prudential investments

YOUR HANDY GUIDE TO

CHOOSINGTHE RIGHTINVESTMENTS

How to make your money work harder

When it comes to investing your hard earned cash, there is ahuge variety of products and options available. In fact, so manythat it can be confusing. Yet once you know the basic principlesof investing, you’ll soon be able to make confident choices andenjoy potentially higher returns than those offered by a bank orbuilding society account. All investments carry a degree of risk,but some are more risky than others.

This guide from the Prudential aims to help you determine your attitude to risk, get an overview of some of the types of investment that are available, and makeinformed decisions about how, when and where to invest for the future. The moreadventurous you are, and the more prepared you are to take a calculated risk, thegreater your potential returns.

And if you have any questions, we’re always here to help.3

Investing is simplerthan you may think.Investing is simplerthan you may think.

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Information in this handy guide isbased on our understanding ofcurrent taxation, legislation and HMRevenue & Customs practice, as atMay 2007, all of which are liable tochange without notice. The impactof taxation (and tax relief) dependson individual circumstances.

YOUR WAY AROUND THE GUIDE

UNDERSTANDINGINVESTMENTS

1 Where, when and how long 6to invest

2 Five categories of assets 9

Page

MAKING YOUR DECISION

3 Your attitude to risk 14

4 Balancing risk and reward 15

5 Collective investments 17

6 Tax efficient savings 22

7 Other types of investments 24

8 Questions to ask 25

TAKING ACTION

9 What to do now 27

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Page

AND FINALLY

Technical terms explained 30Page

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1 WHERE, WHEN AND HOW LONG TO INVESTU

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1 WHERE, WHEN AND HOW LONG TO INVEST continued

You should also think about taking out insurance tocover common risks such as your life and health.Consider your retirement needs, too. It’s never too earlyto start putting money aside for the future – in fact theearlier, the better. With all that taken care of, you’reready to start making considered investment choicesand attracting potentially high returns on your money.

WHEN TO INVEST

There’s no time like the present when it comes toinvesting. You may feel you need a large sum to invest if you are to build a future fortune. But however muchor how little you have to invest it’s never too lateto start. If you’re worried about investing during a stockmarket high or low, don’t worry. You can smooth the upsand downs by investing little and often.

HOW LONG TO INVEST FOR

Another key to growth is the length of time you invest over. Ideally, you need to think long term – which means at least five years. w

“IF YOU’RE NOT PREPARED TO

HOLD ONTO SHARES FOR 10

YEARS, YOU SHOULDN’T HOLD

THEM FOR 10 MINUTES.“

Warren Buffet,

America’s richest investor

Before you start investing, it’s a good idea to think about using anyspare money you have to clear debts – such as credit, store cardsand loans. The interest rates charged on these can be high, so itmakes sense to clear such debts before you begin. Once that’sdone, you can think about setting up an emergency fund that’s easyto dip into – an easy access savings account for instance, whereyour money will be secure and which will provide you with enoughto live on for about six months.

WHERE TO INVEST

It’s the potential to make more of your moneythat’s one of the biggest reasons for investing.And for this, the stock market, for instance, has almostalways been a more rewarding (though riskier) optionthan putting cash in a bank or building society account.

Since 1962, shares have beaten cash...

in 96% of all 10-year periods*



Store Card

1234 5678 9123 456711/99 11/02

Mr G Print

Credit Card

1234 5678 9123 4567

11/9911/02

Mr G Print

PRUDENTIAL INVESTMENTS 0800 072 6159 www.pru.co.uk/save_invest

*Source: M&G statistics as at 31 August 2006

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1 WHERE, WHEN AND HOW LONG TO INVEST

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1 WHERE, WHEN AND HOW LONG TO INVEST continued

You should also think about taking out insurance tocover common risks such as your life and health.Consider your retirement needs, too. It’s never too earlyto start putting money aside for the future – in fact theearlier, the better. With all that taken care of, you’reready to start making considered investment choicesand attracting potentially high returns on your money.

WHEN TO INVEST

There’s no time like the present when it comes toinvesting. You may feel you need a large sum to invest if you are to build a future fortune. But however muchor how little you have to invest it’s never too lateto start. If you’re worried about investing during a stockmarket high or low, don’t worry. You can smooth the upsand downs by investing little and often.

