FINANCIALLY FEARLESS

A stock, AKA an equity, represents the ownership of a fraction of a company. Units of stock are called 'shares'.

When you invest in a share, you own a proportion of the company’s assets and earnings.

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A bond is like lending money as an investment.

Picture it as an I.O.U. where you're the lender. And then the borrower repays the bond back to you over a set period – often with added interest on top. Meaning you’ll make money on top of your initial investment. Just remember that returns aren’t guaranteed.

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A rainy-day fund serves as a safety net for unexpected situations like unexpected bills or car repairs.

Just as an umbrella shields you from the rain, a rainy-day fund shields you from unexpected financial 'rain'.

It’s recommended that your rainy-day fund covers 3-6 months of essential expenses if employed. If you’re retired, it’s recommended you consider saving 1-2 years’ worth.

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Compound interest is a key concept that can supercharge your investments.

Say you invest £160 every month into an ISA and left it to grow at 5% each year for 10 years, this would turn into £24,798. That’s £5,598 more than if you just left it in cash. And the longer you leave this money invested, the more powerful the compounding effect becomes.

Just remember, this is just an example, returns aren’t guaranteed, and the figure does not account for inflation, charges or taxes. Unlike the security offered by cash, the value of investments can go down as well as up in value, so you could get back less than invested.

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Exploring past performance can offer insights, but remember, investments are influenced by many things. Past returns don’t guarantee future success.

Whether you’re a new or seasoned investor, you need to think about your strategy before considering any investments. This should match your objectives and your risk appetite. It should aim to achieve the best return for your chosen level of risk.

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Inflation is the rise in price of goods and services over time.

Think of it as a ripple effect. When these prices increase, businesses may have to adjust wages, increase production costs and ultimately their prices.

If this cycle continues, it gradually pushes up the cost-of-living over time. Which then reduces your purchasing power. Meaning, what cost you £100 this year will cost you more in the future.

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Diversification is about spreading your investments across different types of assets, a bit like having a well-rounded wardrobe for different occasions.

By having a diverse portfolio, it reduces your investment risk. That’s because if one investment performs badly, another may help compensate, limiting your loses overtime.

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An ISA is an Individual Savings Account. There are different types of ISA to help you save or invest, depending on your goals.

These accounts are easy to understand and flexible. But the best part is, you don’t have to pay UK tax on your savings or investments.

Tax rules change and benefits depend on your circumstances.

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Dividends are payments made to shareholders periodically. It's their way of saying thanks.

Much like a well-deserved pat on the back, companies pass on a slice of their profits to you.

Dividends are usually distributed on a regular basis (annually). However, companies aren't obliged to pay dividends, some reinvest profits back into the business.

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A fund pools together the money of lots of different investors, and a fund manager invests on their behalf.

These investments can include various types of assets like shares and bonds, therefore offering more diversification.

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