Before undertaking any investment or other financial decision, it’s important to be aware of all of the potential advantages and drawbacks. So, let’s have a look at the advantages and disadvantages of investing in AIM shares.
What are AIM Shares?
AIM stands for Alternative Market Investment. It is a submarket of the London Stock Exchange which deals with small and medium size growth companies which are seeking to raise capital through an Initial Public Offering.
The listed companies tend to be smaller and more speculative as regulations are rather relaxed compared to larger exchanges. This type of investment tends to be higher risk with the potential of higher rewards.
Advantage: Potential of High Rewards
One advantage of AIM shares is the potential of reaping high rewards from your investment. The companies listed on AIM are still relatively young and in their growth stage, meaning there is the potential to earn more money off them than the mature companies on the FTSE index.
A prime example of this is ASOS: listed on AIM in October 2001 at the price of 20p a share, these ASOS shares later reached £71 a share by October 2014. You can click here to see their current price per share.
Advantage: Tax Benefits
Tax benefits are one of the main draws of AIM share investment. Some of these tax benefits include:
No stamp duty land tax (SDLT) due on shares traded within AIM
Some AIM companies are inheritance tax (IHT) free if shares are held for longer than two years
Some AIM shareholders may qualify for income tax and capital gains tax (CGT) reliefs when held through an Enterprise Investment Scheme (EIS) or through CGT Entrepreneurs Relief.
You can click here for a more detailed guide to AIM tax benefits.
Disadvantage: High Risk
AIM share investment is best suited to those who are willing to take on a high degree of investment risk. This is because many listed companies on the AIM index are still in their growth stage and aren’t fully established, meaning you don’t know whether they will be as successful as expected.
As stated by Andrew Howe on Interactive Investor, “AIM is the world’s worst-performing major stock market index of 2022.” He continues, “The number of AIM companies worth more than £1 billion has nearly halved over the past year. All the companies that are still valued above that level have lower share prices, some up to three-quarters lower.” This said, he does also note that there is the potential for a rebound this year.
Disadvantage: Illiquid
Listed companies usually have fewer outstanding shares available to be traded, meaning it can be difficult to buy and sell them at the price you want to.
It tends to be harder to sell AIM shares than those of larger companies, meaning you’re essentially more tied into your investment.
Overall, it is up to you to decide whether AIM share investment is right for you. However, before jumping in head-first, make sure you are fully aware of what you are investing in and how it all works.
by Red Star Wealth
Equity Release allows you to access the equity (cash) tied up in your home. There are two equity release options: lifetime mortgages and home reversion plans.
Lifetime Mortgages
A lifetime mortgage is when you borrow money secured against your home, provided it’s your main residence. This allows you to access tax-free cash without having to move out of the property, so you retain 100% ownership.
There are two main types of lifetime mortgage:
Lump sum- where you take a tax-free cash lump sum from the value of your home
Drawdown- where you take an initial tax-free lump sum from the value of your home and the remaining equity available is taken at a later date
To take out a lifetime mortgage you must be over age 55. Your home must be worth at least £70,000 and you must want to release at least £10,000 of its equity. You must have cleared, or be able to clear, your existing mortgage upon completion of your lifetime mortgage.
You are not required to make repayments for a lifetime mortgage. However, you may choose to do so on a voluntary basis as compound interest is added to the loan amount, meaning it can accumulate over time.
The amount that you borrow, and its interest, is not paid back in your lifetime. The loan and its interest will be paid off by selling the property when the last borrower dies or moves into long-term care.
Home Reversion Plan
With a home reversion plan, you can sell between 25% and 100% of your home in return for a cash lump sum, a regular income, or a combination of the two.
In this form of equity release, you can continue to live in the house until you die and must agree to maintain and insure the property. It is usually available to those age 65 and over.
You will usually get between 20% and 60% of the market value of your home (or portion of the home you sold). This means that you are selling all of, or part of, your home way below market value, missing out on future price increases and decreasing the inheritance you can leave behind. The older you are, the higher percentage of the home’s market value you tend to get.
The percentage of ownership you retain in the property remains the same regardless of whether the property rises or falls in value, unless of course you choose to take further cash releases (forfeiting further ownership of the home).
Repayments are not required and interest is not charged, as a home reversion plan is not a loan, it is a form of sale.
Financial advisers advising on equity release can provide useful information if you are unsure what steps to take. You should ensure that the firm or agent is FCA regulated and has a relevant equity release qualification.
by Red Star Wealth
One million people in the UK are part of a share save scheme, but what exactly are they?
