PART A
TITLE
Your choice, but it needs to be interesting and relevant
INTRODUCTION
You’re going to introduce the topic here and tell the reader what the article will cover.
MAIN ARTICLE – POSSIBLE HEADINGS
1 GLOBAL ISSUES THAT HAVE LED TO STOCK MARKET VOLATILITY IN THE
PAST 12 MONTHS
2 WHAT’S CAUSED THESE ISSUES TO DEVELOP ?
3 HOW HAVE THESE ISSUES AFFECTED STOCK MARKETS AND THE GLOBAL
ECONOMY ?
4 HOW INVESTMENTS OTHER THAN EQUITIES COULD BE INCLUDED IN A
CLIENT’S PORTFOLIO TO REDUCE VOLATILITY
5 EXAMPLES OF INVESTMENT PRODUCTS
SUMMARY
Possible headings and sub-headings
Global issues that have led to stock market volatility
– China
– Fall in oil prices
– Greek economy
– Switzerland unpegging the Swiss Franc from the Euro
– Terrorism
– Cyber crime
– Syria and Iraq
How these issues have developed
China
– Growth slowing and forecast figures reduced
– Weakening outlook for growth
– Surprise devaluation of the Yuan on Aug 11 2015 (www.economist)
– Mass sell-off of stocks by investors in 2015
– State pension fund tried investing in domestic shares
– Large injections of capital into blue chip shares – unsuccessful
– China’s demand for oil and commodities has fallen
– Emerging market economies who rely on China are at risk
Fall in oil prices
– Demand lower due to weak economic activity
– Switch away from oil to other fuels
– US now imports less oil – creating spare supply
– Saudis and Gulf allies have not cut production
Greek economy
– Problems started after the 2007-8 financial crisis
– Flow of money to Greece from core European countries fell
– Structural weakness in the Greek economy
– Fears around Greece’s inability to service its debt obligations started
– Data on debt levels mis-reported
– Greece couldn’t devalue its currency (member of Eurozone)
Swiss unpegging from the Euro
– Swiss franc pegged to Euro during the financial crises
– Value of Swiss Franc soared when it was unpegged
– Exports became dearer and Swiss exporters suffered
Terrorism
– Markets don’t like uncertainty
– The market reaction following terrorist incidents is usually downwards
– But markets are resilient and tend to bounce back
Cyber crime
– A bigger risk now than ever before, due to the sheer number of connected
people and devices (http://uk.norton.com/cybercrime-definition)
– Has been called the biggest threat to the financial sector and to businesses
Syria and Iraq
– US and European stocks sharply lower following the downing of the Russian
jet
– Ongoing uncertainty in the region
ALTERNATIVE INVESTMENTS
CASH DEPOSITS
– CAPITAL IS SECURE
– CASH ISA – CURRENT INVESTMENT UP TP £15,240 – TAX FREE
– BANK AND BUILDING SOCIETY ACCOUNTS
– CAN BE USED AS EMERGENCY FUNDS – TYPICALLY 3 TO 6 MONTHS’
INCOME
– EASY ACCESS
– FINANCIAL SERVICES COMPENSATION SCHEME (FSCS)PROTECTED – UP TO
£85,000 BUT REDUCING TO £75,000 PER PERSON PER INSTITUTION FROM
JAN 1
– FSCS WILL ALSO COVER DEPOSITS FOR 6 MONTHS UP TO £1m FOR
TEMPORARY HIGH BALANCES
– AMOUNT HELD ON DEPOSIT WILL DEPEND ON CLIENT’S RISK PROFILE
NATIONAL SAVINGS AND INVESTMENTS (NS&I) PRODUCTS
– PREMIUM BONDS – TAX FREE – COULD BE USED FOR EMERGENCY FUNDS –
£50,000 PER PERSON MAX
– VERY LOW RISK
FIXED INTEREST FUNDS
GILTS
– LOANS TO BRITISH GOVERNMENT
– LOW-RISK
– GUARANTEED INCOME FOR A SET PERIOD
– CAN BE TRADED ON STOCK MARKET
– GAINS ARE FREE OF CGT
– INCOME IS TAXABLE
– LESS VOLATILE THAN EQUITIES
– REASONABLE RETURNS
– NOT RISK-FREE
– GILT PRICES VULNERABLE TO INFLATION
CORPORATE BONDS
– LOANS TO COMPANIES
– SIMILAR TO GILTS BUT MORE VOLATILE AND MORE RISK, BECAUSE
COMPANY MAY FAIL
– PAY A FIXED RATE OF INTEREST
– LOW TO MEDIUM RISK
– MOST BONDS ARE FREE OF CGT
– SAME TAX TREATMENT AS GILTS EXCEPT INCOME IS PAID NET OF 20%
TO PROVIDE DIVERSIFICATION AND REDUCED RISK, INVESTORS
MAY WISH TO USE FIXED INTEREST UNIT TRUST FUNDS , WHICH
SPREAD INVESTMENT ACROSS A WIDE RANGE OF COMPANIES
AND GOVERNMENT STOCKS
STRUCTURED PRODUCTS
– CONTRACTS WITH BANKS / BUILDING SOCIETIES
– CLEARLY DEFINED RETURN, DEPENDING ON THE PERFORMANCE OF
SOMETHING ELSE, SUCH AS A STOCK MARKET INDEX
– TWO TYPES – STRUCTURED DEPOSITS AND STRUCTURED INVESTMENTS
– STRUCTURED DEPOSITS RETURN 100% OF THE INVESTOR’S CAPITAL AT
THE END OF A SPECIFIED TERM, BUT IT COULD BE MORE
– STRUCTURED INVESTMENTS PROVIDE A RETURN THAT DEPENDS ON THE
PERFORMANCE OF A STOCK MARKET
– CAPITAL MAY BE AT RISK WITH A STRUCTURED INVESTMENT
REAL ESTATE INVESTMENT TRUSTS (REITS)
– TAX-EFFICIENT WAY OF INVESTING IN PROPERTY
– COMPANY THAT CAN INVEST IN BOTH COMMERCIAL AND RESIDENTIAL
– REIT COMPANIES AVOID CORPORATION TAX PROVIDING THAT 90% OF
THEIR RENTAL INCOME IS DISTRIBUTED TO SHAREHOLDERS
– INVESTORS PAY TAX ON THE PROPERTY INCOME DISTRIBUTION THEY
RECEIVE
– REIT SHARES CAN BE HELD IN AN ISA
– INVESTMENTS AND THE INCOME PAID ON THEM CAN FALL AS WELL AS
RISE
http://finance.zacks.com/reits-vs-stocks-3920.html
PEER TO PEER LENDING
– COMPANIES PUT INVIDUALS AND BORROWERS TOGETHER
– CAN BE INCLUDED IN ISAS
– BORROWERS BENEFIT FROM LOWER RATES THAN CONVENTIONAL LOAN
PRODUCTS
– LOANS TO ARE MADE TO A WIDE RANGE OF BORROWERS TO PROVIDE
DIVERSIFICATION
– NOT RISK FREE
– NOT PROTECTED BY THE FINANCIAL SERVICES COMPENSATION SCHEME
http://www.moneysupermarket.com/savings/peer-to-peer-lending/
When suggesting alternative investments, try and do some research about how they’re taxed and how that compares with equities.
Also consider – are these alternative investments regulated by the FCA ? Are they protected by the FSCS and how easy would they be to sell quickly ?
p(15)
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