Guide to Investing - Could you money be working harder?

In our guide we look to debunk the myth that investing is only for the very wealthy. Investing means different things to different people. Find out if your money could be working harder, so that you don't have to!
About Tudor Franklin IFA

Tudor Franklin was established by Richard Meats and Bharat Chudasama, with a vision for a professional financial planning and advice service that can provide clear value to our clients at any stage in their financial life. With over 25 years joint experience advising clients on such matters as investments, pensions, inheritance tax planning and protection, we pride ourselves on being professional and delivering advice in a clear and understandable way.
investing investments investment advice invest risk goal di erent market asset money time
About Tudor Franklin IFA

investing investments investment advice invest risk goal di erent market asset money time
INVESTING
Could your money be working harder
so you don’t have to?
G U I D E  T O
SEPTEMBER 2021
02      |      GUIDE TO INVESTINGW E L C O M E
W elcome to our Guide to Investing. It’s not surprising that the 
world of investing can seem complex. Investors today face o!en-
changing market conditions. An endless supply of market news. 
And many, many investment choices.
Investing enables you to potentially grow your money. Whether you’re 
looking to pay o" your mortgage more quickly, boost your retirement fund or 
provide #nancial security for your child’s future, investing could help you get 
there sooner.
If you’re new to investing, knowing where to start can be a daunting task. In 
our guide, we take you through your investment journey, from what to consider 
before you start, the di"erent types of investment options that might suit you, 
and the various asset classes. You’ll also learn why it’s important to focus on the 
long term as an investor and create a diversi#ed portfolio that includes a range 
of di"erent investments.
Having speci#c goals in mind is essential when it comes to picking 
appropriate investments. Are you looking for short-term security or long-term 
gains? How much growth do you need to reach your goal? Answering questions 
like these will keep you focused on building a portfolio that’s right for you and 
your needs.
$e most successful investors are o!en those with discipline. $ose who 
invest for the long term and don’t tinker with their portfolios too much. $e 
ultimate secret to #nancial success lies in having your money doing the work so 
that you have peace of mind that your cash is working hard.
It’s also important to remember that any investment comes with risk. All 
investments can go down as well as up, and you may get back less than you invest.
Ready to start a conversation?
In our guide we look to debunk the 
myth that investing is only for the very 
wealthy. Investing means di"erent 
things to di"erent people. If you 
would like to #nd out more or arrange 
an appointment, please contact us – 
we look forward to hearing from you.
Could your money be working harder so you don’t have to?
G U I D E  T O 
I N V E S T I N G
TRUSTS ARE A HIGHLY COMPLEX AREA 
OF FINANCIAL PLANNING. 
INFORMATION PROVIDED AND 
ANY OPINIONS EXPRESSED ARE FOR 
GENERAL GUIDANCE ONLY AND NOT 
PERSONAL TO YOUR CIRCUMSTANCES, 
NOR ARE INTENDED TO PROVIDE 
SPECIFIC ADVICE. 
PROFESSIONAL FINANCIAL
ADVICE SHOULD BE OBTAINED
BEFORE TAKING ANY ACTION. 
03      |      GUIDE TO INVESTING02 WELCOME 
Could your money be working harder so 
you don’t have to?
04 VISION WITHOUT ACTION IS 
MERELY A DREAM
Staying focused and confident you’re on 
the right path
06 GOALS-BASED INVESTING
Clear, concise, detailed and written down
07 ‘WHAT IF’ SCENARIOS
Adapting to any life changes to keep your 
plans on track
08 OBJECTIVES
AND MOTIVATIONS
Assessing current and forecasted wealth
10 INFLATION MATTERS
Guarding against rising inflation eating 
away at your investments
11 TALKING THROUGH YOUR 
FINANCIAL OBJECTIVES
Knowing yourself, your needs and goals, 
and your appetite for risk is essential
13 GOAL-BASED
INVESTMENT STRATEGY
Investing is a lifelong process, and the 
sooner you start, the better
15 FOCUSING ON
LONG-TERM HORIZONS
A strategy that reflects your risk tolerance 
and time horizon
17 RISK FOR RETURN
Improving your chances of achieving your 
investment goals
18 SIX PRINCIPLES
OF INVESTING
How to invest your money and avoid 
costly mistakes
19 NAVIGATING THE UPS AND 
DOWNS OF THE MARKET
Maintaining a clear purpose for your 
investment strategy
20 MAINTAINING A
DIVERSIFIED PORTFOLIO
Reducing risk and improving your overall 
portfolio returns
22 ASSET ALLOCATION
Potential returns available from different 
kinds of investment
24 EVOLUTION OF ESG INVESTING
Changing face of investor ethics
and behaviours
25 REALISTIC
PERFORMANCE EXPECTATIONS
Managing overall exposure to
market volatility
26 POUND COST AVERAGING
Smoothing out the ups and downs of
the market
27 POOLING RESOURCES
Collective investment schemes
28 IN CONCLUSION
Taking charge of your
financial security
CONTENTS
V I S I O N  W I T H O U T
A C T I O N  I S  M E R E L Y
A  D R E A M
Staying focused and con!dent you’re on the right path
04      |      GUIDE TO INVESTING
No two people have identical #nancial circumstances, 
which is why it’s essential you have a tailored #nancial 
planning solution in place that meets your individual 
needs and investment goals. 
During periods of any market volatility, it is understandable for 
investors to #ght the urge to respond inappropriately or irrationally 
when markets aren’t performing. 
Goal-based #nancial planning enables investors to act in a 
systematic and disciplined manner to achieve their set goals. It also 
enables investors to remain focused and una"ected by short-term 
volatility in markets.
PLANNING FOR FINANCIAL SUCCESS
Although investors may have very di"erent goals depending on 
what life stage they are at, goals can be broadly categorised into 
essential needs, lifestyle wants and legacy aspirations. 
Planning for #nancial success in each of these areas can be 
complicated in today’s world. A broad knowledge of everything 
from complex retirement and investment products to risk 
management strategies and tax laws is required.
A #nancial roadmap should provide clarity about the future. It 
should detail every aspect of your vision – your hopes, fears and 
goals. It should also describe exactly how your future will look and 
help you to know exactly where you are headed and when you are 
likely to arrive.
HELPING YOU MAINTAIN FOCUS
Building wealth takes time and a little e"ort. Like any activity, be it 
growing a business or learning a new skill, you need to decide early 
on what your long-term objectives are. It’s exactly the same when you 
are building wealth – it is important to set #nancial goals.
Without a goal, your e"orts can become disjointed and o!en 
confusing. Being able to keep track of your progress towards 
achieving a goal is only possible if you set one in the #rst place. 
Being able to measure progress is extremely rewarding and will 
help you maintain focus. 
Procrastination is something we all battle with from time to 
time. However, when you set goals in life, speci#c goals for what 
you want to achieve, it helps you understand that procrastination 
is dangerous. It is wasted time. It is another day you aren’t moving 
closer to that goal.
Setting #nancial goals is essential to #nancial success. Once you’ve 
set your goals you can then write and follow a roadmap to realise 
them. It helps you stay focused and con#dent you’re on the right path.
TAKE SOME TIME AND ASK
YOURSELF THESE QUESTIONS:
   Can I sleep comfortably knowing I’ll have enough money for 
my future?
   Do I have the security of knowing where I’m heading #nancially?
   Am I going to be able to maintain my current lifestyle once I 
stop working?
   Do I feel empowered #nancially to live the life I want today 
and tomorrow?