HOW LONG TO INVEST FOR

Another key to growth is the length of time you invest over. Ideally, you need to think long term – which means at least five years. w

“IF YOU’RE NOT PREPARED TO

HOLD ONTO SHARES FOR 10

YEARS, YOU SHOULDN’T HOLD

THEM FOR 10 MINUTES.“

Warren Buffet,

America’s richest investor

Before you start investing, it’s a good idea to think about using anyspare money you have to clear debts – such as credit, store cardsand loans. The interest rates charged on these can be high, so itmakes sense to clear such debts before you begin. Once that’sdone, you can think about setting up an emergency fund that’s easyto dip into – an easy access savings account for instance, whereyour money will be secure and which will provide you with enoughto live on for about six months.

WHERE TO INVEST

It’s the potential to make more of your moneythat’s one of the biggest reasons for investing.And for this, the stock market, for instance, has almostalways been a more rewarding (though riskier) optionthan putting cash in a bank or building society account.

Since 1962, shares have beaten cash...




Store Card

1234 5678 9123 456711/99 11/02

Mr G Print

Credit Card

1234 5678 9123 4567

11/9911/02

Mr G Print


*Source: M&G statistics as at 31 August 2006

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2 FIVE CATEGORIES OF ASSETS

Bonds, dividends, ISAs – this guide from the Prudentialwill explain them all and make your investment choicesclear. To make it simpler, there are five types ofassets you can invest your money in:

CASH

GILTS (GOVERNMENT BONDS)

CORPORATE BONDS

EQUITIES (STOCKS AND SHARES)

PROPERTY

CASH

Basically, you deposit your cash into a bank orbuilding society and your money is invested for you(often by being lent to someone else). In return youreceive interest on your capital. This is seen as asafe investment, but the returns are often low,depending on the market rate.

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INVESTING FOR INCOME OR GROWTH

There are two main ways of investing, for:

1 INCOME Investing for income means that you use the interestand dividends earned from your savings andinvestment plans to boost your earnings orpension income. These investments could includePEPs, ISAs, savings accounts and bonds.

2 GROWTHInvesting for growth means that you plough yourinterest or dividends straight back into your fundso that it grows still further through the power ofcompounding.

Compounding means you earn money on youroriginal investment plus on any dividends or interestearned. So your capital can steadily increase,attracting more potential growth all the time.

INVESTING FOR INCOME AND GROWTH

It’s also possible to invest for both income and growth.Investments that can help you achieve this includeequity-based funds invested in both the UK and abroad.


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CORPORATE BONDS

This is when you loan your money to a publiccompany in return for a fixed rate of interest. Aswith gilts, you can buy and sell corporate bondswhenever you want, so you’re not locked in for anylength of time.

When it comes to risk, corporate bonds have a broad range. It all depends on the underlyingstrength of the company you invest in. Lower riskcorporate bonds pose less risk to your capital, but maymean lower returns on your investment too. Higherrisk bonds are just the reverse – they expose yourcapital to more risk, but can mean a potentially higherlevel of return on your investment.

On the whole, corporate bonds tend to offerbetter returns than gilts, but are less secure asthe Government doesn’t underwrite them.

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2 FIVE CATEGORIES OF ASSETS continuedU

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With gilts, you loan your money to the UKGovernment. Your returns will be paid in the formof a regular income (known as the ‘coupon’). At the end of the period the loan is repaid on the‘redemption date’. Meanwhile, your money will havegone towards funding road maintenance, schools,etc. You can buy or sell gilts whenever you choose.

Gilts are the most secure type of bond you canobtain because the Government has never failed topay its debts and is unlikely to go bankrupt. Thecoupon is fixed and regular no matter which politicalparty is in Government at the time – the actualamount will vary from issue to issue. Your total returnwill depend on the price at which you buy and sell.

Gilts can be a good way to provide yourselfwith an income.

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WHY ARE THEY CALLED GILTS?

Government bonds are known as ‘gilts’ because the certificates were originally edged with gilt, which

showed how golden the Government’s finances were considered to be.

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CORPORATE BONDS

This is when you loan your money to a publiccompany in return for a fixed rate of interest. Aswith gilts, you can buy and sell corporate bondswhenever you want, so you’re not locked in for anylength of time.

When it comes to risk, corporate bonds have a broad range. It all depends on the underlyingstrength of the company you invest in. Lower riskcorporate bonds pose less risk to your capital, but maymean lower returns on your investment too. Higherrisk bonds are just the reverse – they expose yourcapital to more risk, but can mean a potentially higherlevel of return on your investment.

On the whole, corporate bonds tend to offerbetter returns than gilts, but are less secure asthe Government doesn’t underwrite them.

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With gilts, you loan your money to the UKGovernment. Your returns will be paid in the formof a regular income (known as the ‘coupon’). At the end of the period the loan is repaid on the‘redemption date’. Meanwhile, your money will havegone towards funding road maintenance, schools,etc. You can buy or sell gilts whenever you choose.

