General Investment Information
What is an ISA AcounntThere are currently 4 different types of ISA for anyone 18 years old and over.
An ISA (Individual Savings Account) is a wrapper that goes around certain approved type of savings that allows the saver to earn income tax free. There is a limit on how much can be saved per year which for 2019/20 is £20,000 for an over 18 years old ISA account. An ISA is an excellent way to save and invest as you don’t pay income tax or capital gains tax on the income earned within the ISA which has the effect of allowing your investment to grow quicker as you get to keep all the money you make. In addition the government does not require any earnings from an ISA account to be declared on a tax return.
1. Cash ISA
2. Stocks & Shares ISA
3. Innovative Finance ISA
4. Lifetime ISA (saving allowance into this account is £4000 per year)
For under 18 year olds there is a Junior ISA. The saving allowances for 2019/20 is £4368. There are two types of ISA for under 18 year olds
1. Cash ISA
2. Stocks and Shares ISA
The saving allowance for both over 18 and under 18 years old can be split between any of the ISA’s if you qualify to hold that type of ISA. As an example, if you are over 18 year old, you might hold an Innovative Finance ISA and a Stocks and Shares ISA so your £20,000 savings allowance could be split between both of those accounts. As long as you qualify under the criteria, you can hold all for ISA accounts.
What is the Qualifying Criteria for an ISA account?
· From the age of 16 any UK resident can hold a cash ISA account.
· 18 years old and over can hold a stocks and shares ISA and an Innovative ISA account provided they are a resident in the UK
· A Lifetime ISA account is for anyone over 18 but under the age of 40
What can you save in an ISA?
There are different types of savings which can be included within the ISA Wrapper.
Cash ISA – this can include any money that you hold in a bank savings account; a building savings account; there are also some investments run through NS&I (National Savings and Investment) a government state owned savings bank which also qualify for Cash ISA.
Stocks & Shares ISA – the investments included in this type of ISA are shares in companies; unit trusts and investment funds; corporate bonds and government bonds. Not all of these types of investments will qualify to be included in an ISA. You will need to verify which ones can. If you are investing in shares, when looking at the overview page of the share, it will normally say simply “yes” or “no” that it can be included in a Stocks & Shares ISA.
Innovative Finance ISA – was set up to allow people who loaned money through Peer-to-Peer Lending – loans made to individuals and businesses through alternative platforms other than banks - to be able to offset taxes on the income they earn. It has now been expanded to included crowdfunding debentures. The debentures are investing in businesses through buying the debt that the business owns.
Lifetime ISA – this account was set up to help save towards your first home or retirement. You can add Cash or Stocks & Shares into this account between the age of 18-39. The limit is £4000 per year and the government will contribute a 25% bonus to the account, each year, up to a maximum of £1000 per year. The money can only be withdrawn if you a) want to buy your first home b) you are aged 60 or over or c) are terminally ill with less than 12 months to live. As the government adds the 25% bonus each year, if the money is withdrawn prior to the qualifying criteriWhy an ISA is your Best Friend for Investing?
a above, they will charge a penalty so they can claw back the bonuses they have paid. With the Lifetime ISA there are rules about buying homes or transferring to the ISA to a different type of ISA. Whoever, your ISA is with, they will explain the rules.
How an ISA Can Be Your Best Friend When Investing
Most people when they invest, are hoping to build their wealth. However, it is not the money they want, it is the lifestyle that the money can buy. With the UK Government ISA’s this is recognised as if you want a savings account that pays a bit more money that a traditional savings account then the Cash ISA provides for this. Many organisations try to make them fixed term savings but there a flexible Cash ISAs that will allow you to save for a specific reason and then withdraw your funds while enjoying the benefit of tax-free interest on the account.
Over the past decade or so, the government has been encouraging the UK population to take more responsibility for their finances and future needs such as retirement or home care. Providing flexible ISA’s that allow the investor freedom of choice in the way they invest their money while providing them with incentives such as bonuses, free from income tax and free from capital gains tax style investments helps to encourage the public towards financial independence.
