Investing in Gold: Hints and Tips for Beginners

Gold is a popular investment asset, and like many assets it has grown increasingly popular since the interest rates offered by banks headed towards the floor. Gold is considered a relatively stable asset which generally rises in value over time. It is usually not a short-term investment, but many investors have had good results using gold as a medium- or long-term investment and it has a millennia-long history of strong global demand.

However, every asset has its quirks and an element of risk. As with all investments, gold should be approached with care and careful consideration.

How to Invest

There is more than one way to invest in gold. Obviously, one is simply to buy gold. This will usually take the form of special gold bullion such as bars or coins from the royal mint. However, it can take the form of any sort of gold including jewellery, but bear in mind the value will be seriously affected by purity as the majority of jewellery is not pure, 24k gold.

The main alternative is to invest in gold mining companies or other companies that deal mainly in gold. These companies, and therefore their share values, will naturally be tied fairly closely to the price of gold so when the gold price goes up you can expect to benefit. Most of these companies also have interests in other diverse metals and possibly other areas entirely, adding some automatic diversity to your investment. However, this avenue is also vulnerable to other factors that might affect the success of the individual business.

Shop Around

Don’t think that the Royal Mint is the only place to buy bullion coins, for instance. They may be the producers of those coins, but there are other companies that purchase the bullion produced by the royal mint wholesale and sell it at discounted prices. The main thing is to ensure you are dealing with a respectable seller. Furthermore, this bullion can be picked up second hand, and the base value of this older gold is just the same as that of new gold.

If you want to try and pick up cheap gold through buying second hand, broken or scrap jewellery then there are countless places you may choose to look. However, make sure you check hallmarks properly and know you are paying a good price for the actual gold content of the item – which can be a labour-intensive process.

Beware the Pitfalls

Like any asset, gold has its pitfalls. It does not provide any liquid income while you still hold the investment, and it can be difficult to resell quickly. It can also be difficult to store, and if you invest in a reasonable quantity should not be kept at home as it will probably fall outside of your home insurance.

It is also easy for beginners to get caught out by the many products which are barely more than scams. Ebay, in particular, is a minefield of questionable sellers peddling these kinds of products. They look like legitimate gold bars or coins and are sold as investment products, but are only gold plated and are almost worthless. To avoid breaking the law the seller will mention this, but they will avoid saying “plated” and instead use obscure or invented synonyms such as “layered with gold” to try and hide the fact and trap unwary investors into thinking they are buying something more worthwhile.

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Types of Investment to Avoid

There are countless opportunities for investment out there. The adventurous investor can have a lot of options to choose from, especially if they have decided after careful consideration that they are happy with a degree of risk. There is nothing inherently wrong with riskier investments as long as they have been carefully considered (preferably with the aid of independent advice). However, there are certain types of investment that are generally best avoided by even daring investors.

Unregulated Collective Investment Schemes (UCIS)

Investment funds, in which your money is handled by an expert along with that of many other investors, can be a great way to invest. They usually benefit from regulation by the Financial Conduct Authority (FCA), which is good news for investors. If something goes seriously wrong, you will have a degree of protection.

Unregulated Collective Investment Schemes (UCIS) are a form of fund that lacks this protection and is not regulated by the FCA at all. As a result, these investments are not only high-risk with little protection, but also a minefield. Most make spurious promises about high returns, often underplaying the risks, and there is heavy emphasis on unstable investments such as film production and forestry. Some are out-and-out scams. If you are conned or missold a product, you will not be able to complain in any official way, let alone reclaim your money.

Traded Life Policy Investments

Traded Life Policy Investments are also known by the grim-sounding nickname of “death bonds.” Your funds are invested in the life assurance policy of one or more individuals, usually based in the US, and the bond holds the right to a payout when that individual dies. The investment performs better if the person dies sooner.

Some investors may feel uncomfortable at the very thought of holding an investment that is dependent on a person’s death. Even when looked at practically and dispassionately, however, there are plenty of other reasons to avoid “death bonds.” Their terms are based on estimates of a person’s lifespan, which are rarely accurate. Like UCIS investments, they benefit from no protection from the FCA or other financial bodies. Mis-selling of death bonds is relatively common compared to many other investment types, and once again the lack of regulation gives you no protection or legal recourse. Lastly, a high percentage of death bonds simply fail completely. If this happens to you, you will not only fail to receive the promised returns but lose your money altogether.