Gilts are the most secure type of bond you canobtain because the Government has never failed topay its debts and is unlikely to go bankrupt. Thecoupon is fixed and regular no matter which politicalparty is in Government at the time – the actualamount will vary from issue to issue. Your total returnwill depend on the price at which you buy and sell.

Gilts can be a good way to provide yourselfwith an income.

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WHY ARE THEY CALLED GILTS?

Government bonds are known as ‘gilts’ because the certificates were originally edged with gilt, which

showed how golden the Government’s finances were considered to be.

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Equities mean you buy a share or shares in acompany and become a ‘part-owner’. The price of ashare that you buy (or sell) depends on a few factors:how well the company is expected to perform in thefuture, how many people want the shares; and howmany shares are available (in a nutshell, ‘supply and demand’).

Of course, a number of things can happen to sharesonce you’ve bought them since the stock market canbe up one day and down the next, or the performanceof the company could change. So the value of yourshares could rise or fall.

Once you own shares, you may also receive anincome from them in the form of dividends. Thevalue of your dividends will depend primarily on howwell the company you’ve invested in is doing.

Investing in individual shares can be risky. Youshould carefully research the management and marketpotential of any company you are interested in. If yougo this way, make sure you have all the key facts tohand before making a decision.

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PROPERTY

Investing in commercial or residential propertycan provide an income in the form of rent.Buy-to-let properties are popular at the moment andif you do your homework and buy a property in anarea where prices rise, you can eventually sell andmake a profit, too. But unless you find a buyerimmediately, it may take some time before you getyour hands on it. Likewise, if the value falls to lessthan the original price you paid, and you have to sell,you’d make a loss.

The downside is that you’re liable for tax onsome or all of the income received from your tenants,and you could incur capital gains tax on any profitwhen you sell. Also, if there’s a gap between tenants’occupancies you’ll still have to cover the mortgage.

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Equities mean you buy a share or shares in acompany and become a ‘part-owner’. The price of ashare that you buy (or sell) depends on a few factors:how well the company is expected to perform in thefuture, how many people want the shares; and howmany shares are available (in a nutshell, ‘supply and demand’).

Of course, a number of things can happen to sharesonce you’ve bought them since the stock market canbe up one day and down the next, or the performanceof the company could change. So the value of yourshares could rise or fall.

Once you own shares, you may also receive anincome from them in the form of dividends. Thevalue of your dividends will depend primarily on howwell the company you’ve invested in is doing.

Investing in individual shares can be risky. Youshould carefully research the management and marketpotential of any company you are interested in. If yougo this way, make sure you have all the key facts tohand before making a decision.

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PROPERTY

Investing in commercial or residential propertycan provide an income in the form of rent.Buy-to-let properties are popular at the moment andif you do your homework and buy a property in anarea where prices rise, you can eventually sell andmake a profit, too. But unless you find a buyerimmediately, it may take some time before you getyour hands on it. Likewise, if the value falls to lessthan the original price you paid, and you have to sell,you’d make a loss.

The downside is that you’re liable for tax onsome or all of the income received from your tenants,and you could incur capital gains tax on any profitwhen you sell. Also, if there’s a gap between tenants’occupancies you’ll still have to cover the mortgage.

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3 YOUR ATTITUDE TO RISKM

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As a guide, you should take the following into account:

your personal circumstances (your age, andhow much money you’re prepared to invest)

the length of time you want to keep yourmoney invested

how much access you need to your capital

your attitude to risk (how much you’reprepared to lose)

tax implications

the effect of inflation in reducing the value of your capital over time.

However, armed with some facts and figures, you maybe ready to take calculated investment risks and balancethem out with other, less risky investment strategies sothat your chances of higher overall gain remain good.

When you invest your capital there is always adegree of risk involved, whether it’s high or low.Equities are considered high risk, for example, while a deposit account is low risk. Generally, the higher therisk, the higher the potential increase in your capital (and the higher the potential loss). In fact, with someinvestments you could risk losing not only the return on your investment, but also your capital itself.

So for reasonable returns, some risk may be necessary – meaning that the value of your capital could go downas well as up. Therefore you need to decide how muchmoney you are prepared to risk if you take this approach.Only you can decide how much risk you’reprepared to accept.

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4 BALANCING RISK AND REWARD

Most experts suggest you aim for a ‘balanced’portfolio. This means spreading your investmentsacross a range of products to minimise yourexposure to risk. In turn, this means your individualinvestments will have a different potential for growth(and of course, loss).

Given some forward planning, you can decide on theamount of risk with which you’re most comfortable. Use the pyramid (right), to work out which products are right for you, depending on your attitude to risk.

