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My First Investment ::

OK so your starting to get a bit of money together and want to know the best ways for you to invest it.


Interested in ISAs? Pondering pension possibilities? Here is a guide to the ins and outs of investing:

Annuity: An insurance company investment that pays out a guaranteed income. The law requires you to buy a "compulsory purchase" annuity with the bulk of your pension fund when you retire to give a taxed income for the rest of your life.

Blue chips: Shares in companies that are perceived as being the most solid and reliable in the market. There is no definitive list. Some say most of the companies in the FTSE 100 index of leading shares are blue chips, others stick to the FTSE 30.

Corporate bonds: Loan stock or IOUs issued by companies that want to raise capital. The company promises to pay a certain amount of interest on a set date every year until the redemption date, when it repays the loan. Most fund management companies offer corporate-bond Peps, for investors needing an income.

Income Tax: Tax charged on any income earned and above your personal allowance (£4,195 for the 1998-99 tax year). The first £4,300 of taxable earnings incurs 20 per cent tax, from £4,301 to £27,100, 23 per cent, and over £27,100 40 per cent.

Individual Savings Account: A new tax-saving plan available from April 6, 1999. The Isa will replace Peps and Tessas, enabling investors to protect shares, unit trusts, investment trusts, cash deposits and some life insurance policies from tax.

Investment trust: An investment fund which pools investors' money and invests it on their behalf, usually in shares. An investment trust is set up as a listed company with a limited number of shares that investors can buy and sell on the stock market. The trust's shares may trade at a price that is higher or lower than the value of its underlying assets. This is known as at a premium or discount.

National Savings: A range of deposit accounts and bonds run and underwritten by the Government. Some, such as savings certificates, offer tax-free interest, others are taxable. The most attractive feature is the 100 per cent guarantee on all cash invested.

Open-ended investment company: An OEIC (pronounced oik) - is a new type of investment fund that could replace unit and investment trusts. It is open-ended, accepting any amount of investors' money on a continuing basis, but is structured as a company with shares. Most importantly, the shares have a single price for both buying and selling.

Pension: A scheme that enables employees and the self-employed to accumulate savings for their retirement. Premiums into a pension fund receive tax relief, capital gains and income rolled-up tax-free within the fund, and a proportion of the eventual payout (when the investor reaches the age of 50 or retirement) can be taken tax-free. The remainder must be used to buy an annuity to provide income for the rest of the investor's life. Many employers run pension schemes for their employees, but those who are not eligible or who are self-employed can buy personal pensions from insurance companies.

Permanent interest-bearing shares: PIBS are shares in a building society that pay a fixed rate of interest for an unlimited period. They are bought through stockbrokers like any other share, and their price fluctuates according to changes in interest rates and inflation.

Personal Equity Plan or Pep: A tax shelter that allowed the investor to protect investments worth up to £6,000 from income and capital gains tax each year. Pep sales ended on April 5, 1999, but existing schemes will be allowed to continue.

Postal accounts: A bank or building society account that operates by post. The investor can deposit money by sending a cheque to the bank or building society and can take money out by sending a withdrawal slip.

Premium Bonds: A National Savings investment that is popular with higher-rate taxpayers. Monthly prizes (all tax-free) range from £50 to the million-pound jackpot introduced to compete with the National Lottery. Winning bonds are selected by Ernie (not a computer but an electronic random number indicator). Investment is from £100 to £20,000. Each bond has a one in 19,000 chance of winning a prize in any draw. Those who have the maximum holding should, on average, win 12 prizes a year.

Single-premium bond: A lump sum investment into the unit-linked or with-profits funds of an insurance company. In return the investor benefits from a small amount of insurance cover and a share in the returns of whichever insurance fund he has chosen.

Split-capital investment trust: An investment trust that offers several different types of share, each performing a different role. The most common types offered are income shares, which receive all the dividends produced by the trust's assets, zero-dividend preference shares, which produce a predetermined sum of capital when the trust is wound up, and capital shares, which receive any assets left over once other types of share have been paid their entitlement.

Tax-Exempt Special Savings Scheme: Tessas are building society or bank savings accounts that pay interest tax-free; provided investors leave their capital in the account untouched for five years. Up to £3,000 can be invested in the first year, £1,800 in the next three years and £600 in the last year. The sale of new Tessas ended on April 5, 1999, but schemes which had already been started before then can continue as normal.

Traded endowment policy: A with-profits endowment policy sold by the original investor to another for a lump sum of cash. If the original investor dies during the remaining years of the policy term, the sum assured will be paid to the new owner. Likewise, when the policy reaches maturity the resulting money, including annual and final bonuses, will be paid to the new owner.

Tracker fund: An investment fund emulating the composition of a particular index, such as the FTSE 100 or FTSE All-share. Often referred to as index, or passive, funds.

Unit trust: An open-ended investment fund that can accept any amount of investors' money on an on-going basis, investing it in a wide range of shares, fixed-interest securities and property. The fund is divided into units which rise and fall in value in line with the value of the underlying assets.

Venture Capital Trust: A listed investment company that invests in a range of unlisted and AIM-quoted companies. It offers a range of income and capital tax gains reliefs for people who leave their capital in place for a minimum of five years. Maximum investment of £100,000 a year.

With-Profits Endowment: A regular long-term savings scheme with an insurance company. Each year the insurance company adds bonuses (either called reversionary or annual) which cannot be taken away. At maturity, a terminal bonus is paid. Still used as a means of savings to repay a mortgage, although less popular than in the late Eighties. Anyone forced to cash in the policy in the early years may receive a poor surrender value as a result of the large deductions made at the outset to pay commissions to salesmen and other middlemen. Insurance companies also sell with-profit bonds, for those seeking to invest a lump sum over a five-year period, or longer. They are aimed at those seeking either an income or capital growth. The returns on with-profit bonds are free of basic-rate tax.

Stocks & Shares

Individual Savings Accounts ISAs

Stocks & Shares

Investing in the stock market always carries a risk so make sure you're clued up.....


Before buying any share, immerse yourself in the business section of this newspaper, studying bids, deals and company results announcements. The Internet is also a useful source of information. The Stock trade site, for example, has a company research facility, The Knowledge Centre, that provides data on 2,400 stocks. But following share tips on the bulletin boards of Internet sites, such as Interactive Investor and Hemmington Scott, is not the way to riches. Be very wary of tipsters and remember that just because a share is priced in pennies, it is not necessarily cheap. The Which? Guide to Shares, explains what shares to buy, how to value them and how to construct a portfolio. Check share prices daily in The Times and during the day on Times-Money, our personal finance website.

Selecting a broker

Decide the kind of service you want. Some brokers advise clients which shares to buy; others - execution-only brokers - simply carry out buying and selling orders. A third category, known as discretionary brokers, will invest a lump sum in the stock market on your behalf. Just hand over your cash, agree a fee and set your targets with the broker. This sounds an easy option but it is unlikely to be cheap. Brokers who offer advice charge more than those who do not. You pay for their recommendations through higher commissions each time you buy and sell shares. You may also be asked to have a minimum of 50,000 - or even 100,000 to invest.

Commission can be as much as 2 per cent, although the rate usually drops off for larger transactions. Greig Middleton, the City stockbroker, charges 1.95 per cent for the first 10,000 worth of shares, 0.8 per cent for the next 10,000 and 0.5 per cent thereafter. There is also a 7.50 administration charge per transaction. Barclays Stockbrokers charges a minimum of 1,000 a year for its advisory service.

Savers with less than 50,000 to invest are probably better off with an execution- only broker, which will probably provide some basic information. Barclays Stockbrokers has a recorded telephone service, which for 50p a minute gives opinions on about 200 stocks, updated on an ad hoc basis. Greig Middleton sends all clients a monthly stock market newsletter.

