18, who is not eligible for a Child Trust Fund (CTF), is eligible for a Junior ISA. This includes Children who were born before the CTF eligibility in September 2002. Management passes to the child when they reach 16 but they can only access funds when they turn 18 when it becomes an adult ISA.

To look at your investment options and apply for a Junior ISA, please click on the button below.

Access to Direct Offer Option

A fully managed, low cost online ISA and Pension investment service, designed and tailored for you without any advice fees. Actively Managed ISA and pension Investment Portfolio enabling access to a whole of market Investment approach. The Direct Offer Option for ISA & Pension has no advice fees, however advice is not provided under this option.