   Have I made su%cient #nancial plans to live the life I want and 
not run out of money?
   Do I have a complete understanding of my #nancial position?
   What is ‘my number’ to make my current and future lifestyle secure?
IDENTIFYING YOUR FUTURE LIFESTYLE
Initially you need to identify the goal for which you wish to 
invest and assess the time you have to reach it. Once that is 
done, it is important to find how much the goal costs today. Add 
a reasonable amount of inflation to that, and then you would 
know what the goal would cost you in the year you wish to 
accomplish it.
$is process requires you to understand ‘your number’ – in other 
words, the amount of money you’ll ultimately need to ensure complete 
peace of mind in knowing your future lifestyle is secure and making 
sure you don’t run out of money before you run out of life.
MAKING THE RIGHT FINANCIAL CHOICES
By getting to know you and what you want to achieve, we’ll be able 
to provide you with a detailed action plan that is focused on you. 
Using a holistic #nancial planning process, we can get a clear view 
of your current lifestyle and the life you want to live.
Your #nancial roadmap will enable you to make the right 
#nancial choices and get the balance right between current 
responsibilities and future aspirations. All of this should be 
designed in a way so that you can achieve your desired lifestyle 
goals and objectives reliably over time.z
05      |      GUIDE TO INVESTING“
“
VISION WITHOUT
ACTION IS MERELY A DREAM.
Goals-based investing is an approach that aims to help people 
meet their personal and lifestyle goals, whatever they may 
be. If you do not know where you are going, how will you 
know when you get there? $is is very true about #nancial goals.
You need to set #nancial goals to help you make wise #nancial 
decisions, and also as a reward for your e"orts. Goals should be clear, 
concise, detailed and written down. Unwritten goals are just wishes.
Goals might be to maintain your same standard of living (planning 
for retirement, or in the case of an entrepreneur, anticipating the 
sale of your business), buying property, paying for children’s or 
grandchildren’s education, passing on a proportion of your wealth, 
making charitable donations, covering unplanned #nancial needs, 
etc. Each of these goals will make up a speci#c portfolio.
But in order to achieve all of your goals, you will need a plan. 
Starting from assets you already have available, you need to 
determine how much more you require to accumulate and when you 
will need it. 
Don’t neglect to consider that the price of your goal items might 
actually increase as well. Depending upon how you invest your 
savings over time, you might receive interest, dividends or capital 
gains to help you along – you should consider this as well.
SPECIFIC
Your #nancial and personal goals need to be as speci#c as possible, 
because otherwise they won’t give you enough direction to follow 
through. Look at your goals like a lamp lighting the way – the 
brighter the light, the clearer the road ahead. If you don’t have clearly 
de#ned goals, this can lead to procrastination. $ink about your life 
and what you want to achieve, and what action you need to take to 
achieve the outcomes you want.
MEASURABLE
Give yourself realistic deadlines. Adding speci#c dates, amounts, etc. 
makes your progress quanti#able to complete your goal and visualise 
a #nish line.
ATTAINABLE
Be honest with yourself and set realistic goals. Decide what you 
want to accomplish. So, start with the goals that are highest on your 
priority list. It’s easy to be overwhelmed by everything that needs to 
be done, so start simple. 
RELEVANT
Align your goals with the direction you want your life to take. 
Balancing the alignment between long term and short term will give 
you the focus you’ll need.
TIME-BOUND
Having a #nish line will mean you’ll get to celebrate when you 
accomplish your goal. Having set deadlines gives you a sense of 
urgency that is lacking when goals are open-ended.
SETTING REALISTIC GOALS
Each goal will be assigned an amount, an investment period, a level 
of risk and an order of priority. Do you have the means to make 
additional investments necessary to accumulate the required assets 
to achieve your goals? Don’t neglect to consider the e"ects of taxes 
on your savings and investments. 
A!er considering the foregoing, you might determine that you can 
achieve some goals in less time. Or you might #nd that it could take 
longer. $e time horizon is important to setting realistic goals.z
06      |      GUIDE TO INVESTINGG O A L S - B A S E D
I N V E S T I N G
Clear, concise, detailed and written down
07      |     GUIDE TO INVESTING‘ W H A T  I F ’  S C E N A R I O S
Adapting to any life changes to keep your plans on track
It’s important to have realistic expectations of what your 
financial resources can achieve, to give you peace of 
mind that you can achieve what you want, when you 
want, without putting your future plans at risk. Key to this is 
understanding how each financial decision can affect other 
areas of your financial plans.
You also need to visualise that if there are any future bumps 
in the road on your journey, you’ve considered different ‘what 
if ’ scenarios and have taken the right approach to protecting 
yourself and your family against the consequences.
Regular reviews of your personal plans and #nancial 
circumstances will also help you to adapt to your life changes and 
make you feel more #nancially secure and independent.z
O B J E C T I V E S
A N D  M O T I V A T I O N S
Assessing current and forecasted wealth
08      |      GUIDE TO INVESTING
future. $is detailed picture of your assets 
includes investments, debts, income and 
expenditure, which are projected forward, 
year by year, using calculated rates of 
growth, income, in&ation, wage rises and 
interest rates.
A cash &ow model calculates the growth 
rate you’ll require if you are to meet your 
investment objectives. $is rate is then 
cross-referenced with your attitude to risk 
to ensure your expectations are realistic and 
compatible with the asset allocation needed 
to achieve the necessary growth rate.
Looking at your #nancial journey in this 
way enables you to implement a detailed 
plan that outlines how to deliver your 
#nancial future. To ensure that, over time, 
you achieve your desired lifestyle goals, it 
is important for us to regularly review your 
#nancial plan and make any necessary 
amendments should your personal 
circumstances change.
ASSET ALLOCATION MIX
Cash &ow modelling can determine what 
recommendations and best course of 
action are appropriate for your particular 
situation and the right asset allocation mix. 
$e growth rate you require is calculated 
to meet your investment objectives. $is 
rate is then cross-referenced with your 
attitude to risk to ensure your expectations 
are realistic and compatible with the asset 
allocation needed to achieve the necessary 
growth rate.
Where this approach becomes 
particularly useful is the analysis of di"erent 
scenarios based on decisions you may make 
– this could be lifestyle choices or perhaps 
investment decisions. By matching your 
present and expected future liabilities with 
your income and capital, recommendations 
can be made to ensure that you don’t run 
out of money throughout your life.
HOW MUCH TO SAVE, 
SPEND AND INVEST
A snapshot in time is taken of your #nances. 
$e calculated rates of growth, income, tax 
and so on that are used to form the basis of 
any cash &ow modelling exercise will always 
be assumptions. $is is why regular reviews 
and reassessments are required to ensure you 
remain on track.
Nearly all decisions are based on what 
is contained within the cash &ow. $is will 
include how much to save and spend, to 
how funds should be invested to achieve 
the required return, so there is a lot that 
needs to be managed.
A LIFETIME CASH FLOW PLAN
SHOULD ENABLE YOU TO:
   Produce a clear and detailed summary 
of your #nancial arrangements
   De#ne your family’s version of the 
‘good life’ and begin working towards it
   Work towards achieving and 
maintaining financial independence
   Ensure adequate provision is made for 
the #nancial consequences of the death 
or disablement of you or your partner
   Plan to minimise your tax liabilities
   Produce an analysis of your personal 
expenditure planning assumptions, 
balancing your cash inflows and your 
desired cash outflows
   Estimate future cash flow on 
realistic assumptions
   Develop an investment strategy for 
your capital and surplus income 
in accordance with risk/reward, 
flexibility and accessibility with 
which you are comfortable
   Become aware of the tax issues that 
are likely to arise on your own death 
and that of your partner
RUN THROUGH THE NUMBERS
With every financial corner you turn, 
it is important to ‘run through the 
numbers’, which will help you make the 
right financial decisions. It is important 
to be specific. For example, it is not 
enough to say, ‘I want to have enough 
to retire comfortably’. You need to think 
realistically about how much you will 
need – the more specific you are, the 
easier it will be to come up with a plan to 
achieve your goals.
