Although the idea of investing to provide for your future financial security is gaining wider acceptance, for the would-be investor, finding the most appropriate vehicle can be a daunting prospect.

 

Consulting an Independent Financial Adviser (IFA) will be an obvious first step for many, particularly those who are looking at the various types of collective investment vehicles available rather than planning to invest directly in shares.

 

Most of us now recognise the need for some kind of retirement funding, but there is an increasing emphasis on the need for the individual to take out some kind of private provision across a broad range of areas, from healthcare to education.

 

But while retirement funding is obviously a basic need, a pension plan need not be the only route to providing for your future.

 

As well as savings vehicles designed for specific purposes – such as school fees provision – there is also a whole range of opportunities open to the investor wishing to generate extra income or build up a capital sum for the future. Additionally, the investor can address the need to provide for dependants in the event of an unexpected loss of earnings power.

 

What is investment?

 

This may seem a basic question, but the array of different options can be confusing.

 

All the forms of investment open to UK investors can, broadly speaking, be split into two main categories – direct investments, such as stocks & shares, or collective investment schemes.

 

Direct Investment 

 

This is normally through a stockbroker and we will be happy to point you in the right direction.

 

Collective investment schemes

 

In the UK there are three principal types of mainstream collective investment schemes – unit trust, investment trust and investment company with variable capital (ICVC). All three will take the pooled monies of a large number of investors and put them in the hands of a professional fund manager. He or she will choose a broad spread of instruments in which to invest, depending on the relevant published investment remit.

 

So why invest?

 

So why should the saver, who has hitherto been content to build up a nest egg in a deposit account, move into the riskier field of investment in equity or bond markets? Well, the main reason is the chance of a higher return than can be obtained from deposit accounts. If the potential investor is prepared to be patient – these types of investment are not for the short term – then past performance suggests that over time he or she can expect a higher return.

 

The investor must also consider the question of risk. In a low interest rate environment the return on your deposit account may decrease, but there is no threat to your capital. Investing in shares is different. Potential returns can be much greater than those offered by cash deposits. But if the shares in which you have invested were to fall in price, there is a real threat to your capital itself. If you are forced to sell your shares at a time when they are performing poorly, you could actually end up with less money than you started with.

 

As Independent Financial Advisers, we can help establish what level of risk you should take with your investments.

Tax efficiency

 

If you are looking to invest directly in shares or bonds or collective investment schemes, a tax-efficient method of doing so is through an Individual Savings Account (ISA).

 

An ISA is not an investment in itself – it is a tax-efficient “wrapper” which you may use to hold a range of investments.

 

Within the stocks and shares element of an ISA you may invest directly in shares or bonds or collective investment funds.

 

It makes sense to take advantage of all the existing tax allowances and we will be able to help you ensure you do this.

 

Offshore investment

 

In specific cases, offshore investment may be worth considering. From the UK perspective, offshore funds have traditionally been used mainly by expatriates. Because UK expatriates do not generally pay UK income tax, it makes sense for them to invest in funds based in a low-tax centre such as Luxembourg or the Channel Islands. However, some funds, accumulation funds in particular, can offer a tax efficient use of offshore funds to the UK resident.

 

If you are a UK expatriate intending to return only on retirement when your tax status will be more favourable, there are benefits in keeping your investments offshore.

 

Funds based in an offshore centre are generally not covered by the regulations which govern their UK-based equivalents.

 

As well as offering tax advantages, lighter regulation in offshore centres means funds can invest in a much wider range of markets than most onshore vehicles – a big attraction for the more adventurous investor.

 

Do remember that capital and income values may go down as well as up and you may not get back the amount invested, also exchange rate variations may cause the value of overseas investments to increase or decrease. Past performance is no guarantee of future performance.

 

The offshore sector presents all manner of pitfalls for the unwary, so for investors considering a move in this direction, getting specialist advice is of paramount importance.

 

Question and Answers

 

Whatever the nature of the investments you are considering, the starting points should be the same. Holyoakes Group Ltd and its advisers will be able to help you identify the type of vehicle best suited to your needs, based on your own preferred balance between risk and return.

 

Most obvious among the questions you should ask is “How much will it cost?” All collective investment vehicles have built-in charges, but these vary from one type of vehicle to another, so ask us to explain. For the newcomer, the charges can be difficult to understand so it is important this is explained properly.

 

Another key factor is how long you intend to invest. Certain types of vehicles are long term investments. Make sure we understand your wishes clearly when it comes to short, medium and long-term investments. Lastly, make sure you understand the risks of your chosen investment.

 

 

A person regulated by the Financial Services Authority has approved this brochure. The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not necessarily a guide to future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances.