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Guide to investing

This guide contains useful information that will help you consider if investing is right for you.

  • Whatever stage of life you’ve reached and whatever plans you may have for the future, you want your money to earn the best return possible without taking undue risk. That’s why it’s important to invest in a way that’s right for you and that will meet your goals.


    Your goals and your circumstances will change as your life changes, so you also need to be able to change your investments along the way.

    It’s important to identify your long-term financial goals so that you have a purpose for saving and investing over a longer period of time. Maybe you want to save or invest regularly to build up capital for a future goal such as:

    • Funding private school or university

    • Helping a child or grandchild with their first car, a wedding or deposit on a home

    • Providing an income for later life in addition to your pension. 

    Or perhaps you want to grow a lump sum you already have from an inheritance, the sale of a business, a bonus or a tax-free payment from a pension, for example.

    Your first step in deciding how much to invest is to review the savings and investments you may already have in place. Then, so that you can decide whether you can afford to add further lump sums or to save regularly, you’ll need to:

    • Make sure you have enough income to cover your day-to-day lifestyle

    • Allow for any planned expenditure over the next 5 years

    • Keep money back for the unexpected emergencies (like paying for a replacement heating system or a new roof). 

    Savings should always be your starting point: they earn interest and tend to be best if you have a short-term goal in mind or need easy access to some of your money. Even if you're considering investing you should always leave enough money in savings to provide a balance between savings and investments and to have money available for any short-term expenses.

    Investments offer the potential for a greater return on your money than savings accounts but no investment is totally risk free. The degree of risk and likely level of return varies for different types of investments.

    Investments should ideally be held for the medium-to-long-term, typically 5 years or more (unless they have a fixed term). This can help to minimise the short-term impact of the various risks that affect investments.
    For this reason, you should also keep enough money in accessible savings accounts to cover your day-to-day lifestyle and any planned expenditure during the foreseeable future. It’s also a good idea to keep some money back for unexpected emergencies.
    Another important factor in order to get the balance right, is ensuring that the overall risk and potential growth across your savings and investments is right for you.

  • Asset classes
    There are four main underlying investment asset classes. We go into further detail later about the risks and how these can be held by investors.

    • Cash

    • Bonds

    • Shares

    • Commercial Property  

    Different geographic and business areas
    You can invest in different regions of the world or in different types of business.

    Bonds are loans to governments (sometimes called Gilts in the UK) or loans to companies (also called corporate bonds) in return for interest payments over the life of the bond. Bonds are also sometimes referred to as fixed interest securities or fixed interest investments. Please note these are very different to deposit based savings bonds that also use the word “bond” in their name.

    • They have a nominal value, which is the amount that will be returned on a stated future repayment date to the investor who holds the bond on that date. However in the interim period, bonds can be bought and sold on the stock market and so their price goes up and down based on their perceived value and level of demand.

    • A bond’s value can go down if demand falls. This could happen if savings rates rise and the attractiveness of the bond’s return diminishes. It could also happen if it looks more doubtful that the government or company will be able to repay the debt on the repayment date.

    • A bond’s value can go up if demand increases because its return becomes more attractive in comparison to savings rates or if confidence in the issuing government or company increases.

    • For these reasons bonds carry a higher degree of risk than savings accounts but can have a greater potential return.

    • Bonds are generally less risky than property or shares, but the level of risk depends on the particular type of bond you invest in. For example, a UK government bond is considered low risk, while a bond issued by a foreign, indebted and politically unstable government might be very risky. Similarly with corporate bonds a new technology firm that has yet to make any profits might be considered very risky compared with bonds from a well known, established household name.

    • Most individual investors invest in bonds through investment funds which we cover in the “How to hold investments” section of this guide.


    These are issued by companies and give you a part ownership of that company (shares issued by investment funds are covered in the “How to hold investments” section of this guide):

    • Shares can be bought and sold on the stock market.

