Multi-billionaire Warren Buffett, the world's wealthiest man and most respected investor on the planet has just 2 rules when it comes to investing

Rule No 1: Never lose money
Rule No 2: Never forget Rule No 1.

Did you know... the 2 most common answers given when people are asked about their investment objectives are

i) "I just want the best returns"
ii) "to get as much as possible"

Nothing wrong with these on face value, they're simply natural human responses, the only problem is they are not specific enough, to demonstrate, imagine the following scenario of a man buying a train ticket ~

Ok, so the above scenario is never going to happen in reality, but the concept is exactly the same when it comes to your investment & savings plans, you will have a far greater chance of achieving them if you know exactly where you want to go!

Helping you Achieve the Most from Your Savings & Investments

We can help and advise you on many different types of schemes from regular savings plans to lump sum investments but before we do, we need to ascertain 3 very important answers from you before we can move forward (niddocks: see next page - not enough room to get it on this page) ~

Free Initial Consultation If you would like a Free initial consultation with Darren to discuss Investments or Savings or review your existing arrangements, call us on 01522 540555 or simply fill in the enquiry form

Learn more about Investments & Savings

• The 3 ‘layers' and different types of Investments
• How much will you get from your Investments and Savings?
• Why Most People lose on the Stock Market
• Cashing in when the Stock Market has a Sale!
• What is ‘Pound Cost Averaging?'
• The 2 Golden Rules of Investing
• Attitude to Risk Gui

The 3 Layers and Different Types of Investments

You may have heard of all sorts of investments - ISAs, shares, property, unit trusts - the list goes on. However, the best way to understand investments is to think about investing as having 3 ‘layers':

• Asset Classes - the underlying investment itself will fall into what are referred to as asset classes. There are four main asset classes, you can invest in each of these directly if you wish, they are
  • Shares - you can buy shares as part of a pooled investment or directly, when you buy through the stockmarket. Shares are also known as equities or stocks. When you buy shares direct in a company, you are buying a part of that company, and you become a shareholder, which usually means you have the right to vote on certain issues. You can either buy new shares when the company starts up and sells them to raise money (through an Initial Public Offering), or buy existing shares which are traded on the stockmarket.
  • Bonds - a bond is a loan to a company, government or a local authority. Generally, interest is paid to you as the lender and the amount of the loan repaid at the end of the term (usually ten years or less). There are many other names for this type of investment, for example: > loan stock > fixed interest > debt securities > gilts (loans to the government) > corporate bonds (loans to companies).
    
    The main benefit of these investments is that you normally get a regular stable income. They are not generally designed to provide capital growth. Bonds have a nominal value. This is the sum that will be returned to investors when the bond matures at the end of its term. Most bonds have a nominal value of £100.
  • Property - with a property investment you are often looking to receive rent from a tenant - whether this is a private person in a buy-to-let or a sub-letting arrangement or a company in a commercial property - and also capital growth as the value of the property increases.
    
    If, as an example, you choose to invest directly in a buy-to-let you will be tying your money up and, unlike shares, bonds and cash, it can be difficult to get at your money quickly as you will need to sell the property. You can invest in a pooled investment that invests in a range of properties. These normally invest in commercial properties.
  • Cash Deposits - Cash deposits are mainly for savings rather than investment but we mention it here as it is considered one of the four main asset classes. Cash deposits - bank and building society accounts - are an excellent place for money needed for the short term (under five years) and for an emergency fund.
    
    Cash deposits are generally considered to be safe - there are only usually problems if the bank or building society goes bust and this is very rare. The downside, of course, is that the returns may not be particularly attractive over the long term. In addition, you need to bear in mind the effect of inflation, relative to the amount of interest that you will earn on your cash, as this may reduce the buying power of your money.
    
    If you use cash deposits to save for the long term, say for your retirement, you run a higher risk that you might not have as much money as you need than if you'd invested in a personal pension scheme for example.
• Pooled Investments - this is when you put your money with other investors to invest in one or more of the above asset classes. This spreads your risk and saves on costs. Open-ended investment funds, investment trusts and life assurance bonds are the most common pooled investments.
  A pooled investment is one where lots of people put in different amounts of money into a fund, which is then invested in one or more asset classes by a fund manager. They are sometimes called collective investments. The main benefits of pooled investments are:
  • Professional expertise - you arrange for an investment expert to pick investments for you, to watch those investments daily and judge when to sell them.
  • Spreading your risk - even if you have small amounts to invest, you can spread your money across a wide range of investments. You reduce the impact on your investment if, say, one company performs badly. Pooled investments will invest in one or more asset class.
  • Reduced dealing costs - if you want to buy a range of different investments directly, you would probably only be able to invest a small sum in each. This means dealing costs could eat into your profits significantly. By pooling your money, you make savings because of bulk buying.
  • Less administration - the fund manager handles the buying, selling and collecting of dividends and income for you. They also deal with foreign stock exchanges and brokers, which can be tricky and time consuming.
  • Choice - there is a very wide choice of funds so that you can pick one - or many - that suit you individually. There are several types of pooled investment but the main three are:
    • Open-Ended Investment Funds
    • Life Assurance
    • Investment Trust
• Tax Wrappers - these are tax breaks that you can - subject to certain rules - wrap around your investment, to shield it from either some or all tax. The wrapper can be around either the underlying investment or the pooled investment. The two most common tax wrappers are ISAs and pensions.
  • a) An ISA (Individual Savings Account) is not an investment on its own, it's a tax wrapper that you put around an investment. You can have a stocks and shares ISA which can include:
    • Individual shares or bonds, or
    • Pooled Investments such as open-ended investment funds, life assurance investments or investment trusts.

Alternatively you can have a cash ISA which has no investment risk element, instead it works as savings account through a bank or building socirty. You can have a different ISA each tax year.
As long as you keep the investments within an ISA you do not have to pay any income tax or capital gains tax on the growth of the investments. Because of the tax breaks, there is a limit to how much you can put in an ISA.
There are two main types of ISA - mini and maxi.

You can have two mini ISAs in any one tax year and each mini can be from a different provider. This is so you can have one stocks and shares ISA (up to £4,000) and one cash ISA (up to £3,600).

With a maxi ISA you can invest the full £7,200, but just with one provider. This can be just a stocks and shares ISA or, if the provider offers a cash option, then you can have up to £3,600 in cash within the maxi ISA.

Care is needed as you cannot mix minis and maxis. If you start a mini ISA, even with just £1, then you cannot have a maxi ISA. You can have two minis (one cash, one stocks and shares) but just one maxi.

• Pension - a pension is a long-term investment with a tax wrapper and special rules (about how much you can invest, when and in what form you can take benefits). Briefly, you get tax relief on your contributions up to a set limit and your income is taxed when you receive it at retirement.
  
  With most pensions the same basic rules about investments apply - asset classes, diversification and pooling. Remember, with a pension you are usually investing over a longer period so you may be willing to take a bit more risk with your pension investments. Salary-related pensions work in a different way.
  

See the Pensions section for more details about pensions.
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How much will you get from your Investments and Savings?

There are 4 factors which determine how much your investment or saving fund will amass, they are ~

1. How much you contribute
2. The rate of return you receive
3. The length of time you save/invest your money
4. When you start

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Why Most People lose on the Stock Market

It may surprise you to know that the majority of amateurs (estimated at 90%) who play the stock market themselves actually lose money. There are two main reasons for this,

Firstly, they only ever buy stocks (you can actually sell them in various forms such as futures) which means the only way they can make money is by selling them for a profit (obviously). But because most amateurs tend to buy when the market is high, thinking the market will just keep rising, this is often followed by a reluctance to sell when the market has a downturn as there is a tendency to hold on to their stock in the hope it will bounce back (it usually does, but it could be years later, by which time most amateurs have ‘had their fingers burnt' and learned a harsh lesson, remember the ‘dotcom' crash? ouch!).

Secondly, and this is the big difference between professionals and amateurs, amateurs become emotionally involved and make irrational decisions when to sell, usually based on some piece of media gossip and get caught up in the ‘herd mentality' (i.e. following the crowd, which consists mainly of amateurs). True Professionals on the other hand are not emotionally involved which allows them to make sound rational decisions and make money by either selling or buying so it doesn't make any difference to them which way the market is heading.

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Cashing in when the Stock Market has a Sale!

I don't think there is a lady in the western world who doesn't love shopping in the sales, because there are obviously bargains to be had! In fact we are all attracted to sales because we perceive it as a chance to get more value than normal, it's just human nature!

But when it comes to the stock market, most of us do the complete opposite, in other words, when the stock market has a sale, which is more commonly known as a crash, we all run away! The is all down to what is known as the ‘herd mentality'. Yet when the market is booming and the merchandise (stocks) is very expensive we all jump in and buy, very strange indeed.

A common phrase you will hear after the stock market has had a crash or sharp correction is "I don't want to touch the stock market, it's had a terrible time". Based on simple logic, there isn't a better time to invest in the stock market than just after it has crashed, it's having a sale, you can pick up some absolute bargains! The stock market always fluctuates in cycles, there will always be highs and lows, as long as you are not looking for a quick return, the market always has and always will (if history continues to repeat itself) bounce back.

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What is ‘Pound Cost Averaging?'

This relates to investing with a regular contribution (not lump sum). It simply means, you invest a regular amount every single month, regardless of where the market is heading. Don't even read the newspapers....just invest month in and month out, by doing this you will be buying across all the market highs and lows (averaging) so market fluctuations aren't going to have a major impact on your money long term as opposed to investing a lump sum where you certainly don't want to get your timing wrong.

Over the long run, this is the best strategy. If the market then has a crash, look on the bright as you will start getting much more stock for your money. Doing it automatically (by standing order so you don't even have to think about it ) is highly recommended as opposed to investing it manually as you are more than likely to get sidetracked or even stop doing it and then your future could suffer leading to regret!

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The 2 Golden Rules of Investing:

1. Never lose Money (Warren Buffett)
2. Only invest with Money you can afford to lose

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Attitudes to Investment Risk Guide

The following chart (compiled for guidance purposes only) shows 11 risk attitudes ranging from Ultra conservative (very low risk) to Highly Speculative (very high risk), to give you an idea of risk profiles and associated products.

Free Initial Consultation
If you would like a Free initial consultation with Darren to discuss Investments or Savings or review your existing arrangements, call us on 01522 540555 or simply fill in the enquiry form