Christmas gifts that offer a financial gain
This Christmas will hopefully be a time when families come together, shut the door on the economic gloom and share some festive cheer, even if it is on a more frugal scale than in years gone by.
We are emerging from the longest recession ever and, according to moneysupermarket.com, 45% of UK adults are worried about funding Christmas this year.
So why not choose more sensible gifts; ones that will help your loved ones build a nest egg or develop a hobby that may reap handsome returns in the future. This way, you're putting money to better use with the potential for some financial sparkle. Your children may not appreciate it now, but they will definitely thank you in the long run.
Premium bonds and children's savings accounts are popular presents, but the returns on both are currently very low. So this year we've focused on investments that should capture the rallies as we lift out of recession and produce juicy returns over the next 10 years.
We've also included some quirky presents (with money-making potential) in case wrapping up an opening statement for an investment trust and putting it under the tree fills you with dread.
For your Wife
All women love jewellery; it's just one of those universal facts. And men seem to enjoy giving and receiving practical presents - another universal fact. So for your wife or girlfriend this year, why not buy a coloured gemstone that can start a collection as well as be an investment.
Anna Sofat, director of Addidi, a financial advisory firm for women, explains: "Gemstones such as rubies can be bought at a fraction of their value once set in jewellery, and they can be stored easily, enjoyed, and make a great investment."
Although she admits there is imperfect market information - so to win big you have to know what you are doing - she gives a few tips for budding gemstone investors. "You can buy a one carat ruby gemstone from as little as £200 to more than £10,000, dependant on the quality.
"It's better to buy smaller stones of higher quality than large stones with more mixed quality, as the former appreciates more. Also, there is a more competitive market in well known stones such as rubies and sapphires than lesser well known stones."
A book such as Gemstones: Understanding, Identifying, Buying by Keith Wallis may also help your partner on her way with this hobby.
Marcus Carlton, executive director of financial advisers HFM Columbus, has a different spin on the jewellery gift idea and naturally it's along practical lines: "Sign them up for a glass jewellery-making course. The resulting items can be stunning and of course make great gifts. Frankly, any gift that introduces a new skill keeps on giving."
He recommends Yellow Dog Glass, a glass-making studio in Somerset that runs day courses for £85. For more information visit www.yellowdogglass.co.uk/acatalog/Workshop_Courses
One of the gifts presented by the Bible's three kings, gold is still popular today. It oozes sophistication and luxury, as well as being a useful hedge against inflation.
If you like your presents to be tangible and wrapped under the tree, you can consider buying actual gold.
"Sovereigns are still being made and a thriving collectors market exists," notes Adrian Lowcock, senior investment adviser at Bestinvest, an independent financial adviser (IFA) firm.
The Royal Mint offers a 2009 Gold Bullion Sovereign, which comes in a presentation box, for £199.
Bars are another way to get hold of gold. "Gold bars are available at Harrods or, if you're abroad, can be picked up from vending machines around Europe, including Geneva airport if you're heading off for a pre-Christmas ski," says Carlton.
You could also buy a gold fund. Bestinvest rates Merrill Lynch Gold & General. But Lowcock warns that the price of some funds will move around with the stock market and not follow the price of gold.
For your husband
Stamp collecting is the world's most popular hobby, with around 50 million collectors. Even French president Nicolas Sarkozy has been doing it since he was a child. The more rock'n'roll John Lennon and Freddie Mercury are also said to have been collectors. But only a tiny minority of collectors approach it as a serious investment.
Stamp trader Stanley Gibbons claims stamps are an extremely stable investment. In 2008, the value of the GB 30 rare stamp index rose by almost 40%. Stanley Gibbons says investors should generally keep stamps for at least five years if they hope for significant capital appreciation.
It is the most unusual and rare stamps, kept in pristine condition, that are deemed to be investments. They shouldn't be mounted in books, but kept loose in special folders.
Stanley Gibbons recommends building a collection around a theme, such as a country, period or subject, for example, around Empire and Commonwealth.
For further details on how you can get your husband started with this alternative investment opportunity, visit www.stanleygibbons.com.
Personalised number plate
Another universal fact (or perhaps sweeping generalisation) is that all men love their cars. So why not splash out on a personalised number plate for your partner?
"You can now buy unusual personalised number plates from as little as £250," reveals Sofat. "It's easy to put in a request for a number plate that has not been issued and the DVLA will let you know when it comes up."
There are also regular auctions, meaning if he doesn't want it he could sell it (perhaps for a small profit) or, alternatively, he can use it for a number of years and then try and auction it for a bigger profit.
On www.regtransfers.co.uk, the plate WE51 HAM is going for a sweet £10,000 - and as we went to press there were still another five days left to bid.
Shares to gain discounts
Your parents may be well-versed in how to invest in the stock markets, but unfamiliar with how buying just one share could gain them discounts with the company. For example, buying one share in Legal & General will get you offers such as 25% discount on home insurance, reduced charges on unit trusts and ISAs and 12.5% discount on travel insurance.
If your parents miss the free food and booze of the more elaborate AGMs of previous years, buy them a share in Associate British Foods. At their AGM, shareholders receive food samples worth around £30.