Please note that this risk assessment has been classified by Prudential and the ABI and is not a generic description across the fund management sector. The investment approach may change in the future.

Cash and Deposit Accounts/Cash ISAs/Premium Bonds

Gilts, Fixed Interest Deposits and Shorter Dated Bonds

With-Profits Funds andCautious Managed Funds*

Balanced Managed*,Distribution*and Property Funds*

UK Equity Funds*

Specialist Funds

Direct Investment

in Stockmarket

POTE

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HIGHER HIGHER

LOWER LOWER

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TIAL R

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*As classified by the Association of British Insurers.


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3 YOUR ATTITUDE TO RISK

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As a guide, you should take the following into account:

your personal circumstances (your age, andhow much money you’re prepared to invest)

the length of time you want to keep yourmoney invested

how much access you need to your capital

your attitude to risk (how much you’reprepared to lose)

tax implications

the effect of inflation in reducing the value of your capital over time.

However, armed with some facts and figures, you maybe ready to take calculated investment risks and balancethem out with other, less risky investment strategies sothat your chances of higher overall gain remain good.

When you invest your capital there is always adegree of risk involved, whether it’s high or low.Equities are considered high risk, for example, while a deposit account is low risk. Generally, the higher therisk, the higher the potential increase in your capital (and the higher the potential loss). In fact, with someinvestments you could risk losing not only the return on your investment, but also your capital itself.

So for reasonable returns, some risk may be necessary – meaning that the value of your capital could go downas well as up. Therefore you need to decide how muchmoney you are prepared to risk if you take this approach.Only you can decide how much risk you’reprepared to accept.

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4 BALANCING RISK AND REWARD

Most experts suggest you aim for a ‘balanced’portfolio. This means spreading your investmentsacross a range of products to minimise yourexposure to risk. In turn, this means your individualinvestments will have a different potential for growth(and of course, loss).

Given some forward planning, you can decide on theamount of risk with which you’re most comfortable. Use the pyramid (right), to work out which products are right for you, depending on your attitude to risk.

Please note that this risk assessment has been classified by Prudential and the ABI and is not a generic description across the fund management sector. The investment approach may change in the future.

Cash and Deposit Accounts/Cash ISAs/Premium Bonds

Gilts, Fixed Interest Deposits and Shorter Dated Bonds

With-Profits Funds andCautious Managed Funds*

Balanced Managed*,Distribution*and Property Funds*

UK Equity Funds*

Specialist Funds

Direct Investment

in Stockmarket

POTE

NTI

AL

REW

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HIGHER HIGHER

LOWER LOWER

POTEN

TIAL R

ISKS

*As classified by the Association of British Insurers.


16 17PRUDENTIAL INVESTMENTS 0800 072 6159 www.pru.co.uk/save_invest

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When you make a collective investment, you invest in a fund. Think of a fund as a briefcase containing one or a mixture of items such as stocks and shares, equities,bonds, property or cash. You can even invest in fundsmade up of other funds. In this instance, your fund-of-funds briefcase will contain smaller briefcases which inturn contain similar sets of assets.

So as you can see, a fund can contain a great variety ofthings. And it’s this variety, spread across different risklevels, that often makes collective investments anattractive option.

GO IT ALONE OR BECOME A COLLECTIVEINVESTOR

As a private investor, you may not have the time orexpertise to create a diverse portfolio that helps tospread your investment risk. So another choice youneed to make is whether you’re going to invest on your own, or make ‘collective’ investments aspart of a group. Most private investors tend to investcollectively – which means their investments are pooledwith lots of people’s money and spread over anumber of different investments.

Unit trusts and OEICs (Open-Ended InvestmentCompany), for instance, pool together lots of moneyfrom thousands of small investors to spread their riskand give them the clout of a multi-millionaire.

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CHOOSE YOUR INVESTMENTS WISELY, TO CONTROL YOUR EXPOSURE TO RISK

Some investments offer features that help reducerisk. For example, a with-profits fund benefits from thesmoothing effect (described on page 18). And if youinvest in a guaranteed equity bond your capital willusually be guaranteed, providing you keep your moneyinvested for the duration of the term. (You’ll need tocheck the specifics with your provider.)

While most of us would like to say “no” to riskcompletely, the nature of investments means there’salways some level of risk involved. The trick is to keep your balance.

16 17PRUDENTIAL INVESTMENTS 0800 072 6159 www.pru.co.uk/save_invest

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When you make a collective investment, you invest in a fund. Think of a fund as a briefcase containing one or a mixture of items such as stocks and shares, equities,bonds, property or cash. You can even invest in fundsmade up of other funds. In this instance, your fund-of-funds briefcase will contain smaller briefcases which inturn contain similar sets of assets.