    • If a company is producing a good return in the form of dividend payments and/or has positive prospects, its share price may go up.

    • If the opposite is happening then the share price may fall as demand decreases.

    • Shares normally offer a combination of dividends (income payments) and potentially growth prospects via an increased share price.

    • Shares are the most unpredictable of the main asset types in the short-term, but have the potential to return more than other assets over the longer-term.

    • Shares are also known as equities or securities.

    • Where shares are held in investment funds the individual investor has a holding in the fund but doesn’t own any of the underlying shares that the fund invests in.

    Property investments available to the public tend to be in the form of funds that buy all or part of a collection of commercial buildings such as office blocks, shopping units, retail warehouses, industrial units and leisure centres. 

    • Commercial property investments can provide growth in two ways: through rises in the value of the property and/or through rent paid by the tenants of the buildings.

    • Property share prices tend to fluctuate less than other asset classes on a day-to-day basis because property prices move more slowly than, say, company share prices. However, they can jump down or up when a tenant moves on or when a new tenant is found.

    • In times of economic pressure on commercial property, it may be more difficult to sell property investments. At such times, a property fund may restrict the amount or speed of withdrawals from the fund. As a result it is worth considering the amount of your overall portfolio that might be invested in commercial property.

    Whichever asset class you choose to invest in, the level of risk and potential return will vary by the geographic region and business area as each can be affected differently by unforeseen factors.


    Geographic regions
    It is understandable that different geographic regions will present different potential risks and rewards. A company in a region with a developing economy, might be able to grow rapidly and see its shares rise quickly in value compared to the UK for instance. However the fact that the region is still developing means that its currency, economy and political structure could be more subject to change and so the share price of this company is likely to fluctuate much more than that of an established UK company with a long history.


    Business areas
    Different areas of business carry different risk and potential. For instance, oil production seems like a sound business to invest in due to the world’s finite oil reserves however the value of an investment in this business can go down at times of over supply as seen at the start of 2016. Another example of varying fortunes of a business area would be in the Technology sector where a company might bring a ground breaking development to market only to find that soon after a competitor comes out with an improved, next generation version.

  • One of the key things about investing is to remember to diversify. The more you’re able to diversify across asset classes, geographic regions and business areas, the more your investment portfolio will be able to withstand the peaks and troughs in their individual value. 


    The problem with investing directly in bonds, shares or property as an individual is that diversification is expensive because of transaction costs. Other problems include knowing which individual investments to buy and when, and knowing which to sell and when. Additionally, we may not have the time to keep up to date with developments and to carry out the buying and selling of investments at the right moment.  

    Funds offer a solution to these sorts of problems as they invest in a range of investments and are run by professional fund managers.


    Investors’ money is pooled together which enables the investor to get access to investments that they wouldn’t ordinarily be able to do on an individual basis


    Funds are offered by asset management companies and are efficient ways of achieving investment diversification as the size of each fund means that the impact of transaction costs is relatively low.


    There are no day-to-day decisions for the investor to make. Fund managers do all the work. They use their experience and expertise to monitor the fund and to choose which assets to sell, which assets to buy and when to do this. 

    Funds described by the assets they invest in
    Broadly speaking there are mixed asset funds that look to gain diversification across different asset classes, geographies and sectors all in the one fund and then there are funds that focus on for instance Government Bonds or UK Shares (Equities) or European Shares whereby investors can gain diversification by selecting different funds with different fund managers covering various asset classes, geographies and sectors.

    Actively managed funds
    These have a fund manager whose job is to select the investments that best match the fund’s objective. The fund manager will make the investment decisions with the goal of outperforming a particular benchmark, such as an index or the performance of competitor funds.


    Actively managed funds may be suitable for investors looking to make potentially higher returns than a fund that simply tracks an index, and/or who want access to more specialised areas (e.g. technology, healthcare or biotechnology).
    Due to the time employed in the ongoing task of picking which investments to buy and sell, the fund charges are generally higher than for passive funds where active investment management is minimal.