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Stocks and Shares: Should you Really “Buy When They’re Friendless?”

It’s an old stock market maxim: “buy when they’re friendless.” Sometimes this forms one half of a longer saying: “buy when they’re friendless, sell when they’re fat.” It is often circulated as a meaningful and profitable truism, even as the phrase which comes closest to encapsulating the essence of the stock market in a single sentence. But how good is this advice really?

The Principle

In essence, this saying embodies a principle that is exceptionally basic, even essential to stock market investment. It is an incarnation of a concept as simple, eve, obvious, as “buy as cheap as you can, sell as high as you can.” In stock market terms, this means buying when prices are favourable but growth is anticipated. However, this maxim takes it to an extreme which some investors swear by and others eschew. It means buying shares in companies that are “friendless” – in other words that are seeing prices plummet because other investors are ignoring or abandoning them. Usually, this equates to investing in companies that are undergoing genuine hardships. A current example might be the crisis that Tesco has been embroiled in following the revelation that its profits were significantly lower than claimed.

The Pros and Cons

The advantage of this approach is that by taking the principle that underpins much stock market activity to its extreme, it carries the potential to amplify returns significantly. Buying when companies find themselves “friendless” allows you to benefit from rock-bottom prices. Then, when things turn around, you hope to experience huge growth before selling for a tidy profit when other investors return and companies find themselves “fat” once again.

Of course, only the very daring or the very foolhardy would invest in a company that is friendless because it is in actual danger of ceasing to trade. Rather, this tactic will usually be used for companies that are in significant difficulty but which the investor does not really expect to be in danger. Even so, just as it amplifies the potential for profit so it also amplifies the risks of stock market investment. You may underestimate the amount of danger a company is in and find yourself losing out. Furthermore, whatever crisis has left the company “friendless” may take a new turn, which either increases the danger level or causes prices to plummet further and thus impacts on your eventual profits. Furthermore, this kind of turnaround rarely happens overnight. Even used successfully, this tactic is often a longer-term one which often involves losing money in the meantime.

Ultimately, this can be a good maxim to follow, but it should be approached cautiously. Think very carefully about “friendless” investments, and only make them if you are happy with higher-than-usual risk levels. Furthermore, under no circumstances is it advisable to make such a high-risk move without significant portions of your portfolio tucked away in safer places.

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Property Sales in Spain Now Classed as “Stable”

Property sales in Spain have started to rise over the last five months and with this being another year of consecutive increases, the residential real estate in Spain could finally be edging towards stability. Spain’s National Institute (INE) has released their latest figures, with sales increasing by 10% in July annually and by 9% on a quarterly basis.

It seems that more buyers have started to get involved with property purchases in recent years and this has contributed significantly to an improvement in property prices. Five consecutive months of sales increases means that Spanish property could finally be recovering. Mark Stucklin of Spanish Property Insight said that overall sales were “stable, if not growing slightly”.

“Markets are all about transactions and prices, which determine volume and risk. Increasing transactions are a sign of confidence that improve liquidity and reduce risk,” Stucklin explained. He went on to say that when buyers outnumber the amount of sellers, it’s expected that property prices will rise; however “this doesn’t mean the Spanish property crisis is over”, as he reiterated Spain’s eight year struggle with consecutive home sale declines.

It seems that Spain has found its floor when it comes to transactions and this could mean that we won’t see any further drops in sales. The chances are that property prices will continue their upward trend. However, Stucklin asked the question “how sickly or robust will the sales recovery turn out to be?”

There aren’t any facts or figures that tell us who is actually contributing to the increase in home sales but it is widely agreed that the gradual increases are a result of interested foreign buyers. This would suggest that there is a good chance we could see further increases in Spanish property sales as local demand begins to soar as a result of falling unemployment.

There is a substantial trend towards resales in Spain at the moment, with new property sales up by around 8% and resales hitting the 26% mark. Stucklin suggested that this trend could continue on as “housing starts have collapsed by 95% since the boom and the Spanish home building industry has all but disappeared”. Stucklin suggested that this could be the perfect time to invest off-plan, although he also said that it could be difficult trying to find an off-plan investment opportunity.

Due to the fact that the Spanish building industry is falling away, the term ‘new home’ is starting to have much less meaning in Spain. Homes that are contributing to a rise in property sales are actually quite old now having been built a few decades back. Many of these homes were built during the time when prices were up and standards had fallen, so they’ve actually been collecting dust since then.