If your needs are not accurately 
established, then the cash flow will not 
be seen as personal, and therefore you 
are unlikely to perceive value in it. Some 
years, there may not be any change, or 
just small tweaks.
However, in other years, there may be 
something significant; either way, you 
will need to ensure things are up to date 
and to keep your own peace of mind 
knowing your plans are still on track.
It is vital that you are made aware that 
certain assumptions have been made 
in the making of your plan. Projected 
inflation and growth rates need to be 
made clear, and it should be explained 
that the plan and cash flow model 
is only as good as the information 
provided, so it is critical that it  
is reviewed.z
E very important journey has a 
destination. Similarly, every 
investment should have a goal, 
and each goal should be time based. 
Quantifying the amount of money needed 
to achieve that goal is important. 
Evaluating your goals in greater depth 
is essential if you want to get a picture of 
your objectives and aspirations. With a full 
understanding of your circumstances and 
priorities, we’ll provide you with advice 
that is custom-tailored to suit your speci#c 
lifestyle goals, and together develop a strategy 
based on your personal circumstances.
CASH FLOW MODELLING
In order to develop your #nancial plan, 
you need clarity over your goals, your 
objectives and your motivations. An 
integral part of the lifestyle #nancial 
planning process includes cash &ow 
modelling. It gives you a graphic 
representation of your #nancial future and 
an insight into how life events will have an 
impact. $is illustrates what might happen 
to your #nances in the future and enables 
you to plan to ensure that you make the 
most of your money to achieve your 
#nancial objectives.
$e process shows your current position 
relative to your preferred position and 
your goals by assessing your current and 
forecasted wealth, along with income 
in&ows and expenditure out&ows to create 
a picture of your #nances, now and in the 
09      |      GUIDE TO INVESTING
Understanding in&ation is an important factor when it 
comes to investing and your #nancial success. If you 
don’t factor in&ation in when deciding where to put your 
money – whether that’s savings accounts or investing – you could 
#nd your wealth shrinks over the years.
As the post-pandemic recovery takes hold, prices of various goods 
and services are rising. $e recent causes of higher in&ation that 
we’ve been experiencing are largely COVID-related. $e easing of 
lockdowns has boosted consumer con#dence and unleashed pent-up 
demand. At the same time, bottlenecks in production and distribution 
are squeezing supplies – from building materials to foodstu"s. $is 
supply and demand imbalance has forced up some prices.
Before the pandemic, UK Consumer Prices Index (CPI) 
in&ation rate was around 2% - the rate the Bank of England aims 
for. However, as with everything else, COVID has played havoc 
with headline in&ation #gures. For most of the last year, prices 
have been rising at a rate of less than 1% a year. However, in June 
in&ation rose to 2.5% (CPI).
GROWING REALISATION
A sustained period of low in&ation may have blunted some people’s 
concerns about in&ation. But there’s now a growing realisation that high 
in&ation could be around the corner, which reduces your purchasing 
power and what you could buy with your savings over time.
Some investors and savers may underestimate the damaging 
e"ects of in&ation on their wealth. Keeping money in the bank 
typically earns interest, but if the interest rate is lower than 
in&ation, money or purchasing power is e"ectively being lost.
PENSION SAVERS
People on #xed incomes – such as those whose pensions aren’t 
in&ation-linked or workers on a static wage – are especially 
vulnerable to the e"ects of in&ation. As living costs rise, your 
money doesn’t go so far.
Pension savers need to think about what their savings might 
be worth during retirement – o!en a long time into the future. 
In&ation can make the di"erence between an enjoyable retirement 
and a frugal, worrisome one.
ABOVE-INFLATION RETURNS
$at’s why you should consider mitigating the e"ects of in&ation 
by investing at least some of your money in assets that aim to o"er 
above-in&ation returns.
Arguably, we can expect in&ation to settle back to lower levels 
once the post-pandemic surge in demand has been sated and 
supply chains are smoothed out. But even so, with the global 
economy poised for a strong rebound, most central banks are 
keen to get back to ‘normal’ monetary conditions. So rock-bottom 
interest rates can’t last forever.
GOOD INVESTMENT
Bonds and other assets that pay a #xed income and/or a #xed 
investment return are especially vulnerable to in&ation. Bonds 
become less valuable as in&ation and interest rates rise, re&ected in 
falling bond prices and rising yields.
Conversely, shares are generally a good investment during 
periods of modest in&ation. A company’s fortunes typically track 
consumer demand and economic growth. If demand is strong, 
companies can raise prices, boosting the pro#ts from which they 
pay dividends to their share-holders.
TRACK RECORD 
Besides shares, there are other assets with a track record of 
doing well during times of moderate in&ation. $ese include 
infrastructure assets, where income streams increase as demand 
grows and the assets mature.
Likewise, gold and other commodities can be useful stores 
of value to hedge against in&ation. So the good news is that it is 
possible to get an in&ation-beating return on your savings, as there 
are di"erent investment opportunities. However, these involve 
taking on a little more risk than with a cash savings account.z
I N F L A T I O N  M A T T E R S
Guarding against rising in"ation eating away at your investments
10      |      GUIDE TO INVESTING
11      |     GUIDE TO INVESTINGA#nancial review is a great way to 
take a fresh look at your #nances 
and plan for the journey ahead. 
More importantly, it enables you to talk 
through your long-term #nancial objectives 
and discuss with us a way forward to deliver 
your plan and achieve them. 
You need to consider what you really want 
from your investments. A review will also 
ensure you are on top of your overall asset 
allocation and individual shares and funds. 
We’ll make sure they are consistent with 
how much risk you want to – and can a"ord 
to – take. Knowing yourself, your needs and 
goals, and your appetite for risk is essential.
1. CONSIDER YOUR
REASONS FOR INVESTING
It’s important to know why you’re 
investing. The first step is to consider 
your financial situation and your reasons 
for investing. 
For example, you might be:
   Looking for a way to get higher returns 
than on your cash savings
   Putting money aside to help pay for 
a speci#c goal such as your children’s 
or grandchildren’s education or their 
future wedding
   Planning for your retirement
Determining your reasons for investing 
now will help you work out your 
investment goals and in&uence how you 
manage your investments in future.
2. DECIDE ON HOW
LONG YOU CAN INVEST
If you’re investing with a goal in mind, 
you’ve probably got a date in mind too. 
If you’ve got a few goals, some may be 
further away in time than others, so you’ll 
probably have di"erent strategies for your 
di"erent investments.
Investments rise and fall in value, so 
it’s sensible to use cash savings for your 
short-term goals and invest for your 
longer-term goals.
Short term
Most investments need at least a #ve-year 
commitment, but there are other options if 
you don’t want to invest for this long, such 
as cash savings.
Medium term 
If you can commit your money for at least 
#ve years, a selection of investments might 
suit you. Your investments make up your 
‘portfolio’ and could contain a mix of funds 
investing in shares, bonds and other assets, 
or a mixture of these.
Long term
Let’s say you start investing for your 
retirement when you’re fairly young. You 
might have 20 or 30 years before you 
need to start drawing money from your 
investments. With time on your side, you 
might consider higher-risk fund exposure 
that can o"er the chance of higher returns 
in exchange for an increased risk of losing 
your money.
As you get closer to retirement, you 
might sell o" some of these riskier 
investments and move to safer options with 
the aim of protecting your investments and 
their returns. 
How much time you’ve got to work with 
will have a big impact on the decisions you 
make. As a general rule, the longer you 
hold investments, the better the chance 
they’ll outperform cash – but there can 
never be a guarantee of this.
3. MAKE AN INVESTMENT PLAN
Once you’re clear on your needs and goals, 
and you’ve assessed how much risk you can 
take, we’ll help you identify the types of 
investment options that could be suitable 
for you.
4. BUILD A DIVERSIFIED 
PORTFOLIO
Holding a balanced, diversi#ed portfolio 
with a mix of investments can help protect 
it from the ups and downs of the market. 
Di"erent types of investments perform well 
under di"erent economic conditions. By 
diversifying your portfolio, you can aim 
to make these di"erences in performance 
work for you. 
You can diversify your portfolio in a 
few di"erent ways through funds that 
invest across:
  Di"erent types of investments
  Di"erent countries and markets
   Di"erent types of industries and companies
A diversi#ed portfolio is likely to include a 
wide mix of investment types, markets and  
industries. How much you invest in each is 
called your ‘asset allocation’.
5. MAKE THE MOST
OF TAX ALLOWANCES
As well as deciding what to invest in, think 
about how you’ll hold your investments. 
Some types of tax-e%cient account mean 
you can normally keep more of the returns 
you make. It’s always worth thinking about 
whether you’re making the most of your 
tax allowances too. 
T A L K I N G  T H R O U G H  Y O U R 
F I N A N C I A L  O B J E C T I V E S
Knowing yourself, your needs and goals, and your appetite for risk is essential
12      |      GUIDE TO INVESTINGYou need always to bear in mind 
that these tax rules can change at any 
time, and the value of any particular tax 
treatment to you will depend on your 
individual circumstances.
6. REVIEW PORTFOLIOS 
PERIODICALLY
Periodically, a #nancial review will provide 
the opportunity to check and see if your 
portfolio’s wide mix of investment types 
and markets still aligns with your goals.
$ese are some aspects of your portfolio 
you may want to check up on annually:
Changes to your !nancial goals
Has something happened in your life 
that calls for a fundamental change to 
your #nancial plan? Maybe a change in 
circumstances has changed your time 
horizon or the amount of risk you’re willing 
to handle. If so, it’s important to take a hard 
look at your portfolio to determine whether 
it aligns with your revised #nancial goals.
Asset allocation
An important part of investment planning 
is setting an asset allocation that you feel 
comfortable with. Although your portfolio 
may have been in line with your desired 
asset allocation at the beginning of the 
year, depending on the performance of 
your portfolio, your asset allocation may 
have changed over the period in question. 
If your actual allocations are outside of 
your targets, then perhaps it’s time to 
readjust your portfolio to get it back in 
line with your original targets.
Diversi!cation
Along with a portfolio with a proper asset 
class balance, you will want to ensure that 
you’re properly diversi#ed inside each 
asset class. Diversi#cation means owning 
a variety of assets that perform di"erently 
over time, but not too much of any one 
investment or type.
There are four main asset classes – 
cash, fixed-interest securities, property 
and equities – and having exposure to 
them all will help reduce the overall level 
of risk of your investment portfolio. If 
one part of your portfolio isn’t doing 
well, the other investments you’ve made 
elsewhere should compensate for any 
market corrections.
Performance
Consider if there are certain aspects of 
your portfolio that need rebalancing. 
You may also want to consider selling to 
help o"set capital gains you might make 
throughout the year. 
$e primary goal of a rebalancing 
strategy is to minimise risk relative to 
a target asset allocation, rather than to 
maximise returns. Over time, asset classes 
produce di"erent returns that can change 
the portfolio’s asset allocation. To recapture 
the portfolio’s original risk-and-return 
characteristics, the portfolio should 
therefore be rebalanced.  z
13     |      GUIDE TO INVESTINGA lifestyle #nancial plan has no value unless it is properly 
implemented through an appropriate goal-based 
investment strategy. If you’ve got a su%cient amount 
of money in your cash savings account – enough to cover you 
for between at least three to six months – and you want to see 
your money grow over the long term, then you should consider 
investing some of it.
Investing is a lifelong process, and the sooner you start, the better 
o" you may be in the long run. Regardless of the #nancial stage 
of life you are at, you will need to consider what your investment 
objectives are, how long you have to pursue each objective, and 
how comfortable you are with risk.
CURRENT FINANCES AND FUTURE GOALS
$e right savings or investments for you will depend on how happy 
you are taking risks and on your current #nances and future goals. 
Investing is di"erent to simply saving money, as both your potential 
returns and losses are greater.
If you’re retiring in the next one to two years, for example, it 
might not be the right time to put all of your savings into a high-
risk investment. You may be better o" choosing something like a 
cash account or bonds that will protect the bulk of your money, 
while putting just a small sum into a more growth-focused option 
such as shares.
CONSIDERING CASH OR TERM DEPOSITS
You may be a few months away from putting down a deposit on 
your #rst home loan. In this case, you might be considering cash 
or term deposits. You might also choose a more conservative 
investment that keeps your savings safe in the short term.
On the other hand, if you have just recently started working and 
saving, you may be happy to invest a larger sum of your money into 
a higher-risk investment with higher potential returns, knowing 
you won’t need to access it in the immediate future.
PROTECT WEALTH FROM MARKET UPS AND DOWNS
If appropriate, you should consider a range of di"erent investment 
options. A diverse portfolio can help protect your wealth from 
market ups and downs. $ere are four main types of investments, 
also called ‘asset classes’, each with their own bene#ts and risks. 
DEFENSIVE INVESTMENTS
Defensive investments focus on generating regular income as 
opposed to growing in value over time. $e two most common 
types of defensive investments are cash and #xed interest.
CASH INVESTMENTS INCLUDE:
High interest savings accounts
$e main bene#t of a cash investment is that it provides stable, 
regular income through interest payments. Although it is the least 
risky type of investment, it is possible the value of your cash could 
decrease over time, even though its pound #gure remains the same. 
$is may happen if the cost of goods and services rises too quickly 
(also known as ‘in&ation’), meaning your money buys less than it 
used to.
FIXED INTEREST INVESTMENTS INCLUDE:
Term deposits, government bonds, corporate bonds
A term deposit lets you earn interest on your savings at a 
similar, or slightly higher, rate than a cash account (depending 
on the amount and term you invest for), but it also locks up 
your money for the duration of the ‘term’ so you can’t be 
tempted to spend it.
Bonds, on the other hand, basically function as loans to 
governments or companies, who sell them to investors for a #xed 
period of time and pay them a regular rate of interest. At the end 
of that period, the price of the bond is repaid to the investor.
Although bonds are considered a low-risk investment, certain 
types can decrease in value over time, so you could potentially get 
back less money than you initially paid.
GROWTH INVESTMENTS
Growth investments aim to increase in value over time, as well as 
potentially paying out income. Because their prices can rise and fall 
signi#cantly, growth investments may deliver higher returns than 
defensive investments. However, you also have a stronger chance of 
losing money. 
$e two most common types of growth investments are shares 
and property.
G O A L - B A S E D
I N V E S T M E N T  S T R A T E G Y
Investing is a lifelong process, and the sooner you start, the better
14      |      GUIDE TO INVESTINGSHARES
At its simplest, a single share represents a single unit of 
ownership in a company. Shares are generally bought and sold 
on a stock exchange. Shares are considered growth investments 
because their value can rise. You may be able to make money 
by selling shares for a higher price than you initially pay 
for them.
If you own shares, you may also receive income from 
dividends, which are e"ectively a portion of a company’s pro#t 
paid out to its shareholders.
$e value of shares may also fall below the price you pay for 
them. Prices can be volatile from day to day, and shares are 
generally best suited to long-term investors, who are comfortable 
withstanding these ups and downs.
Although they have historically delivered better returns than other 
assets, shares are considered one of the riskiest types of investment.
PROPERTY 
Similarly to shares, the value of a property may rise, and you may 
be able to make money over the medium to long term by selling a 
house or apartment for more than you paid for it.
PROPERTY INVESTMENTS INCLUDE:
   Residential property such as houses and units
   Commercial property such as individual o%ces or o%ce blocks
   Retail premises such as shops or hotels
   Industrial property such as warehouses
Prices are not guaranteed to rise though, and property can also be 
more di%cult than other investment types to sell (liquidate) quickly, so 
it may not suit you if you need to be able to access your money easily.
RETURNS
Returns are the pro#t you earn from your investments. 
DEPENDING ON WHERE YOU PUT YOUR MONEY, IT 
COULD BE PAID IN A NUMBER OF DIFFERENT WAYS:
  Dividends (from shares)
  Rent (from properties) 
  Interest (from cash deposits and #xed interest securities)
$e di"erence between the price you pay and the price you sell 
for are your capital gains or losses. z
Trying to second-guess how events will impact on 
markets – or even attempting to make a bet on them 
– rarely pays off. Instead, investors who focus on long-
term horizons – at least five to ten years – have historically 
fared much better.
Sensible diversification – owning a mix of assets, including 
shares, bonds and alternative investments such as property – 
can help protect investors over the long term. When one area 
of a portfolio underperforms, another part should provide 
important protection.
RISK TOLERANCE AND TIME HORIZON
If you have a well-diversi#ed portfolio, then it’s more important 
than ever to stay the course. You have a strategy in place that 
re&ects your risk tolerance and time horizon, so remain committed. 
$is will help you navigate through periods of uncertainty when 
some investors are panicking or acting out of fear. Volatility is not 
all bad, as long as you are prepared to take advantage of the unique 
opportunities it brings.
Be aware of the psychological effect this type of volatility 
has on you as an investor, and resist the urge to be reactive. 
When you turn on the radio or television, or log on to Twitter 
or Facebook, you might assume volatility is a terrible thing, 
requiring all investors to react and make changes to their 
portfolio immediately.
PROPER DIVERSIFICATION AND PERSEVERANCE
It’s important to understand that this movement is not all bad for 
investors. Some commentators may talk about volatility as a detriment 
to markets and investors, but not mention the opportunities that arise 
for investors during periods of market volatility.
No one knows how severe any market turbulence will be or what 
the market will do next. It could be over quickly or become more 
protracted. However, no matter what lies ahead, proper diversi#cation 
and perseverance over the long term are very important.
UPS AND DOWNS OF DIFFERENT
TYPES OF MARKET CONDITIONS 
It’s likely that the coronavirus pandemic will continue to have 
an impact on markets over the coming months and even years. 
However, major events causing markets to fall, particularly in 
the short term, is something we’ve seen time and time again. 
And it doesn’t mean that markets won’t recover, so try not to 
worry too much.
History shows again and again that the ups and downs of 
di"erent types of market conditions are part and parcel of 
investing, and there have been many times in the past when events 
have caused short-term corrections. 
EXPERIENCE OF DEALING WITH
DIFFERENT TYPES OF MARKET
Stock markets around the world have recently experienced some 
very turbulent activity, so as the virus spreads around the world, 
investors need to be able to cope with some pain. $e key to 
remember when stock markets fall is to remain calm. Don't panic. 
Don't frantically sell. If you can avoid it, don't even log into your 
investment account.
At moments like this, the skills and experience of 
professional financial advisers come into their own. Not only 
do advisers have the experience of dealing with different 
types of market conditions, but they can also help to take the 
emotion out of your decisions. z
F O C U S I N G  O N
L O N G - T E R M  H O R I Z O N S
A strategy that re"ects your risk tolerance and time horizon
15     |      GUIDE TO INVESTING
16      |      GUIDE TO INVESTING
If you want to plan for your #nancial future, it helps to 
understand risk. If you understand the risks associated with 
investing and you know how much risk you are comfortable 
taking, you can make informed decisions and improve your 
chances of achieving your goals.
You might be familiar with the concept of risk for return, which 
states that the higher the risk of a particular investment, the higher 
the possible return. Risk for return is a general trade-o" underlying 
nearly anything from which a return can be generated. Anytime 
you invest money into something, there is a risk, whether large or 
small, that you might not get your money back.
So, put simply, risk is the possibility of losing some or all of 
your original investment. O!en, higher-risk investments o"er the 
chance of greater returns, but there’s also more chance of losing 
money. Risk means di"erent things to di"erent people. How you 
feel about it depends on your individual circumstances and even 
your personality. Your investment goals and timescales will also 
in&uence how much risk you’re willing to take. What you come out 
with is your ‘risk pro#le’.
DIFFERENT TYPES OF INVESTMENT
None of us like to take risks with money, but the reality is there’s no 
such thing as a ‘no-risk’ investment. You’re always taking on some 
risk when you invest, but the amount varies between di"erent types 
of investment.
For example, funds that hold bonds tend to be less risky than 
those that hold shares, but there are always exceptions.
LOSING VALUE IN REAL TERMS
Money you place in secure deposits such as savings accounts risks 
losing value in real terms (buying power) over time. $is is because the 
interest rate paid won’t always keep up with rising prices (in&ation).
On the other hand, index-linked investments that follow the 
rate of in&ation don’t always follow market interest rates. $is 
means that if in&ation falls, you could earn less in interest than 
you expected.
INFLATION AND INTEREST RATES OVER TIME
Stock market investments might beat in&ation and interest rates 
over time, but you run the risk that prices might be low at the time 
you need to sell. $is could result in a poor return or, if prices are 
lower than when you bought, losing money.
You can’t escape risk completely, but you can manage it by 
diversifying investments over the long term. You can also look at 
paying money into your investments regularly, rather than all in one 
go. $is can help smooth out the highs and lows and cut the risk of 
making big losses.
CAPITAL RISK
Your investments can go down in value, and you may not get 
back what you invested. Investing in the stock market is normally 
through shares (equities), either directly or via a fund. $e stock 
market will &uctuate in value every day, sometimes by large 
amounts. You could lose some or all of your money depending on 
the company or companies you have bought. Other assets such as 
property and bonds can also fall in value.
INFLATION RISK
With in&ation, the purchasing power of your savings declines. 
Even if your investment increases in value, you may not be making 
money in ‘real’ terms if the things that you want to buy with the 
money have increased in price faster than your investment. Cash 
deposits with low returns may expose you to in&ation risk.
CREDIT RISK
Credit risk is the risk of not achieving a #nancial reward due to a 
borrower’s failure to repay a loan or otherwise meet a contractual 
obligation. Credit risk is closely tied to the potential return of 
an investment, the most notable being that the yields on bonds 
correlate strongly to their perceived credit risk. 
