“…he who gathers money little by little makes it grow…the one who chases fantasies will have his fill of poverty”

At first the investment world can appear to be a rather confusing array of widely differing opportunities and dangers, shrouded in an impenetrably thick cloak of jargon that seems almost designed to keep the novice at bay.

One of our roles as an IFA is to enable you to choose the right investments out of the vast choice now available and to ensure that the investments chosen are the most suitable in the context of your objectives and financial circumstances.

Objectives

The key to making successful investment decisions is to fully understand what you are trying to achieve before launching in.  We will help you establish these objectives and do so in the light of your circumstances and aspiration.

Risk and Reward

One of the basic elements of the discussion will be establishing your attitude to investment risk.  (On the home page there is a risk questionnaire that will help you determine your true attitude to investment risk.) Of course everyone wants an investment that will provide fantastic returns without there ever being a danger of it falling in value.  Sadly there is no such thing and many an unwary investor has been caught out by assuming otherwise.

Even a bank account carries some risk either of the collapse of the financial institution or of inflation being in excess of the net return and so eroding the real value of the investment (the buying power of the money invested).

Risk and reward also has a direct relationship to the time scale over which the investment is made.  For example investing for say two years in stocks and shares would carry a high level of investment risk because, if the investment fell in value, the fund would have very little time to recover, in this case a cash based investment may be more appropriate.

However over a 20 year period you are likely to regret holding cash and so other non-cash investments are much more likely to provide real growth.

Another key to a successful investment strategy is diversification.  Diversification needs to be not simply between different management styles or different shares but also between different asset types.  Because each asset type reacts differently to the prevailing economic climate we can actually enhance the long term returns at the same time as reducing the risk by diversifying.

Tax Considerations

The last consideration is the tax “wrapper” within which the investment is held.  People often confuse the underlying investment with the tax wrapper.  For example someone will say “I have a stocks and shares ISA” but the most important issue is what the ISA is invested in.  If the underlying investment is in Japanese Smaller Companies, this will have markedly different results from an underlying investment in say Government Gilt Edged Securities.

From this we can see the danger of the “tax tail wagging the investment dog! when the investment wrapper is selected first and then selecting what investments to put in it.  A better and more sound investment process is the one described above where we establish objectives and risk tolerance and then consider the most tax efficient wrapper to use.

Having said that, I would not belittle the importance of the choice of  tax wrapper as it can make a very significant difference to the end result leaving the investor with either a hefty tax bill or even a tax rebate depending on the choice of wrapper.

Each of the wrappers listed below have a different tax treatment:-

ISA
Investment Bond
Offshore Investment Bond
Unit Trust
Offshore Unit Trust (with distributor status)
Offshore Unit Trust (with distributor status)
Investment Trust
Offshore investment Trust
Pension
UK Bank account/Bond
Offshore Bank account/Bond
Guaranteed Investment Bond
Premium Bonds
Indexed Linked Saving Certificates
National Savings Certificates
Property and Letting Income

… and this list is by no means exhaustive. There are other more complex structures with various tax benefits such as Enterprise Investment Schemes or Venture Capital Trust each with their own special tax rules. 

As an IFA it is part of our role to guide to the most appropriate investment strategy within the most efficient tax structure.

Keeping it Simple

Holding a diversified portfolio in different tax wrappers sounds like a it could result in a complex paper chase!  However by using an investment platform (like a nominee service) you can hold investments with different fund managers and even different asset types and in different tax wrappers and still view all this on one statement, and for those who are so inclined there is even direct internet access to online valuations.  You can even re-register existing investments, usually free of charge so that you can view all of your investments in one place.

This is just one of the ways we can assist you in simplifying and helping you gain control of your financial affairs.