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'.

Albert Einstein

Welcome

to Managing My Money presented by Glen Goodman and Annie Weston

Risk and prospects of a better return rise together

Share Capital

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

Dividends

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 are the best proxy available for investing in human enterprise.' : Gavin Oldham, founder of Share Radio

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!

Characteristics:

* 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

Investment Funds

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

- ISAs

- Pensions

- 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.