Introducing Investments
Introduction
Investing is what you do with your savings if you are looking to generate a return on your funds greater than that available to you through savings instruments.
Savers take very few and very small risks with their money. As an investor you are taking a much greater risk. Not only is the return on offer to you likely not to be fixed or guaranteed, the capital sum you invest may be at risk as well.
Why on earth would you want to take such risks? The short answer, of course, is because the potential rewards may be greater and you want to make more of your money than is possible just by leaving it on deposit in the bank or building society.
There is no 'safe' investment
There is really no such thing as a cast-iron, rock-solid, 100% safe saving scheme or investment scheme. If anybody tells you different, don't believe them! Not even government-backed bonds are 100% safe.
You think governments don't go bust and repudiate their debts? Ask any family with old Czarist or Chinese railway bonds from the Nineteenth century. For that matter, ask anybody who had money invested in various Latin America debt instruments in the 1970s and 1980s. Even governments can go out of business!
However, the likelihood of the UK government repudiating its bonds (known as Gilts) and National Savings & Investments accounts is extremely small. There is also a safety net for your money, provided by the Financial Services Compensation Scheme (FSCS).
The financial safety net
The FSCS provides protection for savers up to a maximum level of compensation for deposits of £35,000. The compensation limit applies to each depositor and covers the total of all their deposits held with that firm. In the case of joint accounts each individual is eligible to receive compensation up to the maximum limit in respect of their share of the deposits (FSCS will assume the split is 50/50 unless evidence shows otherwise).
The maximum level of compensation you may receive from the scheme for a claim against an investment firm is £48,000 (100% of the first £30,000 and 90% of the next £20,000). The FSCS covers two kinds of investment loss:
- When an authorised investment company goes out of business and cannot return your investments or money
- Loss arising from unsuitable investment advice or inappropriate investment management
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