So as you can see, a fund can contain a great variety ofthings. And it’s this variety, spread across different risklevels, that often makes collective investments anattractive option.

GO IT ALONE OR BECOME A COLLECTIVEINVESTOR

As a private investor, you may not have the time orexpertise to create a diverse portfolio that helps tospread your investment risk. So another choice youneed to make is whether you’re going to invest on your own, or make ‘collective’ investments aspart of a group. Most private investors tend to investcollectively – which means their investments are pooledwith lots of people’s money and spread over anumber of different investments.

Unit trusts and OEICs (Open-Ended InvestmentCompany), for instance, pool together lots of moneyfrom thousands of small investors to spread their riskand give them the clout of a multi-millionaire.

5 COLLECTIVE INVESTMENTS4 BALANCING RISK AND REWARD continued

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CHOOSE YOUR INVESTMENTS WISELY, TO CONTROL YOUR EXPOSURE TO RISK

Some investments offer features that help reducerisk. For example, a with-profits fund benefits from thesmoothing effect (described on page 18). And if youinvest in a guaranteed equity bond your capital willusually be guaranteed, providing you keep your moneyinvested for the duration of the term. (You’ll need tocheck the specifics with your provider.)

While most of us would like to say “no” to riskcompletely, the nature of investments means there’salways some level of risk involved. The trick is to keep your balance.

1918

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WITH-PROFITS BONDS

This is a bond that invests in a with-profits fund,which in turn invests in a mixture of equities,bonds, property and even cash. With-profitsbonds benefit from smoothing. Smoothing basicallymeans holding back some of the profits in yearswhen returns are good, in order to help the fundmaintain its payouts in leaner years. This reduces theimpact of ups and downs in the underlyinginvestment performance, so it helps to give you asteadier return on your capital.

A with-profits bond is unsuitable as a short-term investment. The value of the bond dependson how much profit the company makes and howthey decide to distribute it.

UNIT TRUSTS

Unit trusts are collective investments that allowyou to invest indirectly in shares, both in theUK and overseas, while benefiting from expertinvestment management.

To help you select the right unit trust, first defineyour aims for it. Next, do your research. Some fundswill charge high management fees. If they do, makesure you get value for money. You should expect an actively managed fund (one where a team ofanalysts and portfolio managers aim to pick the bestperforming funds) to beat the average stock marketperformance, known as the market index.

Other unit trusts are known as trackers. This meansthey aim to mirror the performance of the index ratherthan try to beat it. As a result, the gains (or losses)might not be as spectacular as some activelymanaged funds.

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5 COLLECTIVE INVESTMENTS continued

OEIC (OPEN-ENDED INVESTMENT COMPANY)

A number of unit trusts have been converted into OEICs. Basically the OEIC is an investmentcompany where shares are issued instead ofunits. The principal difference is that OEICs have asingle price to which the initial charge for purchase is added. FOR INFORMATION ON PRUDENTIAL’S...

With-Profits Bond call 0800 015 4621 or visit www.pru.co.uk/save_invest/prufund_investment_plan/

Unit Trusts call 0800 072 6159 or visit www.pru.co.uk/save_invest/prudential_unit_trusts/


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EQUITY FUNDS

These are often unit trusts or OEICs. They are madeup primarily of stocks and shares.

For information on investing in an Equity Fund withPrudential, call 0800 072 6159or visit www.pru.co.uk/save_invest/prudential_unit_trusts/

CORPORATE BOND FUNDS

This is where you invest in a range of corporate bonds.

MORE ABOUT FUNDS

It’s important to know this about funds:

■ The various assets that make up a fund can bechanged over time, or they can stay as they are.

■ Funds are generally looked after by a fund manager,which means that when you invest in a fund, you arealso investing in the fund manager’s opinion, researchand expertise (as well as the strength of the companyhe or she works for).

■ You’ll also need to give some thought to what levelof risk a fund involves before you invest in it.

PROPERTY FUNDS

These invest in a portfolio of commercial andresidential properties.

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There are several types of funds available, including:


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DISTRIBUTION FUNDS

Distribution funds are specifically designed toproduce a regular income over the longer term.

You can receive an income when it suits you.Depending on the option you choose this could bemonthly, every three, four or six months, even oncea year. The amount you need to invest variesaccording to the scheme on offer, but you can startfrom £5,000. You should be happy to invest for thelonger term – at least five years.

For information on Prudential’s Distribution Fundsvisit www.pru.co.uk/save_invest/fip/

THE ART OF INVESTING

When forming an opinion about investing instocks and shares or funds, there are a few

things that might help. You can read financialnewspapers and magazines, eavesdrop onconversations between brokers, bankers,

analysts and traders.