When you focus on the geographical property statistics, you’ll notice that there are major increases in provinces of the interior, with prices going up by as much as 87% in places like Caceres. The national average was beaten by many of the provinces that attract foreign buyers due to their attractive settings and appealing holiday destinations, such as the Costa del Sol.

The INE also published information that showed there was a fall in average rental prices. The 0.7% fall is yet another decrease in rental prices which has fallen consecutively since April last year.

While house prices are on the up, rental prices are starting to edge into negative territory. Rental yields are shrinking as house prices start to rise for the first time since the first quarter of 2008. The decrease in rental yields has had a major effect on the appeal of properties as an investment. This shouldn’t overshadow the fact that rental yields over the last eight years have actually improved considerably. If you were to look at the last eight years, house prices have fallen by 33% and rental yields are up by 10%.

Stucklin believes that the cause of rental yields falling over the last year is the result of a significant lack of attractive rental opportunities in Spain. He also said that falling rental prices were a reflection of the economic crisis and “levels of supply and demand”.

This may seem like more of a negative impact on investors seeking Spanish property investment opportunities but there’s no doubt a sustained, gradual increase in property sales is good news for everyone concerned.

Author: Mike James has a background in the Spanish real estate industry. Having not only sold off-plan property but also purchased in Spain himself, Mike often writes about topics of interest for Panorama Properties, a real estate agency in Marbella.

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Foreign Property Investments: Spotting a Reliable Company

Property investment has a strong reputation, and taking the search for opportunities to an international level can open up some high-yield opportunities in exciting markets. However, there are a lot of companies offering opportunities and some are more reputable than others. When buying off-plan, the risks are especially great. Promises of guaranteed returns and high demand are wonderful things coming from a reliable company, but less so from a company that is overselling and overreaching in an effort to attract money.

In order to ensure you choose a reliable company for an overseas property investment, there are a few key things to look at:

Track Record

Be wary of any company that doesn’t have any previous developments to its name. Look into their previous developments, and see whether they were successful and delivered good returns for investors. Look for this kind of information through search engines on new outlets, investor forums, and anywhere else it might turn up. Don’t be afraid to ask the company directly about past projects either.

Reputation and Credentials

These factors are closely related to the company’s track record. Have they got an established reputation as a provider of investment opportunities. In the case of off-plan opportunities, try to find out whether they have sufficient assets to back up the project should they encounter a problem, or whether they are relying solely on investor funds. This sort of thing can really show the difference between a trustworthy company and a risky opportunity.

Due Diligence

However many green flags you have turned up, always make sure to carry out due diligence in assessing the individual opportunity on offer. Look at the property itself and its good and bad features. Look also at the environment in which the project exists: is it part of a high-demand market, and is this the right sort of property to capture that demand? Is that demand likely to continue in the long-term, or are experts concerned it will be a brief bubble? How has the local market behaved in the immediate past. Regardless of how good the company is, these are important factors in assessing the specific investment you are looking at.

Honesty

A good investment company will be honest and up-front with important information. In particular, they will be transparent and willing to keep investors updated on an off-plan project’s progress. Major construction projects almost never go smoothly from start to finish. Delays are practically inevitable, but you can tell a lot about a company from how it handles them. A good company will keep investors up to date with any problems, explain the cause of the delay, and provide revised timescales when possible.

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UK Hotel Rooms – A Good Investment?

Investing in a hotel room is becoming increasingly popular, but remains something of a niche outlier in the world of property investment. When people do invest in hotel rooms, they usually pick luxury resorts in exotic, popular tourist hotspots rather than UK hotel rooms. But are there some good hotel investment opportunities right here in the UK, and are they good enough to deserve a place in your portfolio?

The Advantages

One factor that often attracts investors to hotel rooms is their affordability. This is not unique to UK opportunities, but the domestic market is no exception either. A 999 year lease could potentially be purchased for a sum as low as £50,000, making it one of the most affordable ways to gain exposure to the UK property market. Of course, prices can also be far higher. The most luxurious hotels might easily charge a quarter of a million for a room purchase.

Hotel rooms often offer an affordable way to access urban centres with high demand for property from both investors and tenants. When the market for flats and houses in these places has become saturated, hotel rooms often remain a more viable way to take advantage of demand.