The investment allowance is a per year allowance. If you can save the £20,000 allowed this year and again next year and the year after you can generate a lot of tax-free interest, dividends and capital growth in a short time. This allows the power of the compounding effect to be far more effective in a shorter period of time. By this I mean that if you earned say £100,000 in dividends and had to pay say 40% tax, the amount available for reinvesting would be £60,000. Through an ISA the £100,000 earned would remain tax-free meaning the full £100,000 could be reinvested back into the investment. The investment grows quicker.
An ISA is your best friend for any type of saving or investment as the tax-free income and capital gains along with the bonuses paid through the lifetime ISA can accelerate your investment goals. Helping you to achieve the lifestyle dreams much quicker. Anything that helps you achieve your dreams and goals has be good.
Is there such a thing as good debt? The answer is yes. But how you define debt and turn it into good debt is the difference between being an investor and being a dreamer who hopes to become wealthy.
All debt can be turned into good debt simply through using the debt to buy an income producing assets that generates sufficient income to cover the debt payments and provide a little extra for you.
So, how does that work?
In business most people would expect to borrow to start a traditional business, for expanding an existing business or have an overdraft for day to day running operations. It is rare not to see a business which doesn’t have some type of loan or overdraft. In fact, it is often encouraged as a tax deduction and as a way of preserving capital. There is an expectation that the business will generate enough profit from the trading activities to make the monthly repayments on the debt. This is then seen as good debt.
With property, very few people have the luxury of buying a property outright with cash. They would obtain a mortgage for a set period of time. They live in the property paying the mortgage each month and at the end of the period they own the property outright. As strange as it might seem, that is bad debt. It is debt that doesn’t generate an income but relies on income from other sources to make the payments. However, if a property was purchased for business reasons such as rental or commercial uses and the income generated from the purchase is sufficient to pay the mortgage payment then this is good debt.
What are the different types of debts?
Mortgages – the number one way of buying a property. There are banks and lending institutions who specialise in mortgages. Basically, they provide money for the purchase of property. They put a charge on the property which is removed once the mortgage has been paid.
Bank Loans – can be a personal loan or a business loan. They are secured or unsecured. Secured usually being a charge on a property. Bank loans are for shorter duration of time around 5 years this can sometimes be longer up to 10 years.
Overdrafts – are flexible lending facilities which are expected to go fluctuate between credit and debit each month.
Credit Cards – are an alternative source of credit. They provide quick short-term lending.
Crowdfunding – can be used to raise funds for special one off projects providing instant access to funding
Peer-2-Peer Lending – group funding provided as an unsecured loan for small sums of money. Duration of loans usually around 1-5 years.
Used and managed properly debt can be good if it is used to acquire income producing assets.
What is an Income Producing Asset?
When I first started learning about investing, I was continually reading about Income Producing Assets. As someone who had never done any type of investing previously this was investment jargon. I simply didn’t understand it. Eventually, the more I studied the more I learned and the more I practiced the things I was learning the more it started to make sense to me. I should clarify here, that when I was learning investing there was no internet to refer to. I just had to read, learn, practice and repeat until rich. Today there is a lot more information on the internet and a lot more interpretations of Income Producing Assets.
Simply put, an income producing asset is something that generates income for you. There are thousands of different assets but if you apply my investment filter to them you will discover that they fit into one of four categories – business, property, paper or cash. So let’s look at each category and what qualifies within each category so you have the understanding and opportunity to build a wide range of income producing assets.
Most people think of a business as something that generates enough money to keep a roof over your head and food on the table. They rarely think of business as an investment. However, business is the first investment you can create, quickly, cheaply and easily. My definition of a business is something that generates money for you to put into other investment categories.
With the advent of eBay, Amazon, YouTube and the ease of building websites most people have at their fingertips easy to set up businesses for little or no money. You no longer need to spend thousands of pounds creating a business when you can look around your own home and sell items on eBay. Items which you no longer want or use. Don’t underestimate the value of what you have in your own home. Your unwanted items, your junk is treasure to someone else who will willingly pay you something to acquire it. The cost to you of setting up an eBay business is zero. You just pay a small commission to eBay once the item has sold. This is a very basic business but still an income producing asset.