An Introduction to Share Saves
You may see share save schemes referred to as Save As You Earn (SAYE) or employee share ownership schemes.
Introduced in the UK in 1980, share save schemes help you save towards buying shares in the company you work for.
For a company to participate and offer this scheme to its employees, it must be (or be owned by) a public company listed on a stock exchange.
How do they Work?
You save directly from your wage and then at the end of the savings period you are given the option to buy shares in your company or take your savings in cash.
The company will give you an option price, which is the price you will be able to buy shares for at the end of the scheme.
You can save up to a maximum of £500 a month under the scheme. The amount you opt to save is then fixed every month. So, if for example, you opt to save £50 a month for the duration of the scheme, you can’t then increase this to a contribution of £200.
The company may set an eligibility period wherein to join the scheme, you must have worked for the company for a minimum length of time.
What do you get?
As we noted earlier, you can take your savings as cash or as shares in the company. However, there are a number of options and combinations as to how you can do this:
Take it as cash. Here, the scheme has been used as a savings account of sorts. With this option, you will get back every penny you put away into the scheme. However, the money will not accrue any interest whilst sitting in the scheme, unlike how it would in an ordinary ISA
Buy and sell the shares. For example, you may choose to do this if the share price has risen above the option price given to you at the start of the scheme, so buying and selling the shares allows you to immediately make a profit
Buying and selling some but not all of the shares
Buying some shares and taking the rest as cash
You have 6 months to make this decision, so you don’t need to choose as soon as the scheme comes to an end.
You will pay no income tax or national insurance on the difference between what you paid for the shares and their value, but you may have to pay capital gains tax if you sell the shares.
What Information should my Employer give me?
Your employer will usually extend an invitation for you to join the scheme a couple of months before it begins. They should disclose the following information to you:
The scheme’s length, which will be either 3 years or 5 years
The deadline for signing up to the scheme
How much you can save each month. Under share save schemes, you can save between £5 and £500 a month. However, your employer may have their own rules, where they have increased the minimum payment you must make, lowered the maximum payment you can make, or a combination of the two
The price you can buy shares for at the end of the scheme. This price is set at the start
Is this Right for Me?
Whether share saves are right for you is a personal decision. If you would only want to take the savings as cash at the end of the scheme period, a savings account is probably a better option for you, as you can benefit from savings growth via interest.
Additionally, if you are struggling with debts or need to focus on building an emergency savings fund, it’s probably worth prioritising this over share saves.
However, if you do have a bit of spare income each month and want a low-risk form of investment, share saves may be a good option for you.
by Red Star Wealth
For many of us, our mortgage is our biggest monthly expense. Therefore, the question of whether we could still afford to meet our mortgage repayments if we were out of work is an important one… and this is where mortgage payment protection insurance comes into play.
What is Mortgage Payment Protection Insurance (MPPI)?
MPPI covers your monthly mortgage payments if you’re made redundant or are unable to work due to serious illness or injury. There are three main types of policy cover:
Unemployment
Accident and sickness
Combined
MPPI can help prevent you from defaulting on your mortgage and risking repossession of your home if you’re left without your ordinary income to make mortgage payments.
How it Works
You begin receiving payments after you’ve been out of work for a specified waiting period, which is usually set between 30 and 60 days but can reach up to 180 days. Therefore, it is still always important to consider having an emergency fund, as you still need to cover costs during the waiting period.
There is usually an exclusion period, which is the time elapsing between the start of your policy and the time you are actually eligible to make a claim on the insurance. This exclusion period is usually set between 30 and 180 days.
You will then receive set monthly payments, usually for up to a maximum of 2 years.
Depending on your MPPI provider, you may be able to get a policy where your bills are also covered, in which case you will receive 125% of your mortgage costs.
Your job may affect the amount you have to pay for your MPPI policy, because most insurers categorise jobs according to different risk categories. The higher risk of injury, illness or redundancy you are seen to be at, the higher your premium will be.
Other Insurances to Consider
You may wish to consider a decreasing life insurance policy, which covers the cost of your mortgage payments for your dependents when you die. This is by no means an alternative to MPPI, as cover only starts in the event of your death. However, it may be something you want to consider in addition to MPPI, so that you dependents are financially protected.
As an alternative to MPPI, you may choose to take out income protection insurance. This covers a portion of your salary, making it more comprehensive than MPPI, as the payments you receive can be used for anything, including the mortgage payments themselves. Additionally, income protection insurance often pays you instalments for longer than the MPPI 2-year limit.