And you could also consider a few words by Peter Lynch*, one of the world’s most

successful investors:

“GO FOR A BUSINESS THAT ANY IDIOT CAN RUN. BECAUSE

SOONER OR LATER, ANY IDIOT IS GOING TO RUN IT.”

*Source: www.woopidoo.com

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PREMIUM BONDS

This government-run prize draw offers a fun way to invest. Each premium bond is worth £1 but must be bought in blocks of a minimum of £50 via standingorder or £100 by cheque or cash. Each individualbond is put into a prize draw and gives you a chanceto win a tax-free cash prize randomly decided byERNIE, the famous computer. Every eligible bond has a separate and equal chance of winning a prize,irrespective of where or when it was bought. Best of all, premium bond prizes are tax-free.

You could win a prize each month ranging from £50up to £1 million. The more premium bonds you hold,the better your chances of winning. Even if younever win a big money prize, you will always at leastget your money back. And you have much betterodds with ERNIE than with the National Lottery.

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INDIVIDUAL SAVINGS ACCOUNTS (ISAS)

These are a tax-effective way to invest indifferent assets, including cash, bonds andshares. An ISA lets you buy certain investments and keep any returns you make on them free ofincome or capital gains tax under current legislation.So an ISA is a tax-efficient wrapper, protecting yourinvestment – whether cash, equities, bonds orproperty – from the taxman.

At the moment you can:

invest up to £7,000 in ISAs each tax year asan individual – which means your partner orspouse will have the same allowance

choose whether to invest your entire £7,000allowance in one Maxi ISA, or divide it acrosstwo separate Mini ISAs – up to £3,000 in a Mini Cash ISA and up to £4,000 in a Mini Stocksand Shares based ISA.

INDEX-LINKED SAVINGS CERTIFICATES

With index-linked savings certificates from NationalSavings and Investments:

the value of your savings is increased in linewith inflation (as long as you keep yourinvestment for at least a year) with a guaranteedrate of interest on top – so you can be sure thereturns on your savings will outstrip inflation, and

all returns are tax-free – and you can investup to £15,000 in each issue without affectingany other tax-free investments you may have.

FOR INFORMATION ON PRUDENTIAL’S ISA...

call 0800 072 6159 or visitwww.pru.co.uk/save_invest/prudential_isa2/

All ISA figures are for tax year 2007/08

ERNIE

Electronic Random Number IndicatorEquipment still picks the winningnumbers, although these days he’s a littlebit quicker than he used to be. ERNIE 1was produced in 1957 and if he was still in use today, it would take 52 days tocomplete the draw. In 2004, ERNIE 4 wasunveiled and he completes the draw inunder two and a half hours. Today, ERNIEis the size of a personal computer, but back in 1957 he was the size of a van.

Source: www.nsandi.com, April 2007

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PREMIUM BONDS

This government-run prize draw offers a fun way to invest. Each premium bond is worth £1 but must be bought in blocks of a minimum of £50 via standingorder or £100 by cheque or cash. Each individualbond is put into a prize draw and gives you a chanceto win a tax-free cash prize randomly decided byERNIE, the famous computer. Every eligible bond has a separate and equal chance of winning a prize,irrespective of where or when it was bought. Best of all, premium bond prizes are tax-free.

You could win a prize each month ranging from £50up to £1 million. The more premium bonds you hold,the better your chances of winning. Even if younever win a big money prize, you will always at leastget your money back. And you have much betterodds with ERNIE than with the National Lottery.

6 TAX EFFICIENT SAVINGS

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INDIVIDUAL SAVINGS ACCOUNTS (ISAS)

These are a tax-effective way to invest indifferent assets, including cash, bonds andshares. An ISA lets you buy certain investments and keep any returns you make on them free ofincome or capital gains tax under current legislation.So an ISA is a tax-efficient wrapper, protecting yourinvestment – whether cash, equities, bonds orproperty – from the taxman.

At the moment you can:

invest up to £7,000 in ISAs each tax year asan individual – which means your partner orspouse will have the same allowance

choose whether to invest your entire £7,000allowance in one Maxi ISA, or divide it acrosstwo separate Mini ISAs – up to £3,000 in a Mini Cash ISA and up to £4,000 in a Mini Stocksand Shares based ISA.

INDEX-LINKED SAVINGS CERTIFICATES

With index-linked savings certificates from NationalSavings and Investments:

the value of your savings is increased in linewith inflation (as long as you keep yourinvestment for at least a year) with a guaranteedrate of interest on top – so you can be sure thereturns on your savings will outstrip inflation, and

all returns are tax-free – and you can investup to £15,000 in each issue without affectingany other tax-free investments you may have.