Drop Shipping companies have opened up the world of trade on both eBay and Amazon to the extent that you no longer need to buy or hold stock in the hope that you sell something. Drop Shipping allows you to digitally stock a shop online and earn a commission from anything you sell.
I personally have an eBay account where I sell items that I no longer want or items I have come across on my travels which are extremely low cost and which I can sell for profit. As someone who writes a lot, I create paperback books, ebooks and audio books which sell through Amazon. Cost to create these products is just my time in writing or recording them. Yet, these products generate income month after month for many years.
What could you create on YouTube? I have watched people who do product or song reviews who have millions of viewers and as such are able to earn a decent income off the advertising on their channel. What do you know something about? Could you create an income from sharing your experience about an item you purchased or a song you listened to?
Think of all the thinks you search for online. If you are searching for it then you can be sure someone else is as well. You now have a possible Business and an Income Producing Asset.
Property is another income producing asset. While most readers will say, they need a lot of money to make money from property this couldn’t be further from the truth. Lease Options, Rent to Buy Options, Rent to Rent Options allow you to control a property without needing large sums of money. You might not own the income producing asset but you do control it. By controlling it, you have the opportunity to make money from it with the aim of purchasing it some time in the future. It’s very much a try before you buy concept.
My own property portfolio is a combination of both owned and leased properties which generate a substantial income for me. The money I make from my businesses provides the cash to either lease or purchase a property.
When talking about buying property most readers will assume, we mean residential property, however, you have residential and commercial and within each of those categories a wide range of opportunities exist. Residential can be houses, apartments, student lets and HMO while commercial could be holiday lets, serviced apartments, garages, storage, warehouses, shops, caravans etc. A garage can be bought fairly cheaply and with little maintenance be let year on year creating an income producing asset. Sites such as Airbnb, provide the opportunity to earn income from your own residence.
You do not need a lot of money to make money from property. The income you make from your online business can provide you with sufficient income to lease property and make further income.
The Share Market
Investing in shares can be started with around £100. Investing in Dividend Shares will bring in an income each month at a higher rate than if you put your money into a saving account. Monthly dividend shares ensure you have income every month which you can then reinvest back into the shares so you grow your investment. Your £100 can be generated from your business and then used to buy dividend shares. Once you have invested sufficient into the share market, you can start drawing down a percentage of your dividend income each month as your own personal income. By drawing down just a percentage of the dividend and reinvesting the remaining dividend your income will continue to grow every month. I like to think of this like and inflation proof investment or as giving you a pay rise each month. For example, suppose you earn £1000 in dividends and draw down £250 (25%) reinvesting £750 (75%) the following month your dividend would be higher at say £1100. You still drawdown 25% which is £275 and reinvest the balance of £825. Your dividend would then increase the following month to say £1250 and you repeat the same process so each month the dividend increases, the amount you reinvest increases and the amount you drawdown increases. You are continuing to build an income producing asset while you have more and more income to leave on each month. In this example I have used a 75/25% ratio but you could apply any ratio to suit your needs.
Within the cash category there are two key investments we use Peer-2-Peer lending which can be started from as little at £10 and Gold/Silver investing which can start from about £20. Money you can easily make from your business and invest into other investments.
If you check my previous posts about fundamental analysis you will see that the cash category for investing is low cost entry with long term results. You are using Income Producing Assets to build your long-term wealth.
If you are making £10 per week from an eBay account you can invest £10 per week into Peer-2-Peer Lending adding to your weekly income.
Anyone no matter how much they make can start accumulating Income Producing Assets immediately. Today, you could sell an item on eBay and when the money comes in open a Peer-2-Peer Lending Account or a Share Market Investing Account and within one day you have started acquiring Income Producing Assets. The more income producing assets you acquire the wealthier you become.
Fundamental Analysis is looking at the “now”. By the “now” I mean looking at the basic information of what an investment is doing today and deciding if based on that information it is the type of investment you would be interested in buying or starting.