LIQUIDITY RISK
You are unable to access your money when you want to. Liquidity 
can be a real risk if you hold assets such as property directly and 
also in the ‘bond’ market, where the pool of people who want to 
buy and sell bonds can ‘dry up’.
CURRENCY RISK
Currency risk is the potential risk of loss from &uctuating foreign 
exchange rates when investments are exposed to foreign currency 
or in foreign-currency-traded investments.
INTEREST RATE RISK
Changes to interest rates a"ect your returns on savings and 
investments. Even with a #xed rate, the interest rates in the market 
may fall below or rise above the #xed rate, a"ecting your returns 
relative to rates available elsewhere. Interest rate risk is a particular 
risk for bondholders. z
R I S K
F O R
R E T U R N
Improving your chances of 
achieving your investment goals
17      |     GUIDE TO INVESTING
S I X  P R I N C I P L E S
O F  I N V E S T I N G
How to invest your money and avoid costly mistakes
01
HAVE A PLAN AND  STICK TO IT
It is one thing to have a target, but 
a sound financial plan can be the 
difference between simply hoping for the 
best and actually achieving your goals. 
You can review your plan regularly with 
your professional financial adviser and 
make adjustments when necessary, but 
staying focused on your plan will help 
you to not be distracted by short-term 
market uncertainty
04
START INVESTING 
EARLY IF YOU CAN
As a general rule, the earlier in life you start 
investing, the better your chances of long-
term growth. Compound growth (the ability 
to grow an investment by reinvesting the 
earnings) is a powerful force but it takes time 
to deliver. $e right time to invest is when you 
and your #nancial adviser have formulated a 
clear #nancial plan that requires growth.
02
THINK TWICE BEFORE PUTTING 
YOUR MONEY IN CASH
Putting all of your money in cash can 
seem appealing as a safe and secure 
option – but inflation is likely to eat away 
at your savings. For most people with 
longer-term investment plans, cash needs 
to be supplemented with investment 
in other asset classes that can beat the 
perils of inflation and offer better capital 
growth potential.
05
‘ACTIVITY BIAS’: THE URGE
TO ‘JUST DO SOMETHING’
Some people su"er from what behaviourists 
call ‘activity bias’: the urge to ‘just do 
something’ in a crisis, whether the action 
will be helpful or not. When investments 
are falling in value, it can be tempting to 
abandon your plans and sell them – but 
this can be damaging because you won’t be 
able to bene#t from any recovery in prices. 
Markets go through cycles, and it’s important 
to accept that there will be good and bad 
years. Short-term dips in the market tend 
to be smoothed out over the long term, 
increasing the potential for healthy returns.
03
DIVERSIFY AND ALWAYS 
CONSIDER YOUR INVESTMENTS 
AS A WHOLE
When markets are &uctuating, it’s all too 
easy to worry about the performance of 
certain investments while forgetting about 
the bigger picture. But when one asset 
class is performing poorly, others may be 
&ourishing in the same market conditions. 
A diversi#ed portfolio, including a range 
of di"erent assets, can help to iron out the 
ups and downs and avoid exposing your 
portfolio to undue risk.
06
NO SUBSTITUTE FOR
A PLAN THAT’S TAILORED 
SPECIFICALLY FOR YOU
Every single investor’s needs are di"erent 
and, while the points above are good 
general tips, there’s no substitute for a plan 
that’s tailored speci#cally for you. What’s 
more, in volatile times, advice can help 
you take the emotion out of investing and 
provide an objective view. It may just be 
the best investment you ever make.
18      |      GUIDE TO INVESTING
Without a plan, investors are prone to making knee-
jerk reactions when there are swings in the market. 
A well thought-out investment strategy provides the 
guidance needed to help you stay on track when inevitable market 
&uctuation occurs. It can also point you towards the types of 
investments that best align with your #nancial goals.
Investors are continually faced with ever-changing market 
conditions, an o!en overwhelming amount of information from 
the media and an increasing number of investment choices. It’s not 
surprising that the world of investing can seem complex. 
By maintaining a clear purpose for your investment strategy, you 
help yourself stay on track and con#dently navigate the ups and 
downs of the market. 
WHEN DEVELOPING YOUR INVESTMENT
STRATEGY, CONSIDER THE FOLLOWING FACTORS:
1. Your investment goals
Speci#cally, for what or whom are you accumulating funds? Your 
investment goals will help you determine suitable investments.
2. Your time horizon
How many years will it be until you need to use what you have 
invested? Longer time horizons may provide &exibility for more 
aggressive investment choices.
3. Your tolerance for risk
Take your broader #nancial situation into account, and consider 
how comfortable you are with varying degrees of risk as you pursue 
your investment goals. z
N A V I G A T I N G  T H E  U P S  A N D 
D O W N S  O F  T H E  M A R K E T
Maintaining a clear purpose for your investment strategy
19      |      GUIDE TO INVESTING
When you start investing, or 
even if you are a sophisticated 
investor, one of the most 
important tools available is diversi#cation. 
Whether the market is bullish or bearish, 
maintaining a diversi#ed portfolio is essential 
to any long-term investment strategy. It’s 
crucial if you’re looking to reduce risk and 
improve your overall portfolio returns.
An investor’s objectives can rarely be met 
by investing in a single asset class. Instead, a 
portfolio that actively invests across multiple 
asset classes has more sources of potential 
return, can better adapt to changing market 
conditions and can diversify portfolio risk for 
a better overall experience.
$e process of diversi#cation allows an 
investor to spread risk between di"erent 
kinds of investments (called ‘asset classes’) 
to potentially improve investment returns. 
$is helps reduce the risk of the overall 
investments (referred to as a ‘portfolio’) 
underperforming or losing money.
With some careful investment planning 
and an understanding of how various asset 
classes work together, a properly diversi#ed 
portfolio provides investors with an e"ective 
tool for reducing risk and volatility without 
necessarily giving up returns. 
If you have a lot of cash – more than six 
months’ worth of living expenses – you 
might consider putting some of that excess 
into investments like shares and #xed interest 
securities, especially if you’re looking to 
invest your money for at least #ve years and 
are unlikely to require access to your capital 
during that time.
If you’re heavily invested in a single 
company’s shares – perhaps your employer – 
start looking for ways to add diversi#cation.
DIVERSIFYING WITHIN AN 
ASSET CLASS
$ere are many opportunities for 
diversi#cation, even within a single kind 
of investment. 
For example, with shares, you could spread 
your investments between:
   Large and small companies
   $e UK and overseas markets
   Different sectors (industrial, financial, 
oil, etc.)
DIFFERENT SECTORS
OF THE ECONOMY
Diversi#cation within each asset class is the 
key to a successful, balanced portfolio. You 
need to #nd assets that work well with each 
other. True diversi#cation means having 
your money in as many di"erent sectors of 
the economy as possible.
With shares, for example, you 
don’t want to invest exclusively in big 
established companies or small start-
ups. You want a little bit of both (and 
something in between, too). Mostly, you 
don’t want to restrict your investments 
to related or correlated industries. An 
example might be car manufacturing and 
steel. $e problem is that if one industry 
goes down, so will the other. 
With bonds, you also don’t want 
to buy too much of the same thing. 
Instead, you’ll want to buy bonds with 
different maturity dates, interest rates 
and credit ratings. z
M A I N T A I N I N G  A
D I V E R S I F I E D  P O R T F O L I O
Reducing risk and improving your overall portfolio returns
20      |      GUIDE TO INVESTING
[1] Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services 
Compensation Scheme (FSCS). #e FSCS savings protection limit is £85,000 (or £170,000 for joint accounts) per authorised !rm.
