Managing My Money
Week 5: Savings and Investment - Part 2, Episode 10
Share Radio & Open University Business School
'Try not to become a person of success but rather to become a person of value'.
to Managing My Money presented by Glen Goodman and Annie Weston
Risk and prospects of a better return rise together
- Ownership of a company is split into many shares
- Total number of shares issued x share price = its market capitalisation
- The company's earnings belong to its shareholders, aka 'Earnings per Share'. The 'Price to Earnings Ratio' (PER or P/E) is a key measure of the company's value
- Once issued (sold for cash) the shares may be quoted for trading on a stockmarket
- If demand for shares exceeds supply the share price will rise, and vice versa
- If a company goes bankrupt its shares are worthless
- Earnings paid out to shareholders are called 'Dividends'
- The dividend per issued share is a key measure of return, and when divided by share price it is called the 'Dividend Yield'
- If the share price rises since you bought the shares, you can also benefit from Capital Gain
- Dividends plus Capital Gain = your Total Return
Shares, Stocks or Equity
The FTSE 100 index comprises the shares of the top 100 traded companies
Costs of trading in shares
- The Market Spread: the gap between the Bid price (when selling) and the Offer price (when buying)
- Dealing Commission on all trades (shop around!)
- Stamp Duty: 0.5% when buying only, and doesn't apply to small company shares traded on the AIM market
Even big companies such as Tesco can disappoint
So time spent in reconnaissance is rarely wasted
Bonds - money investors lend to Government (known as 'Gilts') or to companies
Note: Premium Bonds are not really bonds!
* Managed for you
* Diversify & should reduce your risk
* Enable investment:
- in specific sectors & regions
- tracked against indexes
* Management fees apply
Types of Fund
* 'Open-ended': prices follow the value of what they're invested in (Net Asset Value) - such as Unit Trusts, OEICs and Exchange Traded Funds
* 'Closed-ended': prices reflect demand & supply for the fund, so usually trade at a discount or premium to Net Asset Value - such as Invesment Trusts
Although they're riskier, shares outperform over the long-term
- and especially over the very long term
£100 invested in 1945 in these was worth this in 2012:
- and again ..
Finally, don't forget tax!
* Investment income and capital gain have thresholds before you have to pay tax
* Then you pay tax on a progressive basis
* Except in tax-incentivised savings accounts, such as
- Junior ISAs & Child Trust Funds
- Certain employee schemes
Take the Week 5 quiz/test at www.shareradio.co.uk - as you take each week of the course, your results will build up on your personal dashboard.
Managing My Money
is broadcast by Share Radio and is based on the Open University Business School online course of the same name.
Your presenters are Glen Goodman and Annie Weston.
Managing My Money - Week 5, Episode 2