Part Two - Personal Investment

Money-deposit investments

Apart from the income earned from employment most people receive some modest additional income from money that they have invested. A regular saver builds up quite a useful little nest-egg over the years and the income earned on it can be a welcome addition to his wage. And, of course, the fortunate among us sometimes receive legacies. In this section we shall review the various alternatives that exist for depositing our money in such a way that it gives an income yield until we decide where to invest it over the longer term.

When we come to take decisions on where to invest over the longer term, we have to clarify in our minds what we are investing for - what degree of security of both income and capital we expect, whether we want to receive the maximum income flow from the investment or prefer a smaller income with a growth in capital value, and for how long we are willing to leave our money tied up. Where we eventually place our money will mostly be determined by the answers to those questions.

For instance, a wealthy man with an already adequate income may invest, not for the purpose of acquiring additional income, but for a growth in the value of his investment; on the other hand a young woman with no capital other than a £1,000 legacy she has received will not want to buy company shares with it, which would be an insecure investment since the value of the shares could go down as well as up; and anybody needing to get his cash back intact in a year's time for the deposit on a house, say, will not place it on a five-year fixed deposit.

Investments that can quickly be converted back to cash with very little or with no cost are said to be 'liquid' investments. The main forms of liquid investment suitable for the private investor are described below.

Direct Taxation Exercise

(a) Explain the discrepancy between rent payable and rateable value.

(b) If rates are levied at 88p in the £, what will be the amount of rates per

year that Mr Fraser will have to pay?

(c) If the 88p rate demand raises a revenue for the local authority of

£4,500,000 a year, what increase in rates would be required to raise the total revenue by £1,125,000?

(d) Mr Fraser complains that his friend's house, larger than his and set

in a larger garden two miles out of town, has a lower rateable value. Suggest possible explanations... see: Direct Taxation Exercise

Personal And Business Finance 2013

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