MAIN FOUR ASSET CLASSES
Cash[1]
Savings and current account 
balances, savings bonds, Premium 
Bonds and other NS&I products, 
Cash ISAs and any cash you have.
Low risk, but your money’s buying power is eroded over time if 
in&ation is higher than the interest rates paid. Cash you put into 
authorised UK banks or building societies is protected by the 
Financial Services Compensation Scheme up to £85,000.
Fixed Interest Securities 
– also called ‘bonds’. 
Essentially a loan to a 
company or government for 
a #xed period.
Gilts (government bonds), 
overseas bonds, local authority 
bonds and corporate bonds (loans 
to companies).
Relatively low risk and returns predictable if held to maturity. 
However, traded prices can be volatile. Your money’s buying 
power can still be eroded over time if in&ation is higher than 
the interest rate paid on the bond.
Shares – also known as 
‘equities’. A stake in a 
company.
You can hold shares directly or 
through an investment fund where 
you pool your money with other 
people’s, like with a unit trust, 
OEIC (Open-Ended Investment 
Company) or life fund.
Investing in a single company is high risk. Investing in a fund 
provides more diversi#cation, but risk levels will depend on the 
type of shares in the fund.
Property
Includes residential or 
commercial property and 
buy-to-lets, and investments in 
property companies or funds.
Price can vary and be more volatile than with bonds. Potential 
for gains but also losses. You might not be able to access your 
capital quickly if you have invested into property directly. Access 
to capital might also be restricted through property funds if 
closed to redemptions, meaning you will not have access until the 
redemption restriction has been li!ed.
21      |      GUIDE TO INVESTING
Understanding investment risk and 
determining what level of risk 
you feel comfortable with before 
you invest is an important part of the 
investment decision process. Your potential 
returns available from di"erent kinds of 
investment, and the risks involved, change 
over time as a result of economic, political 
and regulatory developments, as well as a 
host of other factors.
Asset allocation simply means deciding 
how to spread your money across the 
di"erent asset classes (including equities, 
bonds, property and cash) and how much 
you want to hold in each. 
FUTURE CAPITAL
OR INCOME NEEDS
Your overall asset allocation needs to re&ect 
your future capital or income needs, the 
timescales before those capital sums are 
required or the level of income sought, and 
the amount of risk you can tolerate. Investing 
is all about risk and return.
Not only does asset allocation naturally 
spread risk, but it can also help you to boost 
your returns while maintaining, or even 
lowering, the level of risk of your portfolio. 
Most rational investors would prefer to 
maximise their returns, but every investor has 
their own individual attitude towards risk.
INVESTMENT CHARACTERISTICS
Determining what portion of your portfolio 
should be invested into each asset class is 
called ‘asset allocation’ and is the process of 
dividing your investment/s among di"erent 
assets. Portfolios can incorporate a wide 
range of di"erent assets, all of which have 
their own characteristics, like cash, bonds, 
equities (shares in companies) and property.
$e idea behind allocating your money 
among di"erent assets is to spread risk 
through diversi#cation and to understand 
these characteristics and their implications 
on how a portfolio will perform in di"erent 
conditions – the idea of not putting all your 
eggs in one basket.
LOOKING INTO THE FUTURE
Investments can go down as well as up, and 
these ups and downs can depend on the assets 
you’re invested in and how the markets are 
performing. It’s a natural part of investing.
Moreover, the potential returns available 
from di"erent kinds of investment, and 
the risks involved, change over time as a 
result of economic, political and regulatory 
developments, as well as a host of other 
factors. Diversi#cation helps to address 
this uncertainty by combining a number of 
di"erent investments.
Your risk tolerance will change over time. 
For example, investors in their 20s may 
not be too worried about a 30% fall in the 
market, reasoning they have time to ride it 
out. Investors in their 40s, however, if they 
have responsibilities such as a mortgage and a 
family, may focus more on protecting against 
this kind of loss.
ASSET CLASSES
When putting together a portfolio, there are a 
number of asset classes, or types of investments, 
that can be combined in di"erent ways. 
$e starting point is cash – and the aim of 
employing the other asset classes is to achieve a 
better return than could be achieved by leaving 
all of the investment on deposit.
CASH
$e most common types of cash investments 
are bank and building society savings accounts 
and money market funds (investment vehicles 
that invest in securities such as short-term 
bonds to enable institutions and larger personal 
investors to invest cash for the short term).
Money held in the bank is arguably more 
secure than any of the other asset classes, but it 
is also likely to provide the poorest return over 
the long term. But it’s important to be able to 
pay unexpected expenses, or to deal with an 
unexpected loss of income, without tapping 
into your core portfolio.
$ere's no sure way to protect your money 
from the e"ects of in&ation. $e only rule is 
that cash savings accounts are generally the 
worst places to put your money long term – the 
interest is almost always lower than in&ation, so 
you're constantly losing money.
BONDS
Bonds are e"ectively IOUs issued by 
governments or companies. In return for 
your initial investment, the issuer pays a 
pre-agreed regular return (the ‘coupon’) for 
a #xed term, at the end of which it agrees to 
return your initial investment. 
Depending on the #nancial strength 
of the issuer, bonds can be very low or 
relatively high risk, and the level of interest 
paid varies accordingly, with higher-risk 
issuers needing to o"er more attractive 
coupons to attract investment.
As long as the issuer is still solvent at the 
time the bond matures, investors get back the 
initial value of the bond. 
However, during the life of the bond, its 
price will "uctuate to take account of a 
number of factors, including:
   Interest rates –  as cash is an alternative 
lower-risk investment, the value of 
government bonds is particularly a"ected 
by changes in interest rates. Rising base 
rates will tend to lead to lower government 
bond prices, and vice versa
   In&ation expectations – the coupons paid 
by the majority of bonds do not change 
over time. $erefore, high in&ation 
reduces the real value of future coupon 
payments, making bonds less attractive 
and driving their prices lower
   Credit quality – the ability of the issuer 
to pay regular coupons and redeem the 
bonds at maturity is a key consideration 
for bond investors. Higher-risk bonds 
such as corporate bonds are susceptible to 
changes in the perceived creditworthiness 
of the issuer
EQUITIES
Equities, or shares in companies, are 
regarded as riskier investments than bonds, 
but they also tend to produce superior 
returns over the long term. $ey are riskier 
because, in the event of a company getting 
into #nancial di%culty, bond holders rank 
ahead of equity holders when the remaining 
cash is distributed.
However, their superior long-term returns 
come from the fact that, unlike a bond which 
matures at the same price at which it was 
issued, share prices can rise dramatically as a 
company grows.
A S S E T  A L L O C A T I O N
 Potential returns available from di$erent kinds of investment
22      |      GUIDE TO INVESTING
Returns from equities are made up of 
changes in the share price and, in some cases, 
dividends paid by the company to its investors.
Share prices "uctuate constantly as a result 
of factors such as:
   Company pro#ts –  by buying shares, 
you are e"ectively investing in the 
future pro#tability of a company, so the 
operating outlook for the business is of 
paramount importance. Higher pro#ts 
are likely to lead to a higher share price 
and/or increased dividends, whereas 
sustained losses could place the dividend 
or even the long-term viability of the 
business in jeopardy
   Economic background – companies 
perform best in an environment of healthy 
economic growth, modest in&ation and 
low interest rates. A poor outlook for 
growth could suggest waning demand for 
the company’s products or services. High 
in&ation could impact companies in the 
form of increased input prices, although in 
some cases companies may be able to pass 
this on to consumers. Rising interest rates 
could put strain on companies that have 
borrowed heavily to grow the business
   Investor sentiment – as higher-risk assets, 
equities are susceptible to changes in 
investor sentiment. Deterioration in risk 
appetite normally sees share prices fall, 
while a turn to positive sentiment can see 
equity markets rise sharply   
PROPERTY
In investment terms, property normally 
means commercial real estate – o%ces, 
warehouses, retail units and the like. 
