Personal Money Management 101

• Cash
  • refers to bills, notes & coins
  • also cheque and (accessible) deposit/savings accounts
  • advisable to keep at least 2 months earnings in cash -
    in case of "emergency"
  • More interest for restricted access, eg notice accounts;
    also for instant access accounts operated by Internet,
    phone, post or card (ATM).
• Fixed interest bonds
  • issued by governments and corporations
  • in UK government issued bonds known as gilts
  • returns consist of interest + capital growth (depreciation)
    from time of purchase to redemption
  • level of return reflects safety of bond, ie likelihood of repayment (gilts are extremely safe hence lower return than corporate bonds)
  • may be traded in markets any time before redemption
  • if held to redemption, returns fully predictable (provided borrower does not default)
  • market price fluctuates according to prevalent interest rates & sentiment
  • bond prices rise as interest rates fall
  • bond prices fall as interest rates rise
  • bond prices approach redemption value as redemption date approaches.
• Stocks and Shares
  • see Stocks and Shares page
• Real Estate / Property / Land
  • see Real Estate Investment page
• Index Linked
  • returns match inflation, eg index-linked gilts
    good store of value
• Premium Bonds (UK)
  • bonds are entered into a monthly draw and prizes awarded from £50 to £1,000,000
  • prize fund represents interest payable on all bonds - essentially an interest lottery
  • worth a punt esp. when inflation and interest rates are low
• Derivatives
  • allow exposure to markets without direct investment
  • high risk, high potential rewards - and losses
  • more info - see:
    Derivative security (Wikipedia)
    An Introduction to Financial Derivatives (University of California Santa Cruz)
    Introduction to Derivatives (Stony Brook State University of New York)
• Match investment type to objectives
  • Avoid "hybrids", eg insurance and mortgages serve useful roles but they are not savings vehicles.

For details & comparisons of UK finance and investment products, see:

This is Money UK guide to personal finance and investing including latest market reports, breaking news, financial reports, market data, company news, reports on share prices, investments, savings, insurance, mortgages, investment trusts, ISAs, pensions, tax, credit cards, loans, overdrafts and banks and building societies.