The Disadvantages

Like any asset, investment in a hotel room comes with its own set of drawbacks. The disadvantages and risks of investing in a hotel room are rather unique, different from those in the rest of the UK property market, so it is important to understand them properly.

Although hotel rooms tend to be more affordable than other types of property investment, this does not always make them more accessible. You may well need the money for the full purchase up front, because it will be harder to gain access to a buy-to-let mortgage. However, some companies offering investments provide their own finance deals.

Hotel rooms are more of an unknown quantity than other types of property in their long-term behaviour. There is no established resale market, so it is much harder to judge their potential for capital growth. Some US studies have suggested they generally mirror residential properties in this regard, but there is still a dearth of long-term or UK-specific data.

Finally, the market for hotel rooms will be very sensitive to factors that will not be so much of a consideration with other types of property. For example, if anything were to cause tourism to decline (as it did after 9/11 for example) the hotel market would be hit. After your initial period of guaranteed returns, you would see income from letting the room drop accordingly.

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An Introduction to Peer-to-Peer Lending

Peer-to-peer lending is not a new concept, but it has been getting an increasing amount of attention recently. From next year, it will even receive a form of acknowledgement from the government, being added to the list of investments that can be placed in an ISA for tax-free returns. But is peer-to-peer lending a good choice for those considering investment tactics?

What is Peer-to-Peer Lending?

Peer-to-peer lending is an alternative way of providing a loan. Instead of individuals and small businesses borrowing money from big lenders and banks, they borrow from other individuals. Just like any other loan, they then repay it over a set period of time along with interest. Investing in peer-to-peer lending simply means that you become one of the individuals providing the funds, and the interest repayments become your returns.

What are the Advantages?

One of the key advantages of peer-to-peer lending is that there are very respectable returns on offer from what is, for the most part, a low-maintenance investment. Interest rates of up to 8% per annum are not uncommon for personal and small business loans, and this return is far above anything on offer from the banks at present.

From next year, these returns will be made all the more attractive because they will have the potential to be tax-free. The creation of new Peer-to-Peer ISAs will allow you to invest funds in certain, government-approved peer-to-peer lending schemes as part of your ISA allowance and pay no tax on the interest you receive.

Another benefit of peer-to-peer schemes is that, depending which company or scheme you invest with, you often have a great deal of control. You choose who you are happy to lend to and the appropriate interest rate. This allows you to personally tweak the balance between return and investment risk to your liking.

What are the Disadvantages?

One of the key disadvantages is the fact that your capital is at risk, especially as peer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS). If the borrower fails to repay, you will not necessarily have any protection. Some companies have policies in place to give their investors better protection in this kind of situation, so check the policies of any scheme before you sign up to minimise the danger.

This risk will be compounded if the company goes bust. Technically, the loan is an agreement between you and the borrower so you will still be owed money, but it may be difficult or impossible to find a way to collect.

After you put your money into a peer-to-peer scheme, it may not be immediately lent out. In this waiting period, you will receive no interest and your funds will be effectively inactive.

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Mis sold PPI Claims Under-Compensated By £1bn as FCA Discuss Extra Refunds

Just when you thought it was safe to trust the banks again – they go and get caught under-compensating victims of mis sold Payment Protection Insurance.

Some of the UK’s major high street lenders are looking at an additional PPI compensation bill of around £1bn after it was revealed that customers had been under-refunded when receiving PPI payouts.

Extra fees and charges

The low payouts are a result of lenders neglecting to refund additional charges and fees incurred by the premiums of mis sold PPI policies. For example: some PPI premium payments put people over their borrowing limits, meaning they were charged an additional fee. When investigating the case for compensation, the bank should of refunded this fee alongside the premium payments, but it didn’t.

The latest scandal involves PPI on credit cards, potentially issued by the following lenders:

– Lloyds Banking Group

– Barclays

– MBNA

– Capital One

Instead of assessing all of the premiums and related charges, it’s possible that these lenders just added up the payments made for the cover and refunded them to the customer, plus interest. In doing so they may have short-changed claimants by not checking for associated fees and charges relating to the PPI cover.

Mis sold PPI victims twice over

It’s likely that financial consumers who received a PPI refund where non-the-wiser no this under-payment, assuming that the lender would have done a full investigation into the policy and refunded everything owing. Only now, after the Financial Conduct Authority (FCA) has got involved, is the full scale of the under-compensation becoming clear. The FCA says it is discussing the issue with the banks involved.