FOR INFORMATION ON PRUDENTIAL’S ISA...

call 0800 072 6159 or visitwww.pru.co.uk/save_invest/prudential_isa2/

All ISA figures are for tax year 2007/08

ERNIE

Electronic Random Number IndicatorEquipment still picks the winningnumbers, although these days he’s a littlebit quicker than he used to be. ERNIE 1was produced in 1957 and if he was still in use today, it would take 52 days tocomplete the draw. In 2004, ERNIE 4 wasunveiled and he completes the draw inunder two and a half hours. Today, ERNIEis the size of a personal computer, but back in 1957 he was the size of a van.

Source: www.nsandi.com, April 2007

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8 QUESTIONS TO ASK


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Here are some key questions to ask before youmake your final investment decision:

Is this investment designed to give me income (i.e.regular payments) or capital growth (i.e. one lumpsum at the end of the life of the investment)?

In what markets, sectors or companies is my moneyinvested?

Does this investment have any special conditions – like a fixed investment term?

Does it offer any guarantees?

What are the risks involved with this type ofinvestment?

How and when can I access my money and are thereany penalties, hidden charges or costs for this?

Are there any tax advantages? That is, can I buy thisinvestment as a part of my ISA allowance?

In addition, you can also do the following:

Look out for any newspaper articles that have beenwritten about the investment, or company, you areconsidering. (Although past performance doesn’tmean an investment or company will do well in thefuture, it could be useful to know about its history.)

Ask yourself if you are happy with the size, strengthand reputation of the company you are buying aninvestment from.

7 OTHER TYPES OF INVESTMENTS

ALTERNATIVELY, DIG OUT A VAN GOGH

It may pay you to clear out your attic. Because youmight just find an original painting you’ve forgottenabout. If you were to find a Van Gogh, here’s how muchit could be worth: US $82.5 million. Since that’s howmuch a Japanese investor allegedly paid for Van Gogh’s‘Portrait of Dr Gachet’.*

*Source: www.eyeoftheart.com

INVEST IN A BUSINESS

Maybe you’ve always dreamed of owning a café or aflorist shop. You could set up in business using yoursavings. By employing an experienced manager, youcan work your own hours while benefiting from anyprofits. If you do your research and grow your customerbase, it could be very rewarding – but to be frank, therisks are variable with no cast-iron guarantee of reward.

BECOME A WINE CONNOISSEUR

Some people invest in such things as antiques,rare coins and fine wines. It’s beyond the scope ofthis guide to tell you which Bordeaux to invest in, but ifyou know your stuff you could earn a living this way.However, as with all investments, remember that thereare risks, including changing tastes, unpredictablemarkets and even breakages.

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A QUICK RECAP

Before you begin investing, make sure your debtsare under control and think about having anemergency fund.

Then:

Assess any existing investments you might have anddecide if you’re happy with the balance betweentheir different risk levels or whether you should youthink about changing any of them.

Decide whether you’re happy with the amount ofmoney you have in deposit accounts.

Have you (and your partner or spouse) thoughtabout using your ISA allowance?

If you are eligible for Child Benefit, you couldconsider using it to build a long-term nest egg foryour children.

9 WHAT TO DO NOWContact us for help and information about thefollowing Prudential products:

Prudential Unit Trusts

Prudential ISA

Prudential With-Profits Bond

Prudential representatives can only provideinformation on Prudential products.

Some Prudential Pension and Investment productsare only available through Financial Advisers as webelieve they require specialist advice.

A Financial Adviser will assess your individual needsand circumstances before recommending relevantproducts (not necessarily from Prudential).

To contact us you can:

call 0800 072 6159*between 8am and 6pm, Monday to Friday.visit us 24 hours a day at www.pru.co.uk/save_invest

Existing Prudential customers can:

email us via PruMail – our secure email system – if you wish to contact us about an existing policy. Log on to Pru.co.uk for more information.

*Calls may be monitored or recorded for quality and security purposes.

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A QUICK RECAP

Before you begin investing, make sure your debtsare under control and think about having anemergency fund.

Then:

Assess any existing investments you might have anddecide if you’re happy with the balance betweentheir different risk levels or whether you should youthink about changing any of them.

Decide whether you’re happy with the amount ofmoney you have in deposit accounts.

Have you (and your partner or spouse) thoughtabout using your ISA allowance?

If you are eligible for Child Benefit, you couldconsider using it to build a long-term nest egg foryour children.

9 WHAT TO DO NOWContact us for help and information about thefollowing Prudential products:

Prudential Unit Trusts

Prudential ISA

Prudential With-Profits Bond

Prudential representatives can only provideinformation on Prudential products.

