The Financial Times Guide to Investing: The Definitive Companion to Investment and the Financial Markets

591 Pages·2014·9.735 MB·English

by  Arnold, Glen

The Financial Times
Guide to Investing

The Financial Times
Guide to Investing
The definitive companion to investment and the
financial markets
Third edition
Glen Arnold
PEARSON EDUCATION LIMITED
Edinburgh Gate
Harlow CM20 2JE
United Kingdom
Tel: [phone]
Web: www.pearson.com/uk
First published 2004 (print)
Second edition published 2010 (print)
Third edition published 2014 (print and electronic)
© Glen Arnold 2004, 2010 (print)
© Glen Arnold 2014 (print and electronic)
The right of Glen Arnold to be identified as author of this work has been asserted by him in
accordance with the Copyright, Designs and Patents Act 1988.
Pearson Education is not responsible for the content of third-party internet sites.
ISBN: 978–1-292–00507–2 (print)
978–1-292–00517–1 (PDF)
978–1-292–00516–4 (ePub)
978–1-292–00515–7 (eText)
British Library Cataloguing-in-Publication Data
A catalogue record for the print edition is available from the British Library
Library of Congress Cataloging-in-Publication Data
Arnold, Glen.
The Financial times guide to investing : the definitive companion to investment and the
financial markets / Glen Arnold. -- Third edition.
pages cm. -- (Financial times guides)
ISBN 978-1-292-00507-2 (pbk.)
1. Investments. I. Financial times (London, England) II. Title. III. Title: Guide to investing.
HG4515.A76 2014
332.6--dc23
2014017035
The print publication is protected by copyright. Prior to any prohibited reproduction, storage
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mechanical, recording or otherwise, permission should be obtained from the publisher or,
where applicable, a licence permitting restricted copying in the United Kingdom should be
obtained from the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London
EC1N 8TS.
The ePublication is protected by copyright and must not be copied, reproduced, transferred,
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it was purchased, or as strictly permitted by applicable copyright law. Any unauthorised
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endorsement of this book by such owners.
Contains public sector information licensed under the Open Government Licence (OGL) v2.0.
www.nationalarchives.gov.uk/doc/open-government-licence.
10 9 8 7 6 5 4 3 2 1
18 17 16 15 14
Front cover image © Getty Images
Print edition typeset in 9/13pt StoneSerITC by 3
Print edition printed and bound in Great Britain by Ashford Colour Press Ltd, Gosport,
Hampshire.
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
To two inspiring teachers of what is really valuable, Chris and Brenda Arnold,
my parents

Contents
About the author / xv
Acknowledgements / xvi
Publisher’s acknowledgements / xvii
What’s new in the third edition / xviii
Introduction / xix
part 1 Investment basics / 1
1 What is investment? / 3
Partnerships / 3
Limited liability / 4
Ordinary shares and extraordinary returns / 5
Shareholder rights / 6
A money-making machine / 7
Dividends and retained earnings / 8
What if I want to sell? / 9
Primary and secondary markets / 9
Bonds / 10
Capital structure / 11
Stocks and shares / 12
Rights issues / 12
Financial institutions / 13
Be proud to be a capitalist! / 16
A note of warning – investment and speculation / 17
viii Contents
2 The rewards of investment / 19
Becoming a millionaire / 19
Simple and compound interest / 20
How well have investors fared in the past? / 22
The importance of income / 24
International comparison / 28
Equities versus gilts / 28
What about risk? / 30
Closing comment / 32
Further reading / 32
3 Stock markets / 34
What is a stock market? / 34
Brokers and market makers / 35
Pricing – good old supply and demand / 36
A short history of the London Stock Exchange / 37
‘Big Bang’ / 38
The international scene / 40
Variety of securities traded / 40
LSE’s primary market / 42
The secondary market / 44
The Main Market (The Official List) / 45
The Alternative Investment Market / 49
techMARK and techMARK mediscience / 52
ICAP Securities & Derivatives Exchange (ISDX) / 53
Who owns UK shares? / 56
The role of stock exchanges / 58
Useful websites / 59
4 Buying and selling shares / 60
Stockbroker services / 61
Choosing a stockbroker / 65
Contents ix
Finding prices and other information / 67
Getting the most out of financial websites / 69
What happens when I buy or sell shares? / 82
An alternative mechanism / 87
A third trading system – SETSqx / 90
What happens after dealing? / 90
Ways of paying for your shares / 93
Internet dealing / 93
Direct market access / 94
Transferring shares without brokers / 95
Useful websites for further reading / 96
part 2 The investment spectrum / 97
5 Pooled investments / 99
Unit trusts / 100
Open-ended investment companies (OEICs) / 117
Exchange traded funds (ETFs) / 118
Investment trusts (investment companies) / 125
Investment platforms/supermarkets / 134
With-profits policies / 137
Insurance company bonds / 140
Stock-market-linked bonds / 140
Money markets / 142
Hedge funds / 143
Bringing home the significance of high fees / 144
6 Bonds / 151
Gilts / 152
Corporate bonds / 159
Credit rating / 163
High-yield (junk) bonds / 164