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Paraplanning > R01 Chapter 2 Part 2 > Flashcards

R01 Chapter 2 Part 2 Flashcards

1
Q

What is regular saving

A

When a client puts small amounts of money aside on a regular basis that develops into a bigger lump sum

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2
Q

Short term investment

A

Most adults want readily accessible savings.

Three to six months expenditure is a good goal for short term investing

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3
Q

Medium term investing

A

Typically 5-15 years
It’s more important to maintain than short term savings

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4
Q

Long term investment

A

Usually 15+ years
More important to maintain than medium term.
Wider range of investment choices

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5
Q

Name some financial priorities?

A

Pay off expensive debts
Protect the family
Have an emergency fund

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6
Q

Savings account

A

Pays higher interest than current accounts.
Instant or easy access.
get back at least what you put in

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7
Q

Cash ISA

A

£20k limit per tax year.
Can pay higher interest than usual savings account.
Easy to access.
You usually get back at least your original investment, but it’s not guaranteed.

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8
Q

Notice account

A

You have to give notice to take out money
30, 60 or 90 days
Involves a penalty if you withdraw too soon

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9
Q

Fixed-rate bond
(Bank account)

A

Usually need to leave money in for at least a year (or the defined term).
A minimum deposit is usually required.
A penalty will be incurred if you withdraw before end of the term.

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10
Q

High interest regular savings

A

Similar to a normal savings account, but with a higher interest.
Usually get access to these do you have savings and current accounts with the same provider.
Usually interest is paid yearly

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11
Q

Help to buy ISA

A

Cash ISA for first time buyers.
Offers a government bonus.
30th November 2019 was the last date to open one.
Existing holders can save to 30th November 2029.
For every £200 deposit, a £50 bonus up to a maximum of £3000 on £12000 savings.

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12
Q

Why is NS&I totally secure to invest in?

A

Because it is government backed

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13
Q

What are the 4 main investment asset types?

A

Cash
Bonds
Shares
Property

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14
Q

What are ‘alternative’ investments?

A

Hedge funds
Derivatives
Commodities
Other tangible items

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15
Q

What’s a platform?

A

A proprietary system that provides access to a defined selection of investments

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16
Q

Conventional investing

A

Focuses on generating returns through investing in companies that are expected to perform well.

Fund managers will focus on financial metrics , dividend yield, earnings per share and cash flow operations.

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17
Q

Sustainable and responsible investing

A

Investment managers tend to avoid companies that are related to armaments, tobacco, gambling and adult entertainment.

Sometimes this also includes companies that produce fossil fuels.

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18
Q

Sustainable funds

A

They pay significant attention to environmental/social/ethical issues.

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19
Q

ESG funds (environmental, social, governance)

A

These focus on how businesses operate rather than problem solving.
If the company is run well, they may invest in controversial and somewhat unsustainable companies

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20
Q

Positive selection

A

Managers invest in assets that meet specified policy requirements.

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21
Q

Negative exclusions

A

Directs fund managers to avoid particular sectors and behaviours.

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22
Q

Responsible ownership (stewardship) activity

A

Asset owners encouraging companies to have higher ESG standards.

23
Q

Investment advice process

A
  • The strengths of clients beliefs
  • Incorporate clients values and views
  • Reccomending products and funds that are appropriate for the client
24
Q

Equity investment

A

Buying shares as a pooled investment or by directly through the stock market.

Shares also known as equities or stocks.

25
Q

Short term equity investment use

A

Pure speculation. Unless someone has insider information (which is illegal and called insider trading), you don’t know if it will go up or down, and thus an extremely risky short term investment

26
Q

Medium term equity investment use

A

Most companies wish to continue to grow their value and dividend, so although still risky, it’s safe to say that in medium term, if companies continue to make profit, there is a use for them.

27
Q

Real growth/capital preservation

A

Shares in companies that produce real good and services.
Prices of these goods and services increase with inflation, often taking profits with them.

28
Q

Long term use of equities

A

Increasing income
Capital preservation
Asset allocation

29
Q

Other names for a bond

A

Loan stock
Fixed interest
Debt securities
Gilts
Corporate bonds

30
Q

What’s the benefit of bonds

A

They are government backed.
Usually gets. Regular stable income.

31
Q

Building society Permanent interest bearing share (PIBS)

A

Undated
Interest payments can be missed in exceptional circumstances
Missed interest payments don’t need to be made up at a later stage.

32
Q

What happens to a Permanent interest bearing bare when a building society demutualises?

A

They become Perpetual subordinated bonds (PSBs)

Perpetual - have no redemption date
Subordinated - low ranking debt in event of insolvency

Bonds - as its general name for fixed interest investment.

33
Q

What are some ways to access fixed interest investments

A

Unit trusts
OEICs
Life assurance or pension funds

34
Q

Strategic bond funds

A

Investment manager decides on the proportions of assets, which enables bond fund to adapt to changing market conditions.

35
Q

Property investment benefits

A

Rental income
Capital growth

36
Q

Property investment risks

A

Money can be tied up
Will need to sell to get any liquid capital
Very illiquid

37
Q

Pooled investments

A

Investors money is ‘pooled’ into a fund which is then invested in one or more asset classes.

38
Q

Open ended investment funds

A

Usually structured as unit trusts or OEICs.

39
Q

Endowments

A

Regular premium policies which combine investment with life cover

40
Q

Mortgage endowment

A

Used to pay off mortgages.

41
Q

Savings endowment

A

Some of these plan premiums are limited to £3,600pa

42
Q

Investment trust

A

A listed company with a set number of shares.
Closed ended.

43
Q

Derivatives

A

A right or obligation to buy or sell another asset type.

44
Q

Innovative finance ISA

A

Allows savers using a crowdfunding platform to receive their interest tax free.

45
Q

Lifetime ISA

A

Started 6th April 2017
Under the age of 40
£4k contribution limit
25% government bonus.
If withdrawn before 60, there’s a 24% charge. (Unless used to buy first home or are terminally ill)

46
Q

Child trust fund

A

For investors to invest on behalf of a child for their future.
Eligible for every child born after 1st September 2002

47
Q

Junior ISA

A

Replaces child trust funds on 1/11/2011
Cash or stocks
Can’t withdraw before 18
£9000 limit

48
Q

Residence nil rate band

A

£175,000 (on top of £325,000)
If downsized after 7th July 2015, RNRB is also available
If estate = £2Million, RNRB withdrawn at £1 for every £2 over £2Million

49
Q

Two main ways to reduce IHT

A

Ensuring wills are in place, using lifetime gifts, using allowances, writing property in trust.

50
Q

IHT gifts

A

Gift must be irrevocable
Must be part of a long term planning strategy, and not made shortly before death.

51
Q

Life policies on IHT

A

Can be used as a single premium investment to reduce the value of the estate m

52
Q

How can policies counter IHT

A

If there is IHT due, before death, the individual no old take out an own life policy that pays out the IHT amount on death

53
Q

4 main approaches to tax planning for investors

A

Make the maximum use of tax allowances.
Choose investments that provide tax free returns.
Choose investments that qualify for tax relief.

Paraplanning (5 decks)

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