    Passively managed funds
    These aim to mirror or track a particular benchmark, such as an index. They still have a fund manager, but the underlying investments are selected automatically in line with the fund’s objectives. For this reason they generally have lower charges than active funds. They are sometimes called tracker funds as they track an index up and down in value. 


    Fund of funds
    This is where the fund manager invests in a selection of funds. This provides even greater diversification because the fund will typically be indirectly investing in 30-200 shares, bonds or properties for each of the funds into which it has invested. Additionally, a fund of funds can invest in a mix of active and passive funds as well as in specialist funds for specific sectors.

    Funds set out their objectives and these can vary considerably.


    Asset mix
    The objective can describe the types of asset that the fund will invest into for example – all bond, all equity, a blend such as with a multi asset fund.


    Geographic region or business area
    The objective can describe where the fund will invest for example – UK, Asia, North America, or a blend such as with a global fund.


    Business area
    The objective can describe what business areas that the fund will invest into for example - technology, health, mining, etc. 

    You can often buy different share classes of a fund, which give you your returns in different ways. 


    If you want an income from an investment fund you can choose an income share class (sometimes called distribution share class). This type of share class uses any investment income generated by the assets in the fund, to produce periodic cash payments. This cash can be kept in the ISA or Investment Account; or can be reinvested to buy more shares or units; or can be paid out to a bank account as an income withdrawal. Look for the “I” or “Inc” next to the fund name to find this type of share class.


    Alternatively if you want growth from an investment fund you can choose a growth share class (sometimes called accumulation share class). This type of share class adds any investment income generated by the assets in the fund back into the fund to increase the share or unit price. Look for the “G” or “Acc” next to the fund name to find this type of share class. 

    Unit Trust
    This is a collective investment fund that can buy bonds, properties or shares in companies. It is split into units that investors buy. The fund manager creates units for new investors and cancels units for those selling out of the fund. The price of each unit depends on the value of the fund’s underlying investments divided by the number of units in circulation. This means that the value of the units you buy directly reflects the underlying value of the investment.


    Open Ended Investment Company (OEIC)
    This is a collective investment fund that can invest in shares, bonds, cash and other permitted assets appropriate to its investment objective. It has the legal status of a company and is split into shares that investors buy. The fund manager creates shares for new investors and cancels shares for those selling out of the fund. The price of each share depends on the value of the fund’s underlying investments divided by the number of shares in circulation. This means that the value of the shares you buy directly reflects the underlying value of the investment. 

    Structured investments are designed for investing over a fixed period of time. The terms of the investment are set out at the start, such as what they aim to return and over what specified time frame. They are offered for sale over a defined period of weeks. After that the investment commences and runs for the period of years stated until their maturity date. Your capital is protected with some structured investments but not with others.

  • A stocks and shares ISA offers a tax efficient way of investing where the returns on your investments are free from Income Tax or Capital Gains Tax. Remember that tax rules and allowances can change at any time.


    The annual ISA limit for the 2017/2018 and 2018/2019 tax year is £20,000. Deposits for the 2017/2018 tax year can be made up to and including 5 April 2018. Deposits for the 2018/2019 tax year can be made from 6 April 2018.


    Please be aware that if you make deposits for the 2017/2018 and/or 2018/2019 tax years which are less than the full ISA allowance for that tax year, you won’t be able to pay into another ISA of the same type in the same tax year to use the remaining allowance.


    For the 2017/2018 and 2018/2019 tax years you can subscribe your ISA allowance into a cash ISA, a stocks and shares ISA, an innovative finance ISA, a lifetime ISA or a combination of the four. (Santander doesn't offer an innovative finance ISA or lifetime ISA).


    You can transfer an ISA from one provider to another. This includes money you have accumulated from previous tax years and any money that you may have paid into an ISA in the current tax year.

