cheatsheet_lesson5

Lesson 5: Investing Fundamentals - Cheat Sheet

Investment Types Comparison

Investment Type
Potential Return
Risk Level
Liquidity
Minimum Timeframe
Best For
Cash/Savings
3-5%
Very Low
High
None
Emergency fund, short-term goals
Bonds
3-6%
Low-Medium
Medium
2-5 years
Income, capital preservation
Shares
7-10%
High
Medium-High
5+ years
Growth, long-term wealth building
Property
6-10%
Medium-High
Low
7+ years
Income, diversification
Commodities
Varies widely
Very High
Medium
Varies
Inflation hedge, diversification
Cryptocurrency
Highly variable
Extreme
Medium
Speculative
Small speculative allocation only

Asset Allocation by Time Horizon

Time Horizon
Suggested Allocation
Rationale
0-2 years
100% Cash
Capital preservation is priority
3-5 years
60-80% Bonds, 20-40% Shares
Balance between growth and stability
5-10 years
40-60% Shares, 40-60% Bonds
Moderate growth with some stability
10+ years
70-90% Shares, 10-30% Bonds
Maximize long-term growth

UK Investment Account Types

Account Type
Annual Allowance
Tax Benefits
Withdrawal Restrictions
Best For
Stocks & Shares ISA
ÂŁ20,000 (2023/24)
Tax-free growth and withdrawals
None
Most investors’ first choice after pension
Lifetime ISA
ÂŁ4,000 (counts toward ISA allowance)
25% government bonus + tax-free growth
First home or retirement (age 60+)
First-time home buyers, additional retirement
SIPP
ÂŁ60,000 or 100% of earnings
Tax relief at income tax rate, tax-free growth
Access from age 55 (57 from 2028)
Retirement saving, especially for higher rate taxpayers
General Investment Account
Unlimited
None
None
After maximizing tax-advantaged accounts
Junior ISA
ÂŁ9,000 (2023/24)
Tax-free growth
Child can access at 18
Children’s long-term savings

Index Fund vs. Active Fund Comparison

Feature
Index Funds
Actively Managed Funds
Management Style
Passive - tracks market index
Active - tries to beat market
Typical Fees
0.1-0.3%
0.5-2.0%
Performance vs. Market
Matches market returns
Most underperform after fees
Tax Efficiency
Higher (less turnover)
Lower (more trading)
Simplicity
High
Medium
Minimum Investment
Often lower
Often higher

Common Investment Terms

  • Asset Allocation: Division of portfolio between asset classes (shares, bonds, cash, etc.)
  • Diversification: Spreading investments to reduce risk
  • Pound-Cost Averaging: Investing fixed amounts regularly regardless of market conditions
  • Compound Returns: Earning returns on previous returns
  • Dividend: Share of company profits paid to shareholders
  • Yield: Income return on an investment (dividends or interest)
  • Volatility: Degree of variation in price over time
  • Bear Market: Market decline of 20%+ from recent highs
  • Bull Market: Market rise of 20%+ from recent lows
  • Rebalancing: Adjusting portfolio back to target allocation

Investment Platform Comparison Factors

  • Platform Fee: Annual charge as percentage or fixed fee
  • Trading Costs: Fee per trade or free trading
  • Investment Options: Range of funds, ETFs, shares available
  • Account Types: ISAs, SIPPs, general accounts offered
  • Minimum Investment: Starting and ongoing contribution requirements
  • User Interface: Ease of use, mobile app quality
  • Customer Service: Support options and quality
  • Research Tools: Information and analysis available

Market Downturn Response Plan

  1. Don’t panic sell - historically, markets recover
  2. Continue regular investments - buying at lower prices
  3. Rebalance if needed - maintain target allocation
  4. Review but don’t obsess - limit checking to quarterly
  5. Remember your time horizon - short-term volatility is expected
  6. Consider increasing contributions if possible - buying opportunity