Savings & Investments
Core concepts
Investment questions test risk and return, asset classes (cash, bonds, equities, property), diversification, time horizon, and suitability. Know accumulation vs income units, bid/offer spreads, charges (initial, annual management, exit), and tax wrappers. Understand volatility, liquidity, inflation risk, and capital risk.
Key product knowledge: unit trusts, OEICs, investment bonds, ISAs/SSIAs, structured products, and deposit accounts. Know the difference between savings (capital secure, lower return) and investments (capital at risk, higher potential return). Understand compounding and real return (nominal return minus inflation).
Traps
- Treating a with-profits or structured product as capital-guaranteed when guarantees are conditional.
- Confusing bid (sell) and offer (buy) prices.
- Ignoring inflation when comparing returns.
- Assuming past performance predicts future returns.
Rule of thumb
Match horizon to risk: money needed within 3–5 years belongs in cash-like savings; longer horizons can tolerate equity volatility.
Worked example
A client saving for a house deposit in 2 years should use a deposit account, not equities - a market fall could erode the deposit just when it is needed.