Cutting through the maze - Investment Choices - Basics - Divisions - Risk & Reward - Regular Savings & Lump Sum Investment - How much do I need to save? - Taxation - Action & Review
** How much risk will you take with your money?** Try our Risk-Reward(link)calculator to find out
** How can you evaluate the real returns from your investments to compare like with like?** you need to calculate an Annual Percentage Rate (APR) (link)
Cutting Through the Maze
What is your money there to do for you? Are you making the most of it or is it being slowly eaten away by a combination of low interest rates and inflation? Is it as tax efficient as you would wish? How safe is it, and how quickly can you get at it if you need to?
Our research tool lists over 44,500 different investment funds spread through a huge variety of different investment vehicles. As Independent Financial Advisers it's our job to help you cut through this maze.
Investment Choices
Even at the lowest level of risk nobody would advise you to keep your money in a sock under the bed.It certainly won't grow at all, and even the slightest level of inflation on a year by year basis will mean that it will be worth less in the future than it is now – see our Effect of Inflation(link)calculator.
You could of course put your savings away into a Bank, Building Society or Post Office account.At some periods in the past that has seemed like a good idea – when interest rates were higher than they are now, you were at least guaranteed a positive return, and, until the collapse of Northern Rock, Bradford & Bingley, Royal Bank of Scotland, Halifax/Bank of Scotland and Icelandic Bank, you could have considered deposit savings safe & secure and worthwhile.
Now, with the Bank of England's monetary policy committee setting Bank Rate at an historic low and, for the moment at least keeping it there, savers are faced with the prospect that even with inflation at very low levels, and safe as they might be, cash deposits will not grow much (if at all) in real terms. To obtain the holy grail of real growth, a degree of risk must be accepted. Different choices will have to be made in the future.
Basics
These can be worrying times for those with money invested.Interest rates are close to zero whilst world stock markets have seen huge volatility and short term decline. Previously highly rated Banks have needed huge sums of bail-out money – and very few of the financial experts predicted the present chaos.
Many people ask us if there are any profitable 'homes' left for their money.Well yes, even for those who regard themselves as 'risk averse' – there are!
The first steps are clear;define your assets and liabilities – decide what access you need to however much of your money in the immediate short term, and thus decide what you want to invest, for how long and for what purpose. Is it, for example, to give you income now, or income in the future? Is it to repay debt or is it simply to accumulate?
Divisions
We think of the investment world as dividing essentially into three:
The first where you Deposit your money in return for a known return; a fixed or variable rate of interest and a fixed or variable amount of time.This could be in any one of the vast range of bank, building society, or national savings account
**We have a researchtool that gives us access to just about every savings product on the market**
The second, where you put money into Asset Backed Investments.Here you are buying shares in companies that, whatever their market sector, have a value.The hope is that either the company will be profitable and so pay out a dividend to shareholders, or the shares will be in demand, causing their market value to rise – or both
**We maintain professional on-line listing and analysis sytems that allow us to compare the performance and evaluate the security of every listed fund in the UK market**
The third is, in a way, an amalgam of the first two – Gilts & Corporate Bonds – borrowing by Government or Companies at known interest ('coupon') rates. These Bonds can be traded in their market; their purchase and sale price can go up or down depending upon demand.
**We maintain the same comprehensive information on these; our advice is always based on the most up to date information**
Risk and Reward
Where you put your savings and what return (if any) you get as time goes by depends very much on your attitude to investment risk. The theory goes that every investment carries some risk. It is also the conventional wisdom that the higher the risk you're prepared to take the higher the potential reward you can expect.
The lowest levels of risk will be in Deposits – here the only potential downside is that the institution goes bust – but for most people the guarantees in place mean there is little prospect of losing your money.
Moving on to Asset Backed Investments;those we make on behalf of clients are never really at a very high risk level;never the sort where it's all gain or complete loss. We do not invest directly in the shares of any one company (that's a stockbroker's job) – all the investments we make are into broadly spread funds, where your money is combined with many others and invested in a large number of companies.'Pooling and Spreading'would sum up our approach.
Even so, the degree to which you are cautious (at one end of the risk/reward scale) or adventurous (at the other) will determine the type of portfolio we would help you construct.
If you want to get an initial idea of where you stand, why not try our Risk-Reward(link) questionnaire.You'll answer 7 lifestyle questions, and then be able to see what the implications are for the sort of investments you might make.
To get an idea of what any given interest rates (or rates of return), combined with inflation will do to your money, or how much more you'll need in the future to maintain today's spending power, use theEffect of Inflation(link)calculator.
Regular Savings
So, apart from putting your regular savings into a Deposit account – what might you do to get the chance of a better return?
As long as your saving is for the medium term (at least 5 years) you are likely to find that Asset Backed investments give the best chance of growth ahead of inflation. In the short term markets will rise and fall, often frighteningly, but history tells us that across the longer term they outpace inflation. Fluctuating markets, thanks to a piece of maths called 'Pound Cost Averaging,' actually work in favour of regular monthly savers, and will mean that the gain will be greater than it would in a market that rose smoothly!
We deal in simple products. Unit Trust's and OEIC's have access to most of the 44,000 available funds spread across every possible investment sector. They're easy to understand and carry (mostly) standard charges, so choice is based on your attitude to investment risk, the sectors that this leads to and the comparative performance of individual funds and their managers.
The most tax efficient 'wrapper' for regular savings is an ISA (Individual Savings Account). There is no personal income or capital gains tax to pay on the gains made. Most Unit Trusts/OEIC's will accept regular ISA contributions. As long as you haven't used any of your annual allowance already, you can save a maximum of £600 a month this way.
Although Endowment policies have had a bad press in recent years, that's more about the nature of the 'With Profit' funds in which they were invested, than about the nature of the product. An insurance based Regular Savings Plan (RSP - the modern Endowment) will pay out the target amount if you die somewhere before the end of the savings term; quite useful if the need for the target amount is still there after you've gone. School fees planning is an area where an RSP can solve a problem.
Capital Investment
Everything said so far about attitude to investment risk – about the different types of investment (our division into 3), and our concept of the relative safety of 'pooled investments' apply here.
We can help you place money directly into Unit Trusts, OEIC's, Investment Trusts, Exchange Traded Funds, Capital Investment Bonds and more.
Although it may sound a bit basic, the thing is, to be sure about what you want your capital to do for you.At root it comes down to income/money now – or later – or to someone else!But a serious answer to this question will help direct us into the right 'vehicle' choice for your money.
Taxation
The best investments need to protect as much of your money as possible from the ravages of tax. Few people like paying tax, and no-one should pay a £ more than they need. Whether it comes to ensuring that you:
Use your ISA allowance to the full
Gain as much tax relief as possible on pension contributions
Structure your estate to give the lowest Inheritance Tax profile
Tailor the way in which you derive income from investments to minimise your income and capital gains tax bills
We will always take tax implications into account when we advise you
Action & Review
Will you be able to get from where you are now ..... to where you want to be?
With all the care in the world taken in decisions at the time of investing - the truth is that none of us are really capable of accurately predicting the future. Markets will fall and rise; personal goals and needs will change; interest rates and inflation will not, however hard Governments try, stay the same. As time passes it is almost inevitable that there will be a 'drift' away from the original goal. If left unchecked this can become impossible to correct at any reasonable cost.
But if the basic plan was created soundly, then regular review will give early warning of deviation - before it becomes a major problem.
To us, review is a vital part of the investment process; one that we ask you to commit to before we transact business for you.