In a previous blog, I introduced you to the Investment Pyramid, you will notice the white cross on image. The cross represents the glue (analysis) that holds the investments together. This analysis helps you to make decisions about your investment. It also provides information which aids in making those decisions.
We teach 4 category investing – Business, Property, Shares and Cash – and within each category fundamental analysis is different. So, let’s look at each category and what we would be looking for within those categories.
Business – There are many different types of businesses, in our training courses, year one business is all about starting a simple business that can generate income for investing. Most of our clients start with
· Ebay – where they are looking at what they have around their homes that is no longer wanted and could be sold online. They are looking at the “now”. They aren’t considering if they can make sales in the next year or two. There immediate plan is to generate cash immediately. Only when they have sold everything possible from their homes do they start thinking about future sales. Their analysis is based on what can I do now to make some money.
· Amazon Dropshipping – is popular as clients can instantly stock an online shop once they have found a supplier they like and can work with. The fundamental analysis is simple the supplier has a product that the customer wants to sell but doesn’t want to hold supplies or worry about dispatching orders. The simple “now” analysis is can I stock a shop and is it a product I would sell? Once those questions are answered then a dropshipping account is opened, an amazon shop is opened and trading starts.
· Network Marketing – The fundamental analysis with Network Marketing Business is can my friends or colleagues do this? Can I sell the products? Do I trust this company? Once those questions are answered
· Youtube – learning how to monetise a Youtube account and attracting clients is where the fundamental analysis comes in.
· For clients who wish to start a more traditional business we tend to work with them on a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis along with the basics of starting a business from suppliers to attracting clients. Again, fundamental analysis is dealing with the “now” and the client’s expectations.
The fundamental analysis is not complicated it is simply finding some very basic information based on the here and now and using it to start a business.
Property – with this category the fundamental analysis is based on the client’s interest in property, for example, what type of property do they have an interest in and how much cash do they have available? Is the type of property they want suitable to the type of person they are? Do they have the finance and the time to work on it or do they need an agent? What is the rental demand for the type of property they are looking at? Will the rents cover any mortgage costs and will there be any profit from the investment? Again they are basic questions based on the here and now.
With clients who want to build a property portfolio then there is more analysis required to determine sustainability.
Paper – covers many different types of investing such as shares, bonds and guilts. For our first year clients, we focus on the share market with simple strategies for starting a share portfolio. The fundamental analysis is based on 3 strategies we teach within the first year. Dividend Investing, Price Cost Averaging and the Compounding Effect. The fundamental analysis is based on ensuring the share works within the strategies being used. This involves looking at some charts; overlaying RSI (Resistance & Support Indicators) tool. Checking the EPS and P/E and ensuring they fit within the parameters we have set. Provided they meet the criteria then the share can safely be purchased. The Fundamental Analysis is ensuring the information fits within the criteria. It is dealing with the “now” information.
Cash – within this category we cover two types of investment
· Bullion – looking at gold and silver prices and using them as a hedge (protection) against the other investments. Holding around 10 – 15% of the total wealth as Bullion.
· Peer-2-Peer Lending – using spare cash to generate additional income through lending the money to other people through Peer-2-Peer platforms. The fundamental analysis involved here is looking at the safety of the investment, the return and the stability of the company.
As you can see, from the examples above, Fundamental Analysis, is simply looking at very basic information, based on what is available today, to ensure it fits within the criteria we set to start an investment portfolio.
What is Balanced Investing and Why is it so Important?
In a previous blog "what is the difference between savers, investors and traders" I discussed how there are lots of different types of investments and how they filter down into just 4 categories - Business, Property, Paper and Cash. This article goes into more depth about the categories and how you would benefit from a balanced investing approach
The image above shows how you invest in all four categories at different levels and the tools used to bind the investments together.
Why Do We Use 4 Categories?
