Investment strategies

Choosing the Right Investment Strategy

How do you choose between building societies and bank deposit accounts, unit trusts, insurance bonds, national savings, and ISAs, when investing for your future? Each has its advantages and disadvantages.

It is rarely sensible to have all your eggs in one basket. Wise investors will 'spread' their money amongst several different kinds of investments.

Each investment has its own particular place in a properly constructed portfolio, but how does the investor choose the best balance?

Building society or bank deposit accounts are the automatic choice for many investors as they are safe, dependable and can offer easy access to your money. But remember you are planning for the future and interest rates are variable.

If you withdraw the income each year, even with modest inflation, there is the risk that the 'real' value of the capital invested in a deposit account is being eroded.

While in recent years we have seen relatively low rates of inflation, it is not so long ago that inflation rates were in double figures. Historically, the best method of protecting the purchasing power of capital, over the longer term, has been by investing in areas linked to stockmarkets. Of course, with stockmarket based investments you are exposed to risk since share prices can go down as well as up.

Whilst it is impossible to guarantee future growth, stock market investment has generally provided favourable results over the longer term.

Shares should, therefore, be considered in any well-diversified investment portfolio.

You can reduce the risk of investing in shares by putting your money into professionally managed funds such as unit trusts and insurance bonds.

These investments do not include the same security of capital which is afforded with a deposit account

Whilst you cannot eliminate the risk entirely, you can take out investments, which are widely spread both geographically and across different sectors.

Before investing in this area, there are a number of things to consider :

The value of investments and income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future performance.

ISAs

The maximum ISA investment allowance for the 2020/21 tax year is £20,000

There are two types of investment bases for ISAs;

Cash, for example deposit accounts that earn interest. You can invest the full £20,000 allowance into a Cash ISA for the 2020/21 tax year.

Stocks and shares, for example Unit Trusts and OEICs.  You can invest the full £20,000 allowance into a Cash ISA for the 2019/20 tax year.

You can switch between Cash and Stocks & Shares without restriction.

Contributions can be made into two ISAs in the same tax year if one is a cash ISA and the other is a stocks and shares ISA.

It's not normally possible to make contributions to two ISAs of the same component in the same tax year. But if the current year's subscriptions have been transferred to a new ISA manager, it's possible to continue contributions to the new ISA.

Where ineligible contributions have been made to across two ISAs in the same tax year, the second ISA will become invalid. It will be taxable on any income or gains and would need to be included in the investor's tax return.

Junior ISAs
Junior ISAs were launched on 1 November 2011 and are available to children under the age of 18 and who do not already have a Child Trust fund. Junior ISAs can be opened by family or friends on behalf of the child. The allowance for 2020/21 is £9,000 and you can open one Cash ISA and one Stocks and Shares ISA in each tax year.

If £1,000 is invested into a Cash ISA then only £4,368 could be paid into their Stocks & Shares Junior ISA in the same tax year. Money held in a Junior ISA cannot be withdrawn until the child is 18.

The value of investments and income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future performance.

Offshore investments

For some, investing offshore is advantageous, for instance:

For further information, specific to your circumstances, please contact us to discuss your requirements,

As the information presented is based on existing legislation and HM Revenue & Customs practice and does not amount to tax planning advice. Any potential investor who is unsure of their tax position is recommended to take advice before investing.

The value of investments and income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future performance.

Insurance bonds

The value of investments and income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future performance.

Unit trusts

The value of investments and income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future performance.

Open ended investment company (OEIC)

Open ended investment company (OEIC) is very similar to unit trusts in that monies from individual investors are "pooled" into a professionally managed fund with specific investment objectives.

However, instead of operating under a trust deed, an OEIC has a company structure and issues shares instead of units.

They also have a different pricing structure, with a single price quoted rather than the bid/offer system used by unit trusts

The value of investments and income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future performance.