Some Prudential Pension and Investment productsare only available through Financial Advisers as webelieve they require specialist advice.

A Financial Adviser will assess your individual needsand circumstances before recommending relevantproducts (not necessarily from Prudential).

To contact us you can:

call 0800 072 6159*between 8am and 6pm, Monday to Friday.visit us 24 hours a day at www.pru.co.uk/save_invest

Existing Prudential customers can:

email us via PruMail – our secure email system – if you wish to contact us about an existing policy. Log on to Pru.co.uk for more information.

*Calls may be monitored or recorded for quality and security purposes.

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NOTES

29PRUDENTIAL INVESTMENTS 0800 072 6159 www.pru.co.uk/save_invest

Should you need to make some notes – when you talk to us, for instance – these pages might be just the place.

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TECHNICAL TERMS EXPLAINED continued

Stocks and sharesIn effect, both words mean the same. A share certificateconfers ownership rights in a company. Ordinary shares(or common stock) give voting rights at companymeetings and allow the holder to benefit from a share of the profits.

OEICAn open-ended investment fund structured as acompany. Investors buy shares, the number of whichvaries over time: the share price of the OEIC mirrors the value of the underlying investments.

PEP PEPs (Personal Equity Plans) were tax-efficientinvestment plans that have been replaced by ISAs.Anyone holding a PEP at 6/4/2000 was allowed to keepit, although no additional contributions can be made.

Single priceA single price for buying and selling shares, e.g. in an OEIC.


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TECHNICAL TERMS EXPLAINEDA

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EquitiesThis is another name for stocks or shares in a company.

GiltsA gilt is a loan made to the UK government in return forinterest.

Index-linked savings certificatesA government investment that pays guaranteed interestrates designed to increase the value of the investment inline with inflation. All returns are tax-free.

ISAAn ISA (Individual Savings Account) offers a tax-efficientway to invest. It acts as a wrapper in which you canshelter investments from tax.

Actively managed fundA fund where a team of analysts and portfolio managersaim to pick investments that will outperform the averageperformance of the stock market.

BondsAs an alternative to using your pension fund to buy anannuity at retirement, an ASP offers a form of incomedrawdown.

CapitalFinancial wealth in the form of cash or property.

CompoundingThe process by which interest earned on an investmentis added back to the original sum invested, thusincreasing the capital amount which will then attractfurther interest in future.

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TECHNICAL TERMS EXPLAINED continued

Stocks and sharesIn effect, both words mean the same. A share certificateconfers ownership rights in a company. Ordinary shares(or common stock) give voting rights at companymeetings and allow the holder to benefit from a share of the profits.

OEICAn open-ended investment fund structured as acompany. Investors buy shares, the number of whichvaries over time: the share price of the OEIC mirrors the value of the underlying investments.

PEP PEPs (Personal Equity Plans) were tax-efficientinvestment plans that have been replaced by ISAs.Anyone holding a PEP at 6/4/2000 was allowed to keepit, although no additional contributions can be made.

Single priceA single price for buying and selling shares, e.g. in an OEIC.


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TECHNICAL TERMS EXPLAINED

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EquitiesThis is another name for stocks or shares in a company.

GiltsA gilt is a loan made to the UK government in return forinterest.

Index-linked savings certificatesA government investment that pays guaranteed interestrates designed to increase the value of the investment inline with inflation. All returns are tax-free.

ISAAn ISA (Individual Savings Account) offers a tax-efficientway to invest. It acts as a wrapper in which you canshelter investments from tax.

Actively managed fundA fund where a team of analysts and portfolio managersaim to pick investments that will outperform the averageperformance of the stock market.

BondsAs an alternative to using your pension fund to buy anannuity at retirement, an ASP offers a form of incomedrawdown.

CapitalFinancial wealth in the form of cash or property.

CompoundingThe process by which interest earned on an investmentis added back to the original sum invested, thusincreasing the capital amount which will then attractfurther interest in future.

www.pru.co.uk

While Prudential uses reasonable efforts to ensure that the information contained in this Pocket Planner is current and accurate at the dateof publication, no warranties are made, either expressed or implied, as to the reliability, accuracy or completeness of the information.Prudential accepts no liability for any loss arising directly or indirectly from the use of or action taken in reliance on such information. Thesedocuments should not be copied, reproduced or redistributed, in whole or in part. ‘Prudential’ is a trading name of The Prudential AssuranceCompany Limited. The Prudential Assurance Company Limited is registered in England and Wales. Registered Office at Laurence PountneyHill, London, EC4R 0HH. Registered number: 15454.

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