Speaking about the situation, executive director of Which?, Richard Lloyd, said: “It adds insult to injury to be mis-sold PPI and then not get paid the full compensation you are due. Banks must ensure that anyone with a legitimate PPI claim gets every penny they are entitled to.”

The rhetoric coming from the banks in question is typically defiant, with Government-backed Lloyds saying it’s up to the consumer to let them know about any unfair charges they may have paid. You can almost understand it, with the PPI compensation bill at £22.4bn and rising, it’s unlikely the lenders will want to refund anything without being asked. If you’ve received a credit card PPI refund or have had a credit card in the last six years then get in touch with a ppi claims calculator company and see if you’re owed any compensation.

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Are Rough Areas Becoming Good Investments?

Some investment professionals are starting to suggest that “down and out” areas of London may be turning into up-and-coming investments. As evidence of this trend, they often produce Brent as Exhibit A.

Brent was previously considered a particularly rough part of the capital, and was even described as London’s “drive by shooting capital.” Now, it has experienced increasing property prices that outpace Chelsea, Knightsbridge, and in fact anywhere else in the UK. This is made all the more impressive by the fact that it happened during a time when London property prices were already booming.

Nationwide Building Society have recently released figures that show prices for residential properties in Brent reaching an impressive average of £465,502. This represents an increase of nearly a third when compared to a year before.

It is not just this growth in equity that has been catching the attention of investors, but the fact that rents have risen in proportion. With the average now standing at approximately £1,000 a week, the potential for impressive rental returns is catching the eyes of both domestic and international investment professionals.

According to prominent investor Rick Otton, the impressive rise of Brent is down to simple, classic supply and demand situations. With prices in London and throughout the country rising and supply for affordable housing running short, people are settling for what they can get. Often, this means people who may once have been reluctant to settle in lower-prestige areas are now seeing them as an attractive opportunity to get a home at a relatively affordable price. This is pushing up demand in these areas, and also helping to fuel improvements and regenerative developments in the area. This, in turn, is pushing up prices.

Otton suggests that investors who are happier with a little risk may not want to invest in Brent itself, where prices have already risen impressively. Instead, he suggests looking at nearby areas such as Harlesden which currently remain low-prestige. He predicts that as supply and demand factors continue and the gentrification of surrounding places such as Brent improve the quality and image of the area, these locations will soon see similar increases of demand and similar growth in property values.

For those who are not happy with quite that level of risk, however, Brent may still provide some strong investment opportunities. Prices continue to rise yet remain more affordable than in more prestigious areas, and the area is now home to attractions such as the National Stadium.

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Shares or Property: Where to Invest?

Currently, stock markets and property markets around the world are both displaying impressive performance. As a result, both are attracting many experienced and first-time investors to lay down funds. The attraction is easy to see, as both returns that can be far higher than interest on even the best savings accounts.

However, with these two areas of investment performing strongly and proving popular, it can be hard to know where to put your funds. There are several factors to consider in reaching a decision about where to best put your money.

Scale of Investment

The scale of the investment you want to make is potentially a decisive factor in itself. Those who wish to invest smaller sums will be better served by stocks or even find that they are the only option. To invest in property, you need to be willing to lay down at least the minimum level of deposit for a mortgage. To benefit from better rates, and therefore better net returns from rent, it is desirable to put down more than the minimum. If you are not able or willing to put this much money into the investment, you will be better off looking at the stock market.

Liquidity

Liquidity is another potentially decisive factor. If liquidity is important to you, then once again you will be better off turning to the stock market. Stocks and shares can be bought or sold in transactions that are practically instantaneous and require very little effort. Property, by contrast, has far less liquidity, with sales being much more protracted and complicated.

Security

It is important to recognise that every investment carries an element of risk. However, some investments are riskier than others. Property is considered one of the safest forms of investment. Stocks require much more careful ongoing maintenance to ensure that they remain safe, and there is a considerably greater risk of losing money when companies encounter difficulties.

Overall Returns

On the whole, property tends to give greater net returns. Property values have been increasing steadily in the UK and many overseas markets for some years, and look set to continue doing so. This increases the value of your initial investment. While rising prices alone are generally outstripped by the potential returns of the stock market, it is not the only income stream on property investments. Once rental returns are added, property is usually the more profitable option. As such, if you are willing to invest the necessary sum and liquidity is not too important for you, property is likely the best choice.

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