Critical illness cover is an alternative worth considering if you were thinking of taking out an accident and sickness MPPI. Critical illness cover pays you a lump sum if you are diagnosed with a serious illness which makes you unable to work, but it does not provide you with a regular income through instalments.
Check whether your employment contract includes an arrangement for the company to continue to pay you your salary, or a portion of it, for a set period if you are off work due to illness. Some employers may even offer income protection insurance as an employee benefit.
Whether you get MPPI is your choice, but as with any financial decision, it’s a good idea to look at all of your options.
by Red Star Wealth
There is a huge lack of trust in UK financial services…
Lack of Trust: FSCS Data
In a May 2023 report, the FSCS found a huge lack of trust in the UK financial services industry. Here are some of their key statistics:
25% of consumers say they trust the UK financial services industry to act in the best interests of its consumers, with 31% saying they distrust it
42% are concerned about a lack of protection if things go wrong
Out of 7 industries surveyed, the financial services industry was the second least trusted
The FSCS has an important role to play in fostering trust among consumers
Why is Trust Important?
Let’s have a look at what others had to say…
The FSCS has stated:
“Trust and confidence in the system is critical to financial stability. Without them, more people are likely to react to uncertainty and market turmoil by seeking to pull their money out of products or firms perceived as at risk, worsening liquidity and confidence pressures”
Further to this, a paper published by Brynchko et al argues:
“It is impossible to exaggerate the role of trust in the financial sector of the economy. Without trust, the financial system is deformed, and without a well-functioning financial system, it is impossible to ensure the macroeconomic stability and the potential for the country’s development”
Therefore, for the financial services industry to thrive, consumer trust is of the utmost importance, and it is indeed an issue that there is a continued (and growing) distrust in financial institutions. Financial institutions need to start putting consumer perceptions and experience at the forefront of their approach to delivering financial products and services.
How Can this Trust Be Built?
When consumers were asked by the FSCS what would improve their trust in the financial services industry:
54% said improved consumer protection
39% said legal consequences for activities that lose customers’ money
44% said the industry meeting the costs of compensation when providers go out of business
This is a great starting point for rebuilding this consumer trust. Other ideas are to:
Improve transparency… how can consumers trust industries that aren’t being completely open and honest with them?
Improve financial education… how can we expect people to trust financial institutions if they lack the understanding around financial topics in the first place?
Have providers engage with their customers more effectively… instead of simply pushing products at consumers, they should be guiding, helping and listening to them. Instead of help being inaccessible, with communication restricted to virtual assistants and chatbots, financial services providers should be encouraging and enabling consumers to get in touch if they need to
by Red Star Wealth
A recent Quilter survey found that most adults in the UK take their financial advice from people via media outlets like television, radio and online. 35% said they used this source to help manage their finances followed by 30% saying they used comparison sites and 29% using advice from family members.
The Lewises
Paul Lewis presents BBC Radio 4’s Money Box. Martin Lewis is the founder of MoneySavingExpert.com (MSE) and is a financial journalist and broadcaster.
Paul Lewis has faced backlash for claiming that consumers should use large, national mortgage brokers in order to access the “best possible deal.” As you can probably imagine, independent mortgage brokers were not happy to see their names besmirched by someone who is not even qualified to give advice in their field.
Click here to read more about what brokers’ had to say in response to Lewis’ comments.
“as I say always find an independent chartered financial adviser and admit that excludes some good, restricted advisers and some good IFAs who are not chartered, finding them amongst the rest is impossible. Hence my general advice. Which inevitably excludes some good guys”
Martin Lewis also faced criticism from advisers in October 2022 for telling viewers to stick with standard variable rate mortgages.
A recent article from Mortgage Solutions has highlighted these criticisms and discussed the issue that arises from the general public trusting the word of the Lewises over the advice of qualified financial experts.
What’s the Issue?
Financial journalists can be incredibly helpful in educating the public on financial matters, simplifying complex financial topics to make them more accessible and understandable. Martin Lewis in particular has made huge positive impacts by triggering major initiatives to combat scam ads, urging regulation of Buy Now Pay Later firms, and helping break down difficult financial topics via MSE.
However, education and advice are not to be conflated.
Paul Lewis himself has referred to his advice as “general,” and here lies the issue. The advice being given is often broad, general and unregulated. It is not tailored towards what is specifically best for you and your financial situation. Everyone’s finances are different and so a blanket statement of what is “best” won’t necessarily reflect what is best for all.
Many individuals advising you about your finances through various media outlets are unqualified to give this type of advice. Some advisers are now questioning whether these shows and media forums need to come with a disclaimer that these ‘experts’ are not in fact qualified to give financial advice.