Meanwhile, a single share in British Land Company will get you invitations to art exhibitions sponsored by the firm.
For other shareholder benefits, visit: www.which.co.uk/advice/shareholder-benefits/shareholder-benefits-on-offer
However, if you suspect your parents aren't very savvy when it comes to savings and investments, you could pay for a meeting with an IFA. Carlton advocates this present, saying a decent IFA should "be able to introduce some creative thinking".
HFM Columbus and Bestinvest (both quoted in this feature) are two firms that will accept clients on a fee basis, so you can pay the fees for your mum and dad and not worry about commission.
You can also look up an IFA near your parents' home by visiting www.unbiased.co.uk. You can search for an adviser according to postcode, and areas that advice is required on, such as equity release, healthcare or investment trusts.
If your parents don't mind having their picture and personal finance details splashed across a magazine, then you could put them forward for Moneywise's free Money Makeover, which will pair you up with an IFA in your area to try and straighten out your finances. Click here to apply.
"A pension isn't the most exciting Christmas present you could offer and it's unlikely to be favoured by little Johnny over any other present, but things may be different when they are older," remarks Lowcock.
"Given the favourable tax treatment (children can benefit from income tax rebates even if they pay no income tax) and the considerable effect of compounding over the years, don't you wish a nice relative had given you a pension when you were young?"
As a result of pension simplification, any UK taxpayer may make a pension contribution for a family member. While your child (or grandchild, niece or nephew) may not appreciate the gift at first, it will give them a fantastic foundation on which to build their retirement nest egg and should get them interested in financial planning from a young age.
Stakeholder pensions are cheap and cheerful, and Bestinvest recommends Scottish Widows for a simple plan with a good range of funds.
For a product with wider investment choice, you could plump for a self-invested personal pension (SIPP). European Pensions Management offers a "Sipps4Kids' product, which has no set-up charge and a £50 annual fee.
Starting an investment off early for a child that you can pass on to them when they turn 18 should prove incredibly rewarding, as equities nearly always beat cash over longer time frames. Indeed, the Barclays Capital Equity Gilt Study 2009 reveals that over any consecutive 18-year period since 1899 equities have outperformed cash 99% of the time.
There are a number of funds suitable for investing on behalf of a child, and some even offer a free toy. However, Lowcock warns that you shouldn't "get sucked in by the gimmick", as often the only difference is lower minimum investments.
He argues that these days fund supermarkets offer a huge range of funds with low minimum investments, so you're better off choosing between all funds, not just those with a children's theme.
For an international fund, Bestinvest rates Threadneedle Global Select C1. To capture the high growth prospects of Asia, Lowcock recommends First State Asia Pacific Leaders.
If you lack confidence at choosing funds yourself, and know you won't have the time to regularly monitor their performance, you could choose a multi-manager fund, although they are more expensive. Bestinvest likes Jupiter's Merlin Worldwide Growth fund.
"Each of these funds invests some of its money outside the UK. This is important to gain a good spread of investment and increase the chance of having a toe in the best economies of the future. However, be mindful of the risk of foreign currency movements against the pound, which can erode any value in the underlying funds," advises Lowcock.
If you prefer, or are more familiar with, investment trusts, then some offer children's savings plans that parents or grandparents can contribute to. Witan Investment Trust offers the Jump Saving Plan that can be set up with a £100 lump sum or a regular payment of at least £25.
A bottle or case of bubbly is a great present to buy, especially if it's for a baby's first Christmas, but again you have to think far into the future to imagine the enjoyment or investment potential. A case of champagne from their year of birth (if a vintage year, or a year either side) can be opened and enjoyed on their 21st birthday or at their wedding.
Sofat elaborates: "You can buy a case for around £100 to £200 if bought young and direct from a vineyard or a wine merchant. You can store it for your child and give it to them as a present when they are older and can appreciate it."
Or if your child grows up to be a teetotaller or would rather have the cash to travel the world, they could sell it. "Vintage champagne can sell for several hundred pounds a bottle if a good vineyard and vintage year is chosen."
This article was originally published in Money Observer - Moneywise's sister publication - in December 2009
A form of National Savings Certificate, premium bonds are effectively gilt-edged securities: you loan your money to the government and, in return, it pays you for the privilege with a guarantee it will return your capital at a specified date. Where premium bonds differ is that the interest payments (currently 1.5%) are pooled and paid out as prize money and you can get your cash back within a fortnight, with no risk. Launched by Chancellor of the Exchequer Harold Macmillan in his 1956 Budget, every single £1 unit has the same chance of winning and in May 2011, 1,772,482 winners (from a total draw of 42,539,589,993 eligible bond numbers) shared £53,174,500. The odds of winning are 24,000 to 1 and the maximum holding is £30,000 per person but it remains the only punt in which you can perpetually recycle your stake money.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
Every limited company must hold an annual general meeting for its shareholders once a year to consider the company’s accounts, reports of directors and auditors and it is the only opportunity for shareholders to express their feelings to the board of directors. Shareholders also vote on the appointment/re-appointment of directors, although this may be sent to shareholders as a postal ballot.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.