Bitesized Money

No matter what type of Investment Account you are using, the actual Stocks, Funds or Bonds that you have purchased using that account can go up or down in value. It’s important to understand the difference between an investment account and assets you have invested in using that account. When you begin investing it is most common to use a General Investment Account (GIA) or a Stocks and Shares ISA (Individual Savings Account). Once you have opened an account with an investment company, then you can begin buying assets using that account. Typically people buy Stocks, Funds or Bonds, but other types are also available. Anything you purchase into an ISA account in the UK has huge Tax benefits (i.e. you don’t have to pay any!… here you can learn more about what a Stocks and Shares ISA is ) but you should never assume that the value if those assets will always go up. Have a look at British Airways (IAG) shares over the last 5 years, you can see that they have gone down in value by almost 70%

  The common definition of a recession in the UK is when the economy shrinks for two quarters in a row. So if the Gross Domestic Product (GDP, more on that in another article but it is basically how many goods and services UK workers have made during that time) shrank from January to March, and then again from April to June, then the UK would be considered to be in a recession. So it is always a bit of a measure of what has happened in the past, as it is looking back at months that have already happened. If we think of Suzy’s Lemonade Stand as a representation of the economy. Imagine if in the October to December quarter of the year she made and sold 200 cups of delicious lemonade, she was very happy! Then sadly over the New Year a few of her neighbours lost their jobs so they could only afford to buy Lemonade from Suzy occasionally. Because of this she only sold 180 cups of her Lemonade in the January to March quarter, then only 150 cups in the April to June quarter of the year. Times

  A Stocks and Shares ISA (also called an Investment ISA) is a type of Investment Account in the UK that means you don’t have to pay tax on any profits you make if your investments increase in value. If you held them in a General Investment Account you would have a pay Capital Gains tax when you sold them for a profit. So it’s basically a no brainer! There is a small catch that you can only invest (currently) £20K per year into an ISA, but that should be plenty for the average person. If you are married or have a partner it’s worth remembering that you can both have an ISA, so bumps that up to £40K per year if you have spare cash available. It’s worth noting that you are allowed to open new ISA accounts each tax year (both a Cash ISA which is just for cash, and a Stocks and Shares ISA for investments) with different companies but you should only pay into one of each of them per tax year. So if you already have an Stocks and Shares ISA but open a new one this tax year, you should just p

A Bull market is when Stock Markets increase in value over a sustained period. You often hear people talk about a Bull Market or a Bear Market, and these are similar but opposite terms. A Bull Market is when Stock Market prices increase by around 20% or more over a sustained period. This can happen when the economy is growing strongly. A recent Bull Market occurred after the Global Financial Crisis in the late 2000s. Low interest rates and other government stimulus caused stocks to grow continuously for an extended period. But why is it called a Bull Market? When Bulls attack with there horns they swipe upwards. This compares to the Stock Market moving upwards in a Bull Market. You can see a Bull statues famously on Wall Street in New York, but other financial institutions also use them. They are typically seen as a symbol of good economic performance.

A Bear market is when Stock Markets decline in value over a sustained period. You often hear people talk about a Bull Market or a Bear Market, and these are similar but opposite terms. A Bear Market is when Stock Market prices decline by around 20% or more over a sustained period. This can happen when there are problems with an economy, perhaps during a recession. The Global Financial Crisis of the late 2000s or the .com bubble bursting in the early 2000s are examples of this. But why is it called a Bear Market? Well when a bear attacks you it swipes downwards with it paws. So the bear attacking downwards reflects the Stock Market heading downwards. This is of course the opposite of a Bull Market, where a bull attacks upwards with its horns!

Bonds are a way for a Government or a Company to borrow money from Investors. If a Government or a Company needs to borrow large amounts of money they can sell Bonds. These are basically IOUs that you receive interest on. If you buy a 2 year Bond, at the end of the 2 years they will give you all your money back, and also some Interest on top to encourage you to lend them the money. So image your neighbour Suzy wants to expand her growing Lemonade business. She wants to open a new shop and buy some more equipment. Instead of going to a Bank or other lender, she decides to sell some Bonds to her neighbours. She thinks she will need to borrow the money for 1 year before she can earn enough to pay it all back, and she will need to raise £10,000. So she creates 10 Bonds, each worth £1,000 and she promises to pay you an extra £100 per year to make it worth your while. This means that that the Bonds have a 10% Yield (£100 is 10% of £1000 per year). You trust Suzy and have seen her business gr