    This is an account where investments can be held outside of an ISA. An Investment Account doesn’t have the tax benefits of an ISA but any capital gains you make can be offset against your annual Capital Gains Tax allowance.

  • It's important to remember that whenever you invest, your money will be exposed to some degree of risk. Investing for the long-term can provide higher returns compared to savings accounts, but it comes with investment risks, so it’s important to consider the following in seeking to achieve your goals:

    1. How long are you planning to keep your investment?
    Your investment goals are likely to drive this decision. While there are no guarantees, keeping your investment for a minimum of 5 years, and ideally 10 years or more, increases the potential for better returns. That’s because there’s more time to recover should it suffer short-term dips in value. As you approach the date you want to utilise the money in your investment, you can also choose to reduce its level of risk by switching into less risky assets.

    2. How comfortable are you with taking risk?
    Generally, the more risk you take, the bigger the potential return on your investment. A more risky investment is likely to be more volatile, which means its value can rise more rapidly but also fall faster. The risk you take needs to be at a level you’re comfortable with and importantly, a level you can afford.

    3. How much can you afford to lose?
    There’s more to investing than deciding how comfortable you are with risk. You also need to weigh up how much you can afford to lose. If you lost the money you invested, how would this affect your standard of living? Could you maintain your current lifestyle or would you need to make sacrifices? You may be willing to make a high-risk investment, but your personal circumstances could determine that you invest more cautiously.

    The kind of risks you need to consider are:

    • Market or investment risk
      When you invest in the stock market there is always the risk that you might get back less than you originally invested due to stock market fluctuations, particularly if you need to take cash out when the market is depressed. Some structured investments offer protection from loss of any capital if you keep your money in the investment until the end of a fixed term.

    • Liquidity risk
      If you choose to save or invest for a fixed term you need to be sure you can tie up your money for that length of time. Should you need your money early you may get back less than your initial investment due to a number of factors such as surrender charges or the value of your investment at that time.

    • Interest rate risk
      Fluctuations in interest rates can affect returns on savings and investments. Even with a fixed rate of interest, there is a risk that the current difference between that rate and the interest rates available in the market in general may change. The interest rates in the market may fall below or rise above the fixed rate, affecting your returns relative to rates available elsewhere.

    • Currency risk
      If your money is invested in non-Sterling currencies, currency exchange rate movements (either upward or downward) can affect how your investment performs.

    • Credit risk
      For funds that hold bonds, the value may fall if a bond issuer’s credit rating deteriorates, or in the worst case scenario it becomes insolvent.

    • Inflation risk
      Inflation affects everything - £100 of your money today may be worth less in the future because of the impact of inflation. This means that the lower the return you make on your money, the less likely you will be able to eliminate the effect of inflation, and the real value of your investment and return will be less.

    • Tax risk
      There can be changes to tax rules and limits, including ISA limits, at any time that could affect how much you get back.

    By investing regularly and by spreading or phasing the investing of a lump sum, you can mitigate against the risk of putting all of your money into an investment when its price is at a short-term high only to find that the day after the price is lower.

    Deciding how much risk to take
    The presence of some risk doesn’t mean an investment is a bad one and all investments have at least one of the risks mentioned above. It’s important, therefore, to understand the risks to help you decide how much you’re prepared to take to try and achieve your goals. 


    It’s also key to diversify your investments to balance out some of the associated risks.


    Diversification is best described as not putting all your eggs in one basket. If you invest in a number of different assets or sectors, for example, your investments will be diversified so that it is less likely that all of them will go up or down at the same time. You can also spread your risk within an asset class by investing in different geographic regions or business areas.


    When your investments are well diversified like this your investment portfolio as a whole becomes less volatile.

    The synthetic risk and reward indicator of a fund has become the standard way to compare the risk of different funds. It indicates the volatility of a fund’s return over the last five years. All fund management companies calculate and display this measure in the same way, using a scale of 1 to 7, this information can be found on all Key Investor Information Documents (KIIDs). 


