A guide to investments

The value of pension and investments, and the income they produce, can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

The FCA do not regulate inheritance tax planning.


Looking to invest your money for the first time and don’t know where to start?

Do you already have investments and want to make sure they are the right ones for your needs – do any of these ring any bells?

  • I’m worried about the instability of the markets and what might happen to my investments.
  • I have investments and various pots of money in different places. I’m not quite sure what I have and need help sorting it out. I also need help with my pensions which are in disarray.
  • I’m retiring and need help with my investments for growth and security.
  • I need advice with regards to an inheritance along with longer term planning of my financial situation.
  • I want to make sure I have the right investments in place for the longer term benefit of my children.

Before we look at your investments or the types of investment we do a full analysis with you of your current financial situation.

And, as importantly, we look at your attitude to risk. What does this mean?

Some investments are riskier to invest in that others. So, for example buying shares in a relatively new tech business may offer fantastic returns on your money, but there is, equally, a high risk it could go bust and you would risk losing all your money. These are called speculative asset classes.

At the other end of the spectrum, there are ‘safer’ investments, such as government bonds or unit trusts that whilst they offer much lower rates of return, are much less likely to result in you losing your money and will provide you with a steady income.

Some people are happy to take the risk on the big ticket items, and others are very risk averse.

So that’s why It’s vital we understand your attitude to these different types of investment to make sure that your money is in investments that allow you to sleep at night.

It may be that you have one pot of money you’re happy to take a risk on, but the rest you want more certainty of and would be happier if they were invested in less risky funds*

Only once we have understood your current financial position and where you are on the risk spectrum do we then look at putting together your portfolio.

You may already have some investments and they may well be delivering everything you need. We don’t change things for the sake of change, we only recommend new products or investments if they are right for what you need.

Once we have put together a proposal, we go through it with you in fine detail to make sure you are happy with all aspects. Only then will we sort out the details.  We can work on your behalf to talk to existing providers that you may be changing from to effect a smooth transfer of funds and work with the new providers to set up everything for you, minimising the hassle for you.

It doesn’t stop there. We insist on meeting with our clients at least once a year to review your investments to give you peace of mind that your investments are working as hard for you as they possibly can.

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Different types of investment:

There are two fundamental aspects to investments and it’s important to understand how they differ.

Firstly, the products themselves. Sometimes called ‘Collective investments’ or even ‘pots’. Your investments sit within them.

Secondly, the assets within these ‘Collective investments’ or ‘pots’, the underlying investments held on your behalf.

It’s essential to distinguish between the two. ‘Collective investments’ such as unit trusts are not necessarily risky investments. Unit trusts can be invested in a cautious manner, so they would be suitable if you find yourself risk-averse. By contrast, they can also be invested in more speculative asset classes. In this case, only brave and speculative investors should contemplate these riskier unit trusts.

Before we invest your money we make sure we understand your attitude to risk before proceeding.

Overview of investment products

Unit Trusts

Put simply, Unit Trusts are funds in which many different investors pool their money. The advantages are as follows.

  • One, you spread your risk over a selection of different investments.
  • Two, you enjoy the services of a professional fund manager which can include active management of the fund.
  • Three, as you and your fellow investors in the fund share dealing costs, these are substantially lower than if you invested alone.

Different Unit Trusts can have different investment goals and different ways of trying to meet them.

  • To secure income or growth.
  • To invest in large corporations or small companies.
  • To invest in certain geographical regions, for example the Far East or just in the UK.

M&G were responsible for launching the first-ever Unit Trust way back in 1931. Since then the industry has blossomed into £3 trillion invested in over 2,000 funds covering 30 different sectors.

Open Ended Investment Companies

Open Ended Investment Companies (or OEICs, as they are known) are a hybrid product. They are a cross between Investment Trusts and Unit Trusts. As such, they are companies that issue shares, which are traded on the London Stock Exchange.

The money they raise is invested in other companies. Unlike pure Investment Trusts, OEICs are open-ended. In practice what this means is that when demand is high their managers issue more shares. Again, OEICs differ from Investment Trusts, as unlike Investment Trusts, the share price is pre-determined and not subject to a rise when demand rises. The share price of OEICs is based on the underlying assets within the fund.

A key difference from Unit Trusts is that there is not a bid to offer spread. This means that the price generally remains the same whether buying or selling. OEIC’s have been around for a while in mainland Europe, but are relative newcomers to the UK, only being launched in 1997.

Tax treatment of OEICs is governed by the Authorised Investment Funds (Tax) regulations 2006 (SI2006/964) which came into effect on April 1st, 2006. OEICs are a class of authorised investment fund (AIF) as defined by the regulations; authorised unit trusts (AUTs) are another.

Generally speaking, gains from OEICs are not subject to corporation tax.However, income gains in the hands of investors are liable to tax. In addition, shares in an OIEC, as with Unit Trusts, are treated in the same manner as other shares. This means that the provisions of the Tax Acts and TGGA 1992, which apply to companies, but not to authorised unit trusts, for instance, rules for group relief, do not apply in the case of OEICs.

Investment Bonds

The main ambition of Investment Bonds is to generate capital growth in the medium to long terms. But equally, they can be used to provide an income. Investors pay a lump sum to an insurance company, which is invested until they cash it in or die. Often, there’s a charge if the bond is cashed in during its early life.

Investment Bonds include an element of life insurance. This means that on death, they pay out a higher figure than the value of the investment.

However, there is the chance that the value of an Investment Bond may go down as well as up. Generally speaking though they perform better than savings accounts. And some bonds offer a guarantee, but in return, charges are higher.

What about tax?

Growth from Investment Bonds is subject to income tax. This is collected automatically throughout the life of the bond. Depending on your circumstances, the following will happen.

If you are a non-taxpayer, you will not pay income tax, but neither can you reclaim it.

If you pay tax at the basic rate, you shouldn’t have to pay any further tax.

If you are a higher rate taxpayer (or approaching the threshold to become one) and you withdraw more than five per cent of your original investment in a tax year, or you are in profit when you cash in the bond, you may be asked to pay more tax.

Based on your circumstances the tax payable on Investment Bonds may be higher than other investments such as Unit Trusts. However, there are other advantages to Investment Bonds that may appeal to you.

It’s possible that the policy may provide income that is tax-deferred; or you may wish to set up the investment within a trust as an integral part of inheritance tax planning. If neither of these possibilities is of interest to you, you may be better off investing elsewhere, in a product with less liability to tax.

Offshore Investment Funds

As these bonds are held offshore, investments within the bond grow free of both capital gains and income tax. However, you may be liable to tax when you cash in benefits from the bond.

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