The way the financial markets work there are always investments going up while some are going down. Even within each category there will be some investments up while other are down. The nature of some of the investments means it is often difficult to move your money around quickly to take advantage of the movements. Balanced investing allows you to have investments in each category taking advantage of the growth opportunities while providing time, if required, to move out of one investment into another, without losing the early benefit of low prices and potential growth.
For example, if the property market is down and the share market is in a growth period, it is very difficult to quickly sell property so you have the cash to invest into shares. Having a cash rich business will provide the income or even investing in bullion gives you an asset that can be quickly sold providing the liquidity to be able to invest in the share market.
The balanced investment approach ensures you are always able to take advantage of whatever the market does.
Why Different Investments in each Category?
Let’s look at the business category. As I write this article the High Streets are struggling due to the immense overhead costs they have before they can think of making a profit. Many businesses are closing down and people are losing their jobs. Yet, there are business types that profit during these difficult times. They are Network Marketing and Information Products (Internet Marketing) as people whose jobs are at risk, or who have lost their jobs are looking for quick and easy ways to make money.
During economic downturns (recessions and depressions) these type of businesses become the growth areas within the Business Investment Category. My clients in the UK laugh, when I talk about Fish & Chip shops being a recession proof business. When money is tight, people can’t afford to go to restaurants like they once did so the treat becomes takeaway foods. Fish & Chip shops are an easy, cheap treat for a family.
Network Marketing has phenomenal growth during a recession. Investors who start Network Marketing Businesses find they have accelerated growth during this period. Starting and slowly growing a business, during good times, means you have everything in place ready to take advantage of a downward market.
Within each of the 4 investment categories – business, property, paper and cash, there are numerous investments all reacting differently to the market place. Having investments in all categories ensures you can react to whatever the economic conditions are.
Patience and Learning
While I advocate 4 category investing, I also teach 4 levels of investing – Foundation, Income, Growth and Speculation. Starting with the Foundation level and building on skills and knowledge until you become an expert at what you do when you can then enter the Speculation level of investing. If you try to go straight into Speculative investing you will lose your hard-earned money and be disillusioned with investing.
So, what are the 4 investment levels?
Foundation – this is the introduction to investing. Learning very simple strategies in each category that provides a base on which to build future investments. The base is slightly different in each investment category. In the cash it’s starting with buying small quantities of gold and silver bullion. In business it’s making sure the infrastructure is there to operate the business. In shares we start with lower value, less volatile shares and in property we start with smaller properties generating regular income. The foundation is about making sure you start with a solid base of knowledge and safer investments on which to build for the future. It’s where you start to learn about investing.
Income – the next level of investing is getting the investment to the level where cash is being generated at slightly higher levels than the foundation. As your skills and knowledge grow you can start implementing different strategies that generate higher income. Sufficient to support you and the investment. When you have enough knowledge and income to increase the types of investments you have you then move onto…
Growth – investing more money into growing the capital side of an investment to the stage where it is almost self-supporting. With guaranteed income from the Foundation and Income levels of your investments the growth area can include some riskier investments which could produce exponential growth and income. At this stage you are still growing your knowledge and skills but can now try different strategies as you have a better understanding of investing and a much broader knowledge.
Speculation – these are higher risk investments such as Forex, Spreadtrading, Options etc. that produce very high returns. These investments are very high risk. You can lose a lot of money in the blink of an eye. On the other hand, you can have one investment that works often produces more money than you lose in all the other investments. Due to the high level of risk we only look at these types of investments once you have mastered the other three levels and have a solid base and plenty of cashflow.
It takes time to build your skills and knowledge in all 4 categories and on the 4 different levels. Having the patience to master them will guarantee your wealth and success.
Each category and each level has the potential to create millionaires and dream lifestyles but when the 4 categories and levels work in synergy then there is unlimited potential.
The one thing that most people struggle with is patience. The patience to take the time to learn about investing. The patience to start implementing what they are learning and the patience to allow the investments time to grow so they can reap the benefits.
We now operate in a global market. One that ensures the financial markets move every second of every day of the week somewhere in the world which then impacts on our local markets. Building a balanced investment portfolio based on all 4 categories ensures you always have an investment that is going up in value.
