| Fixed interest investments | | | | is due to the Internet linked companies. |
| These are investments where the income is a fixed | | | | Events in the lifecycle of shares |
| amount, at least for the time being. Usually the capital | | | | New issues |
| value is alsofixed, although in some cases it can | | | | New shares sometimes come to the market as a |
| change, too. However, either income or capital are | | | | result of de nationalisation and de mutualisation but |
| fixed and in many cases both. | | | | any company coming to the market for the first |
| Equities | | | | time is a new issue. Application forms are printed in |
| These are investments in ordinary shares of | | | | newspapers and are available on request. You fill in |
| companies, where both the income and the capital | | | | the form and send it off with a cheque. |
| can vary up or down. | | | | You may not get all the shares you ask for. Some |
| They can be bought and sold on a stock exchange | | | | people apply for more than they expect to get. |
| and they participate in profits (after any preference | | | | Stags are people who aim for a quick profit, applying |
| dividend is paid) and receive dividends, usually paid | | | | for a large number of shares with the intention of |
| half yearly. | | | | selling them as soon as they are received. |
| Shares have a par value usually £1 or 50p but | | | | There is no commission or stamp duty payable on |
| this bears no relationship to their market value and | | | | new issues and the full amount may be payable in |
| can be ignored. | | | | instalments. |
| Fixed interest versus equities | | | | Rights issues |
| All statistics show that in the long run, due to capital | | | | This is where a company raises further capital by |
| growth, equities beat fixed interest by a big margin, | | | | offering existing shareholders the right to apply for |
| whereas fixed interest may not even beat inflation | | | | more shares. The price is usually set below the |
| Here is another comparison. If you invested | | | | current market price so that the rights themselves |
| £1,000 in 1973, 20 years later, in 1993, it would | | | | have a market value. |
| have grown to: | | | | Shareholders can decide whether to take up their |
| - building society (average) £43,000 | | | | rights, so investing more money in the company, or |
| - shares (FTSE 100) £297,000 | | | | to sell them. Those taking no action usually have the |
| Even after allowing for inflation, the equity | | | | rights sold for them. |
| investment would have risen to £56,000, | | | | There is a third way, called tail swallowing, which is |
| whereas the building society would not have kept | | | | particularly appropriate if your investment is in a PEP |
| pace with inflation and would have fallen to | | | | or ISA. If you wish to take up the rights but have |
| £8,700. | | | | insufficient cash in the account, you can sell enough |
| Although the income on equities is less than on fixed | | | | rights to bring your cash available up to the amount |
| interest to start with, it catches up and passes it in | | | | required for the remaining rights. |
| the long run. Over the past 30 years or so, income | | | | Bonus issues |
| from equities has on average doubled every seven | | | | This is a misnomer there is no bonus! A better term |
| years | | | | is scrip issues (or capitalisation issues) and it is where |
| But to achieve the best returns on equities it is | | | | existing shares are subdivided into, say, two new |
| necessary to have flexibility in the timing of both | | | | shares, thus doubling the number of shares and |
| buying and selling and an ability to remain invested for | | | | halving their value. No new money passes, the action |
| the long term say five years at least. | | | | being taken usually because the share price has risen |
| Risk | | | | to a level which is considered too high for an |
| The more you have invested and the longer you can | | | | effective market. |
| leave it alone, the more risk you can afford to take | | | | Scrip dividends |
| with some of it to achieve a higher reward. The | | | | This is where companies offer shareholders the |
| most important thing is to recognise the existence of | | | | opportunity to take new shares instead of a cash |
| risk and to take appropriate steps. | | | | dividend. It is a cheap way to invest more money in |
| Spread your investments over a number of different | | | | a company but it complicates capital gains tax |
| categories, having perhaps more than one investment | | | | calculations. |
| in each category. Consider pooled investments such | | | | Share buy backs |
| as unit trusts | | | | A company sometimes buys back shares, usually |
| In this connection, some advisers suggest that you | | | | because it has surplus cash which cannot be invested |
| should take into account your income from earnings | | | | more profitably elsewhere. The effect should be an |
| (or from your pension if you are retired), which they | | | | increase in the share price. |
| capitalise and call your lifetime capital. The relative | | | | Take over bids |
| steadiness of this income can mean that you can | | | | From time to time one company will attempt to take |
| take more risk with your investments. | | | | over another by offering an attractive price for the |
| Always look at the downside risk of each investment | | | | shares. It is worth waiting for a competitive offer, |
| and decide whether you are happy with it. However, | | | | even if the directors recommend acceptance. |
| to achieve higher returns in the long run, you need to | | | | Newspapers and investment magazines will comment |
| take some risk. | | | | on the offer. |
| Shares have three opportunities/risks: | | | | If the buying company is successful it can force the |
| - the individual company, | | | | purchase against reluctant sellers. |
| - the market sector (such as stores, banks); and | | | | Receivership and liquidation |
| - the overall market. | | | | If a company fails to pay debts a lender of money |
| The volatility of individual shares has increased | | | | to it can appoint a receiver to manage its affairs (or |
| significantly in recent years and the potential to lose | | | | have one appointed by the creditors) or the |
| money is something like three times as great as 30 | | | | company can be put into liquidation. In either case, it |
| 40 years ago. This applies in particular to shares in | | | | is unlikely that the equity shareholders will get much, |
| the FTSE 100 index (smaller companies are less | | | | if anything they are at the end of the queue. |
| volatile). In very recent times this increased volatility | | | | |