Investments

Are you looking to invest for income, now or in the future, for growth over medium or long terms, for provision against the inevitable rainy day or perhaps to take advantage of a windfall in the most tax efficient manner?

Whether its because you've won money on the lottery or built up a tidy nest egg by saving on a regular basis, your money should be wisely invested so that its spending power is protected for the future. Leaving large amounts of money on deposit in banks or building societies may not be the long-term answer. Although this might be seen as the traditional safe haven, recent years have seen interest rates being reduced sharply and deposit accounts may not now even be keeping the value of your money in line with changes in retail price inflation.

Long-term Protection against Inflation

Many people recognise that to achieve better long-term protection for their money against the effects of inflation, it is often worth considering 'equity' related investments. These are ones that are linked to changes in the value of company shares. You could gain access to the 'equity' markets either directly through buying shares or indirectly by investing in investment products like Unit Trusts, Investment Trusts or maybe even a Life Assurance policy.

Whatever your needs an experienced and qualified H&R Wealth Management adviser is on hand to guide you through the whole range of options; ISAs to VCTs; Bonds to National Savings, Unit Trusts to Property Funds.

Sensible Investing

This is all about dividing your monies into various sections to cover all your needs, and of course meeting your risk reward profile. Most people will end up with something along the following lines:

Rainy Day Fund

A deposit account set aside to cover any sudden spending need (such as car replacement) or deal with an emergency (such as becoming unemployed and needing income while seeking another job). Each person needs a different fund, but we would normally consider less than three months income would be insufficient, but if you have more than a years money on deposit then this is probably too much.

Investments to meet known expenditure within 1-5 years

These would range from deposit funds (e.g. for house purchase) to safe investments offering good rates of return over fixed periods (possibly deposits, perhaps National Savings, other fixed or near fixed rate of return investments).

Long Term Savings

Given that the money is not expected to be needed for 7 or more years the whole gamut of equity based and managed funds can be used in order to seek the maximum long term growth in the major world economies.

Speculation

A speculative investment is one where the potential rewards are very high, but so are the risks. As WC Fields might have said "the speculator is a man who accepts that his money might buy him nothing more than a hole in the ground, while hoping that it will buy him a swimming pool". Speculative investments are not an area that we normally get involved with except perhaps to alert you to any that you may have. We do find that some people have bought them in error, or inherited them. The commonest speculative investments are direct holdings in small companies, AIM listed shares, and certain unit or investment trust holdings where the trust is in emerging or technology markets.

Portfolio Construction

Before recommending a particular company’s products, we carry out extensive research to ensure that you will receive the very best products and service available. When comparing the various product providers, we consider the following factors:

We use a number of indicators, such as the level of free assets, the size of funds under management, the level of bonus reserves, the net cash flow, solvency etc. to assess the overall financial strength of the company.

We place great importance on the investment management expertise of the company, both in terms of their method of asset allocation in relation to markets, sectors and stocks, and in terms of their investment structure, expertise, research capability, experience & stability.

We assess closely the level of charges made by the company for their products, and other factors such as enhanced allocation or bonus rates, discounts, and historical surrender and transfer values.

All our selected product providers must be able to demonstrate their ability to underwrite policies and collect premiums efficiently, and provide you with a high level of ongoing service.

We use past and present investment performance, and the provider’s ability to adapt effectively to changes in investment markets, to assess the potential for growth in your investments. All investment providers must exhibit consistently good performance over the medium to long term, across a range of their funds. However, please remember that past performance should not necessarily be viewed as a guide to the future.

All our selected product providers must have well presented, clear and concise product literature and should possess a high degree of technical knowledge.

Risk and Reward

Most people think that a high risk investment is one that is worth £10,000 today but could be only £8,000 next month, and that a low risk one is one where that £10,000 will be £10,100 next month, without fail. This is however only half the story. What matters is the likely REAL return (which is the return after allowing for inflation).

Imagine that inflation is 3% a year, and that you can get 5% interest on a nice safe deposit, (4% net after tax). That £10,000 grows to £10,400, but because of inflation you have only made £100. This is safe, but is not going to provide a retirement nest egg it's also a pretty good deal compared to the past. For much of the 70's and 80's the net real return on deposits was below zero, e.g. 3% net interest rate and 5% inflation meant that so called safe deposits were actually a fine way to lose money.)

Now imagine the same scenario but this time you are going to invest in an area that has an 80% chance of giving you a 15% gain during the year, and a 20% chance of a 15% loss.

While in any one year the risk of the loss may be too great to take (you need the capital to buy that house), if you are able to leave your money for a long time the good years should outweigh the bad, and you can expect good long term growth.

The essence of risk is that you have to balance the possibility of short term loss against that of long term gain, and that reducing or removing the risk of short term loss can only ever be done by accepting limited growth prospects.