petematthew
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My oldest daughter will be heading to university next September. What's the best investment plan to ensure that I can finance her studies?
- poppy68 asked 2 years ago in Investments
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Expert Financial Adviser Answer
James Brooke
answered 2 years ago
You do not say how old your other two daughters are and therefore I have no idea of time scale. The longer the time the scale the more you may want to consider taking some risk because the variablilty of returns, (volatility) reduces with time. However, it is important to remember that the range of outcomes and therefore the risk increases with time.
Sadly, there is no investment plan that give a high return with relatively low risk. Risk and return are closely related. Some structured products purport to give the high returns with low risk, but all you have done is to swap market risk for counterparty risk and, if the counterparty goes bust, you may have lost all of your money rather than just some.
I would have thought that a well constructed portfolio of low cost, index tracking, investments could be what you need. This would be predominantly in fixed income assets and you would want them to be index linked and of short term duration to avoid inflation and interest rate risk as much as possible.
Speak to an Independent Financial Adviser.
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Sadly, there is no investment plan that give a high return with relatively low risk. Risk and return are closely related. Some structured products purport to give the high returns with low risk, but all you have done is to swap market risk for counterparty risk and, if the counterparty goes bust, you may have lost all of your money rather than just some.
I would have thought that a well constructed portfolio of low cost, index tracking, investments could be what you need. This would be predominantly in fixed income assets and you would want them to be index linked and of short term duration to avoid inflation and interest rate risk as much as possible.
Speak to an Independent Financial Adviser.
What is the difference between stocks and bonds?
- moneystar asked 1 year ago in Investments
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petematthew
answered 1 year ago
Stocks is a catch-all term, so I presume you mean Shares by this.
A share is a tiny slice of a company. If you are a shareholder you have certain rights, like the right to vote on matters that concern the running of the company, and possibly, the right to a dividend if the company is profitable.
A bond on the other hand is an IOU. If a company needs to raise money, it can ask to borrow it. Assuming I want to lend money to such a company, they will issue me with an IOU for the amount I have loaned. While they have my money, the company will pay me a fixed amount of interest, called the coupon. this is why bonds are sometimes called fixed interest investments.
So far, so simple. But a smaller company might be more likely to default on any loan I make to them. So in order to attract lenders they may have to offer a higher rate of interest, which can be lucrative to me the lender.
A high level of interest may be attractive to another investor, who may buy the bond off me for more than the amount I lent to the company,so I make a profit. this is how bonds fluctuate in value: they are traded on the stock market like shares.
Bonds are easier to hold than they are to explain. I might do a video later as these things can be easier said than written sometimes!
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A share is a tiny slice of a company. If you are a shareholder you have certain rights, like the right to vote on matters that concern the running of the company, and possibly, the right to a dividend if the company is profitable.
A bond on the other hand is an IOU. If a company needs to raise money, it can ask to borrow it. Assuming I want to lend money to such a company, they will issue me with an IOU for the amount I have loaned. While they have my money, the company will pay me a fixed amount of interest, called the coupon. this is why bonds are sometimes called fixed interest investments.
So far, so simple. But a smaller company might be more likely to default on any loan I make to them. So in order to attract lenders they may have to offer a higher rate of interest, which can be lucrative to me the lender.
A high level of interest may be attractive to another investor, who may buy the bond off me for more than the amount I lent to the company,so I make a profit. this is how bonds fluctuate in value: they are traded on the stock market like shares.
Bonds are easier to hold than they are to explain. I might do a video later as these things can be easier said than written sometimes!
How do I maintain my tax efficient status for my cash ISA and stocks and shares ISA?
- poshjosh asked 1 year ago in Tax
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petematthew
answered 1 year ago
Yes, there's a difference. If you think of an ISA as a bucket with tax rules attached to it, the difference between a cash ISA and a stocks and shares ISA is what you can put in the bucket. The other difference is in the limits. The overall ISA limit is £10,200, rising to £10,600 next year. Of this, the most you can have in a cash ISA is £5,100. If you do this, you still have another £5,100 you can put in a S&S ISA. If, however, you put the full £10,200 into a S&S ISA, you cannot have a cash ISA in that tax year.
Remember that the limits are how much you put in each tax year, not on how much you have in, so every April 6th, you get a new allowance. Cash ISAs can be held from age 16 up, and S&S ISAs from aged 18 up. There is talk of a new Junior ISA designed for children which will replace, to some extent, the now defunct Child Trust Fund. Not many details are out in the open about these yet.
As long as you don't withdraw the money from your ISA, it will remain tax efficient. Only Cash ISAs are completely tax free, because the interest is paid gross, that is, before income tax. Income from an S&S ISA is often in the form of dividends, not interest. These have a notional 10% deducted before you get the dividend, and that 10% cannot be reclaimed. S&S ISAs are free of Capital Gains Tax though.
You can transfer an ISA from one provider to another and keep your tax free status. You can also transfer a cash ISA into a S&S ISA, but not the other way round.
Hope that helps
Pete Matthew - meaningfulmoney.tv
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Remember that the limits are how much you put in each tax year, not on how much you have in, so every April 6th, you get a new allowance. Cash ISAs can be held from age 16 up, and S&S ISAs from aged 18 up. There is talk of a new Junior ISA designed for children which will replace, to some extent, the now defunct Child Trust Fund. Not many details are out in the open about these yet.
As long as you don't withdraw the money from your ISA, it will remain tax efficient. Only Cash ISAs are completely tax free, because the interest is paid gross, that is, before income tax. Income from an S&S ISA is often in the form of dividends, not interest. These have a notional 10% deducted before you get the dividend, and that 10% cannot be reclaimed. S&S ISAs are free of Capital Gains Tax though.
You can transfer an ISA from one provider to another and keep your tax free status. You can also transfer a cash ISA into a S&S ISA, but not the other way round.
Hope that helps
Pete Matthew - meaningfulmoney.tv
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