Execution-only services are relatively cheap. Barclays charges telephone clients a minimum commission of 17.50 a trade. You can obtain a list of about 180 UK stockbrokers through the Association of Private Client Investment Managers and Stockbrokers (Apcims).

Web dealing

There is a fast-expanding universe of cyber-dealers hankering for your business. Charles Schwab, the online broker, is so keen to get you on board it will offer a free dealing service for the first 30 days, after which there is a minimum charge of 15 a transaction for clients who do not trade regularly. If you are really enthused about armchair dealing, Schwab offers a Frequent Traders Club package, which has an initial 60 annual membership charge. After that the fee is a flat 19.50 a transaction, regardless of the number of shares traded. Barclays' online broking service charges a minimum of 11.99 a transaction.

Starting in a small way

Think about buying into collective share funds, such as investment and unit trusts. These pool the savings of thousands of investors, so the managers can purchase shares in a vast array of companies. Because the risk is spread over a large number of shares in different sectors, this is a far less hazardous form of investment.

Savers typically pay an entry fee of between 3 and 5 per cent, as well as an annual management fee of 1.5 per cent.

Jason Hollands, of independent financial adviser BEST Investment, recommends three unit trusts for first-time savers. All three are biased towards UK shares but also invest in companies in the US, Japan and Europe. Mr. Hollands likes the Fidelity International Fund, the Gartmore Global Growth Fund and Mercury's Global Titans fund, which was launched in January.

The other advantage of investing in collective vehicles is that savers can add money to their fund on a monthly basis and so help to protect themselves against the vagaries of stock market price movements. A fall in share prices means that investors will be able to buy units at a cheaper price.

Investors can add 50 a month to the Gartmore, Mercury and Fidelity unit trusts, but some fund managers allow savers to contribute as little as 10 a month.

The M&G UK Growth fund requires a minimum monthly contribution of just 10. The Legal & General UK Index Fund also has a 10 minimum, but if the fund is purchased as part of an individual savings account, the lower limit is 30. One of the advantages of this fund, which mirrors the FTSE all share index, is that there is no initial charge and the annual management fee is just 0.5 per cent. If you want a stake in new technology, Framlington's NetNet fund offers an opening.


In 1997, the Chancellor, Gordon Brown, announced that from 6 April 1999 PEPs and TESSAs would be replaced by ISAs.

Existing PEPs (and TESSAs) can continue as before, but no new investment can be made.

ISAs will run for an initial guaranteed period of ten years, but will be reviewed after seven years. They will be available to all UK residents aged 18 and above.

The maximum annual investment is 5,000 (7,000 for 1999/2000 and 2000/2001) of which 1,000 can be in cash and 1,000 in life assurance.

The account will be entirely tax free and for the first five years a tax credit of 10% will be paid on dividends from UK equities.

There is no minimum investment period and savers can use up to three separate ISAs a year subject to the overall limits.

ISAs are known as Maxis - with a maximum investment of 5,000 per annum(7,000 for the year 1999/2000 and 2000/2001) allowing 1,000 in cash and 1,000 in Life Assurance from a single provider - or Minis which offer just one of the three components, either stocks and shares, cash or life assurance. You are able to invest in up to three Mini ISAs from different providers up to the maximum investment of 5,000 per annum (7,000 in 1999/2000 and 2000/2001).

It will not be possible to have both a Mini and a Maxi ISA in the same year.

In addition it will be possible to transfer the maturing proceeds from a Tessa into a Tessa only ISA, though this may not be available from all providers. The Government has issued CAT standards (Fair Charges, Easy Access and Decent Terms - which must qualify for one of the most contrived acronyms ever). It appears that relatively few ISAs will meet theses standards, providers believing that a well managed fund with normal charges will give better returns over the longer term than funds with lower charges but potentially lower investment returns.

Relatively few of the early providers are offering a life assurance element, but some are offering an ISA home purchase plan for mortgage repayment which can include term assurance and critical illness  cover. There is some concern that the Chancellor has only guaranteed a life of ten years for ISAs, which may be too short for some mortgage repayments plans.


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