Investments

You may be reading this in the hope that it will answer the question…

“What shall I do with my money?”

Well, a Web Page cannot provide an answer in the form of advice or guidance (it is certainly rare for the same advice to be applicable to any two Clients), but it can try to answer some common questions, and may help you to understand exactly what investment is, and decide whether you need advice. 

To Save or to Invest?

A first principal of investment is to differentiate between money that needs to be saved, and money that can be invested. Whilst the two terms can be thought of as inter-changeable, there are distinct differences, and a vital part of the investment planning service we offer is to balance your capital between “Savings” and “Investment” in order to match the needs which we agree and review at our meetings.

·         Savings ~ Is a generic term for any money that is readily accessible in a low risk, short-term home. Although the interest you receive will probably be low, particularly after taxation and inflation is taken into account, such money will invariably maintain its face value. Building Society and Bank deposit accounts, as well as some National Savings Certificates are categorized as savings, and will form an important basis for any sensible Portfolio. The first stage of the investment advice we give is to agree the amount of an easily accessible Emergency Fund for use in the event of unexpected expenditure, and savings will also need to be accumulated for expensive items such as a new car.

• Investment ~ Is a generic term for money that has been put aside for use at a much later date – at least 5 or perhaps 10 or more years away. It is because this capital will probably not be used within an agreed time frame that the possibility of downward fluctuations in value over the shorter-term can be accepted, in the hope that over the longer-term returns will be higher. As well as providing the possibility of higher returns, some longer-term investments can provide an opportunity to address other issues as mentioned later.

Risk and Reward

You probably want the highest possible investment returns with no risk to your capital, but even a Building Society account carries risk. The sensible strategy is to create a mix of investments that is tailored to achieve your investment objectives, without subjecting your capital to more risk than is necessary to achieve those objectives, which leads to an important question.

 “What is the net return from a Building Society Account after taking into account taxation and inflation?”

It is unfortunate that for many people the real value of money held on deposit will be eroded over time through the twin “evils” of taxation and inflation. It is simply not possible for a Deposit Account to provide a meaningful level of income and at the same time maintain the value of the remaining capital in real terms. In practice the buying power of your capital and the interest it earns will simply be eroded unless you diversify and invest in a wider selection of assets.

THE VALUE OF INVESTMENTS WILL FLUCTUATE AND FUTURE RETURNS CANNOT BE GUARANTEED. BECAUSE OF THESE FLUCTUATIONS IN VALUE YOU MAY RECEIVE BACK MORE OR LESS THAN YOU INVESTED WHEN YOU WITHDRAW YOUR INVESTMENT

Other Issues

There is more than the possibility of higher returns to consider when making investments, for example our advice takes taxation issues into account (Income Tax, Inheritance Tax and Capital Gains Tax). Different investment products have very different personal taxation implications – particularly where income is required. Our standard investment review will help you understand your taxation position and may lead to taxation savings. 

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