INVESTMENTS

Investment Planning: The Basics

Investments range across a wide range of areas and vary significantly in how much risk there is to your capital. We will take you through a comprehensive risk profile evaluation to understand how much risk you are comfortable with. Many investments have a low risk of absolute loss to your capital, but are commonly graded by the volatility risk. Volatility is how much an investment moves off track, from its start and finish point. For example, you may invest £100,000 and 10 years later it is valued at £200,000. It is highly unlikely that the investment will have grown at a consistent 7% per annum to achieve this, rather it will vary between different growth rates each year, with at least a few years reducing in value. The investing will almost always form a part of your Financial Plan. Your Financial Plan will make assumptions on the growth of your assets and as such, the investments that you use must have the potential to grow at the rate assumed.

In-depth Perspective of Investments

Regardless of the investment vehicle used for investment, we take a science-based approach to investing. This means that we favour a sophisticated range of index tracking investment funds, blended according to your requirements and tolerance to risk. Most people when thinking of index tracking funds, automatically go to the obvious funds that will track the FTSE 100 or FTSE All Share. Whilst these may well form a small part of your portfolio, (FTSE 100 funds can be found with annual fees as little as 0.1% annual management charge!), the majority of your portfolio will be invested across the globe, as well as split between large companies, which will include investment into the household names you are familiar with, but also into medium and smaller companies that may be higher in volatility, but offer greater growth potential. The alternative to index tracking funds are those that are actively managed by a fund manager, where extensive research is undertaken to pick individual companies, with the aim to outperform the index. Some fund managers and their teams can indeed outperform the index, the problem that we face as advisors, is finding those fund managers, and indeed relying on the outperformance to continue consistently. Research shows that this is rare, outperformance tends to come during a fund managers early tenure, or is cyclical in specific market cycles. Therefore, the lowest risk option for an investor is to track the underlying index. Index investing has become extremely popular over the past decade and there are many innovative products available. Blending these can create a highly sophisticated, risk managed portfolio with the advantage of being predictable in performance and low cost. A typical client portfolio will hold between 10 and 20 different investment funds, each fund may invest in between 30 and upwards of 100 different companies, this means that your investments are highly diversified. If a single company goes under, it will have very little impact on your overall investments. Specialist investments will require an active fund management style as there are certain areas that can not be easily tracked and here we will source an appropriate actively managed fund to complement your portfolio.

Investment Services

Investment Portfolios

Investments can be made within a variety of ‘wrapper’s’. Wrappers are simply the type of account that holds your investment. This could be holding investments directly into a general investment account, an ISA, Investment Bond or a Pension account. Each wrapper has its own advantages and disadvantages, mainly regarding the tax treatment of the investments being held. The obvious example here would be an ISA account where your investments are not subject to any further taxation. There will also be other factors to consider, such as accessibility, for example an ISA can be accessed at any time, whereas a Lifetime ISA must be held until the age of 60 or used to purchase a first property.

Ethical

As a company we have strong values and ethical views. This is balanced with the practicalities of a commercial environment. Many of our clients will share values that are close to our own, although with different balances in these. We will work with you in creating an investment portfolio considering your ethical views and your desire to build these values into your investment portfolio. Some investments can restrict where your money is invested, typically this may include armaments, companies that test on animals, tobacco products and gambling. A more positive approach is also taken by ethical investing whereby investments are specifically made for good purposes. This may be in companies with good practices for the environment, or indeed directly into green energy. It is no longer the case that investing ethically means that you accept substandard investments and performance. We try to use a combination of ‘screened’ index tracking investment funds along with our regular index tracking funds. If your ethical views are such that you prefer your entire portfolio to reflect this, we will introduce some actively managed funds in certain areas. In some cases we will work with a discretionary fund manager to ensure that your money is invested exactly in the manner that you are comfortable with.

Trading Platforms

Investment trading platforms have enabled diverse investment portfolios to be created and managed in a risk controlled and efficient manner. A platform provides the technology to invest in a wide range of investments and investment wrappers, with the convenience of holding all layers your wealth together. The risk to you as a client is low due to the underlying investments being managed by a variety of fund managers and individual funds each being protected by the Financial Services Compensation Scheme. Without holding your investments on one of these platforms it would be almost impossible for us to provide you with the complexity of investment portfolios that we currently do.

Tax Efficient Investments

Some investments cross the line in not only being set up for their investment potential, but also offering significant tax breaks. Nearly everyone is familiar with ISA’s and pensions, being the most obvious tax efficient investments, but there are others that are higher risk in nature, but with greater benefits. Investments that qualify for approved government tax breaks into Venture Capital Trusts and Enterprise Investment Schemes are examples of these. These are approved schemes designed to encourage investing into smaller companies to help them to expand, or indeed as initial investment into start up companies. These are not suitable for all, but will be recommended where appropriate.