For more information about private coaching or group investment training visit www.2pound73Club.co.uk
What is the Difference Between a Saver, Investor and Trader?
Why is it important to know the difference between a saver, an investor and a trader? In a previous blog, I wrote about the importance of mindset. How different types of mindset reflect the way we look at investing. That mindset also affects what you do with your spare cash or how you prepare for your future.
There are different opportunities available for what you do with your cash and the strategies you use. Understanding the difference between savers, investors and traders will help you to take advantage of the best strategies to suit you.
Your set of personal values, the way you look at things and your nature towards risk will determine if you are a saver, an investor or a trader. If your nature is that of a saver and you decide to trade then it is almost certain you will lose your investment as you will have a battle with your conscious over whether or not to put the money into savings or trade. It is therefore, important you understand who you are and find out which option suits you best.
Starting as a Saver
A saver is someone who takes a proportion of their wages or income each month and sets it aside in a bank account or a managed fund. For example, you might put aside £100 per month. You can put that into any type of savings account or ISA and leave it making some money for the foreseeable future. You could go to a financial company and invest into one of the funds that they manage. The type of funds they offer cover property, business or share markets. Each month you receive a receipt, a share or some acknowledgement that the fund manager has used your money together with other people who are doing exactly the same thing and bought some units in an investment.
There are various names such as Asset Managers, Managed Funds, Index Funds, Mutual Funds etc. The key being, you give someone else control of your money with the expectation that when you want it, it will still be there. There are thousands of different ways to put your savings into these types of funds.
So, a saver trusts someone else’s skills and knowledge to look after their money.
Why Become an Investor?
Investor or an investment are words frequently used out of context. You often here the expression “invest in your future” when you are being encouraged to buy something that has a high price tag. Investing, however, is taking responsibility for finding and managing your own money. Making the decision about where it goes and for how long. You accept total responsibility for the performance of your investment.
As an investor, you buy income producing assets and hold them for a long time. The assets provide income and capital growth. There are only 4 categories you can invest in – business, property, paper and cash. Within each of those categories are thousands of opportunities. I have clients who when I mention property as an investment category say they don’t want to hold residential rental property, which is understandable in the current UK market. But there are alternative ways to invest in property such as garages. They are a cheap way to start a property investment and bring in regular income. Other clients have built holiday lets and some have purchased land and are using it for camping grounds. This shows some of the different ways to invest in property/land. Equally, the other investment categories also have a wide range of different ways to invest in them.
As an investor, you make the decision about the type of investment you want to hold. You control and manage the investment. You make the decision when to buy and when to sell it.
What are Contrarian Investors?
Contrarian Investors tend to go against a market trend. It could be said that applies to most investors. They are looking to get into an investment at the lowest possible price to get the best capital growth opportunities. When markets a going down and everyone is selling a contrarian investor is the one buying. On the other hand, when markets are going up a contrarian investor is selling their investment and taking their profit.
Investors rely on their own skills and knowledge to make investment decisions. They are totally responsible for where they invest their money and when.
Is Trading More Your Style?
A trader is someone who identifies an opportunity and moves it on quickly. Traders do not like owning an asset, they simply see a way to make money from it. You can trade in any of the 4 investment categories – property, business, paper and cash. For example, a property trader is someone who will find a deal then for a fee give that deal to an investor. The trader makes their money from the fee the investor pays. Business Trading works in a similar way where businesses are bought and sold through a middleman (trader). The trader finds the business and works on it until they have a deal they can on sell. They can build a business and create additional value in it or they can split up a business and sell parts of it to buyers who only want part of a business. When it comes to shares or cash there are trading platforms such as Forex, where the trader doesn’t hold any assets but earns their income based on the price movement.
Traders are very market orientated, as they follow trends to ensure they have someone to sell their deal to.
As you can see there is a big difference between Savers, Investors and Traders. Understanding your Mindset, the way you think about money, will determine what you do with your money. Once you identify whether or not you save, invest or trade you can then look at the different strategies that apply to each type to get the best result for you and your future financial goals.
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