    The risk and reward indicator of the fund is monitored on an ongoing basis. In a stable market, it would not be expected that the risk and reward indicator of a fund would change frequently, or by more than one point up or down on the scale. If it changes over a 4 month period, the KIID is revised to reflect the change.



    Remember, risk is difficult to measure and risk reward profiles are backward-looking assessments of volatility.

    Some funds have fund fact sheets which provide information such as the fund’s investment objective, the fund manager profile, its largest 10 holdings, asset allocation and how it has performed in the past.

  • The compensation arrangements applicable to your assets held with us are dependent on the type of assets and the circumstances in which they are held.

    All cash in the Cash Only Account, Stocks and Shares ISA or Investment Account and investments in the Investment Hub are held with SIM and are covered by the FSCS. This means that if SIM is unable, or likely to be unable, to pay claims against it in respect of its role in the Santander Investment Hub, such as the arrangement, administration or management of your Hub Account, customers can apply to the FSCS for compensation. Any claim of this type will be limited to £50,000 per individual. Further information is available on the FSCS website at

    Cash held on behalf of a customer by SIM, is pooled with that of other customers and deposited with a number of licensed deposit taking banking groups in order to spread the risk of holding money with any one bank. One of these banking groups will be Santander. In the event of the failure of one of these banks, you may be able to make a compensation claim through the relevant deposit guarantee scheme.


    In the UK, the relevant deposit guarantee scheme is the FSCS and deposits are protected up to a value of £85,000 per person, per bank. This means that all deposits held for a customer at the same bank are added up and the total will be repaid up to a maximum of £85,000.


    In the interests of spreading the risk, we may deposit a proportion of the pooled money in a country outside the UK, where we cannot guarantee that it will be protected by a similar deposit guarantee scheme to the FSCS.

Jargon buster

  • These have a fund manager whose job is to select the investments that best match the fund’s objective. The fund manager will make the investment decisions with the goal of outperforming a particular benchmark, such as an index or the performance of their competitor funds.

  • Shows what the interest rate would be if we paid interest and added it to your account each year.

  • This is the process of allocating an investment to one or more asset class.

  • The four main types of investment into which money can be invested are called asset classes. These are: cash, bonds, shares and property.

  • The Bank of England base rate (also called the official bank rate) is the interest rate that the Bank of England charges banks for secured overnight lending.

  • A bond is a loan issued by a government (sometimes called gilts in the UK) or loans to companies (also called corporate bonds). Bonds are also sometimes referred to as fixed interest securities or fixed interest investments
    The issuer promises to pay a certain amount of income until the bond reaches maturity and the original loan is repaid by the issuer to the holder of that bond. The strength of that promise varies by the issuer of the bond. This is known as credit worthiness (see Credit rating).

  • The amount of money you invest. 

  • A capital gain is the profit or gain you make when you sell or ‘dispose of’ an asset. This does not apply to assets held inside an ISA. 


    You usually dispose of an asset when you cease to own it. This can be when you sell an investment or cash it in but it can also be when a structured investment matures.


    You may have to pay Capital Gains Tax (CGT) if your gain(s) in a tax year exceeds the CGT allowance, which is £11,300 for the 2017/2018 tax year and £11,700 for the 2018/2019 tax year. Please note that tax rules and allowances can change at any time.

  • These allow you to invest into a product where your money is pooled together with that of other investors. A Unit Trust and an Open Ended Investment Company (OEIC) are types of Collective Investment (see Open Ended Investment Schemes (OEICs)

  • Credit ratings measure a borrower’s credit worthiness and provide an international framework for comparing the debtor's ability to pay back the debt and the likelihood of default. Examples of credit rating agencies are Standard & Poor’s, Fitch Ratings and Moody’s.

The value of investments and any income from them can go down as well as up and you may get less back than the full amount you invest.

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