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Investments are a complicated business, with so many choices to be made concerning who, what and where your hard-earned money goes.

Investment funds

Investment funds: are collective investment schemes which pool your money with other investors to give you a share/units within a portfolio or fund. Two of the most popular types are Unit Trusts and Open-Ended Investment Companies (OEICs).  An investment fund can offer a practical and affordable way to invest in lots of different assets without the pressure of making your calls on individual stocks and shares.

Unit Trust: the fund is split into units, and this is what you’ll buy. The fund manager creates companies for new investors and cancels units for those selling out of the fund. The creation of units can be unlimited, hence why the fund is ‘open-ended.’ The price of each unit depends on the net asset value (NAV) of the fund’s underlying investments and is priced once per day. 

This means that the value of the units you buy directly reflects the underlying value of the investment.

OEICs: operate in a similar way to unit trusts except that the fund is run as a company. It, therefore, creates and cancels shares rather than units when investors come in and go out of the fund, but they still directly reflect the value of the assets that your fund manager has invested in

ISA: stands for Individual Savings Account. The main difference between an ISA and any other savings account is that it offers tax-free interest payments so that you could get more for your money. There is a limit to how much money you can put into an ISA in each tax year, which is called the ‘ISA allowance’. The current ISA allowance for 2020/21 is £20,000. You can have a Cash ISA or Lifetime ISA or a Stocks & Shares ISA.

Lifetime ISA: You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA.

You can put in up to £4,000 each year until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2020 to 2021 tax year.

You can hold cash or stocks and shares in your Lifetime ISA or have a combination of both.

When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open, and your savings will still earn interest or investment returns.

To open and continue to pay into a Lifetime ISA you must be a resident in the UK unless you’re a crown servant (for example, in the diplomatic service), their spouse or civil partner.

Stocks & Shares ISA: is a tax-efficient investment account that lets you put money into a range of different investments.  This includes individual shares, investment funds, investment trusts, REIT’s, government bonds, corporate bonds and more. Therefore, before you invest in this type of investment, you should consider the risk that the value of your investment could go up as well as down.

ESG & Socially Responsible Investing:

ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities.

For many, the term “ESG” brings to mind environmental issues like climate change and resource scarcity. These form an element of ESG—and an important one—but the term means much more. It covers social issues like a company’s labour practices, talent management, product safety and data security.

Socially responsible investing (SRI), social investment, sustainable socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents.

Socially responsible investing provides a mechanism for investors to align personal values with investment objectives. Environmental, social, and governance (ESG) factors can be a crucial way to assess the sustainability and social impact of an investment in a company or business.

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