Unlike the assets we have mentioned so far, 
properties are unique – only one fund can 
own a particular o%ce building or shop.
$e performance of these assets can 
sometimes be dominated by changes in 
capital values. $ese unusually dramatic 
moves in capital value illustrate another of 
property’s key characteristics, namely its 
relative illiquidity compared to equities or 
bonds. Buying equities or bonds is normally 
a relatively quick and inexpensive process, 
but property investing involves considerable 
valuation and legal involvement.
$e more normal state of a"airs is for 
rental income to be the main driver of 
commercial property returns. Owners 
of property can enhance the income 
potential and capital value of their assets 
by undertaking refurbishment work or 
other improvements.
Indeed, without such work, property can 
quickly become uncompetitive and run 
down. When managed properly, the relatively 
stable nature of property’s income return is 
key to its appeal for investors.
DIVERSIFICATION
If we could see into the future, there would 
be no need to diversify our investments. 
We could merely choose a date when we 
needed our money back, then select the 
investment that would provide the highest 
return to that date. 
It might be a company share, or a bond, 
or gold, or any other kind of asset. $e 
problem is that we do not have the gi! of 
foresight. Diversi#cation helps to address 
this uncertainty by combining a number of 
di"erent investments. 
In order to maximise the performance 
potential of a diversi#ed portfolio, managers 
actively change the mix of assets they hold to 
re&ect the prevailing market conditions. $ese 
changes can be made at a number of levels, 
including the overall asset mix, the target 
markets within each asset class and the risk 
pro#le of underlying funds within markets.
As a rule, an environment of positive or 
recovering economic growth and healthy 
risk appetite would be likely to prompt 
an increased weighting in equities and a 
lower exposure to bonds. Within these 
baskets of assets, the manager might also 
move into more aggressive portfolios 
when markets are doing well and more 
cautious ones when conditions are more 
di%cult. Geographical factors such as 
local economic growth, interest rates and 
the political background will also a"ect 
the weighting between markets within 
equities and bonds.
In the underlying portfolios, managers 
will normally adopt a more defensive 
positioning when risk appetite is low. 
For example, in equities they might have 
higher weightings in large companies 
operating in parts of the market that 
are less reliant on robust economic 
growth. Conversely, when risk appetite 
is abundant, underlying portfolios will 
tend to raise their exposure to more 
economically sensitive parts of the market 
and to smaller companies. z
23      |      GUIDE TO INVESTING
The coronavirus (COVID-19) pandemic has prompted a 
desire to move into ethical and sustainable investing for 
more than half (51%) of advised UK adults, according a new 
report[1]. And while the trend is common across the generations, it’s 
Millennials who are leading the charge. 
$e report, which looks at intergenerational planning and wealth 
transfer between advised families amid the #nancial volatility and 
insecurity of the pandemic, found that 61% now care more about the 
environment and the planet than they did before the pandemic. 
FINANCIAL RETURNS WITH
A POSITIVE CONTRIBUTION
Investing sustainably means putting your money to work on issues 
ranging from adapting to and mitigating climate change, and 
improving working conditions and diversity, to tackling inequality. 
More and more, investors want to invest sustainably and they want to 
combine investing for a #nancial return with a positive contribution 
to the environment, society or both. 
More than a quarter (26%) of respondents admit they are more 
concerned than they’ve ever been. One in #ve (21%) say they are 
more worried now that they have children and grandchildren. 
APPETITE FOR SUSTAINABLE INVESTMENTS
$e pandemic has undoubtedly fuelled investor demand for sustainable 
investing and this is trickling down through the generations – 60% of 
Millennials, 44% of Gen X and 35% of Baby Boomers con#rmed that 
COVID-19 has increased their appetite for sustainable investments. And 
many investors go further: 45% con#rmed that since the pandemic they 
now only want to invest in sustainable companies and funds. 
Despite the desire for ethical and sustainable investing, more 
than a third (36%) of UK adults admit they actually have no idea 
what their current investments – including workplace and private 
pensions – are invested in, as they have little to no control. 
BEGINNING AN ‘INVESTMENT JOURNEY’
For many, the crisis has shi!ed their #nancial priorities, 
prompting more to seek professional #nancial advice. One in two 
(53%) respondents said they had either already sought advice – or 
were planning to because of the pandemic. And just over one in 
#ve (21%) were seeking advice to begin their ‘investment journey’, 
potentially fuelled by individuals who had built up savings not 
having the traditional outlets for spending their income. 
With £5.5 trillion in personal wealth due to be passed to 
the next generation by 2047[2], the role that intergenerational 
planning advice played prior to the pandemic was already a 
signi#cant one. Yet the crisis has reframed #nancial priorities. 
Not just for those in later life with Inheritance Tax liabilities, but 
for all generations.
PLANET, ENVIRONMENT AND SOCIETY
Once perhaps viewed as a fad, sustainable investing is becoming 
normalised, making it a fundamental building block within 
intergenerational #nancial planning. It also enables parents to leave 
their children more than just a #nancial legacy in terms of planet, 
environment and society.
Two in #ve advised clients surveyed con#rmed they expect to 
increase the amount they invest in Environmental, Social and 
Governance (ESG) investments over the next #ve years.z
Source data:
[1] Research was carried out by Opinium for Prudential UK & 
Europe, part of M&G plc, among a UK representative sample of 
1,000 advised families. #e study was completed in November 2020.
[2]  Kings Court Trust’s Inheritance Economy Research Papers: 
Passing on the Pounds and Wealth Transfer in the UK. Research 
conducted by #e Centre for Economics and Business Research.
E V O L U T I O N  O F
E S G  I N V E S T I N G
Changing face of investor ethics and behaviours
24     |      GUIDE TO INVESTING
Trying to navigate the ups and 
downs of market returns, 
investors seem to naturally 
want to jump in at the lows and 
cash out at the highs. But no one 
can predict when those will occur. 
Fortunately, there are a number of 
time-tested strategies that may help 
you deal with market volatility. Two 
of the most prevalent are: invest for 
the long-term, and maintain realistic 
performance expectations when it 
comes to returns.
By coupling these strategies 
with maintaining proper portfolio 
diversi#cation and avoiding the 
pitfalls of market timing, you’ll 
have the foundation needed to help 
manage your overall exposure to 
market volatility.
Historically, the stock market has 
been up more than down. O!en a!er 
a lengthy bull market, some investors 
may lose sight of the fact that their 
investments could generate negative 
returns. In order to keep market 
volatility in perspective, it’s important 
to maintain realistic expectations about 
your investments, especially if returns 
move closer to their historical average.
It’s important to focus on your 
long-term goals and not become 
distracted by short-term volatility. 
While losing money in the #nancial 
markets is never easy to accept, 
remember the old adage: Time is on 
your side. 
Typically, the longer an investment 
portfolio is held, the more likely 
overall positive results are realised. 
$e lesson here is to prepare for the 
long haul and try not to overreact to 
periods of uncertainty.  z
R E A L I S T I C
P E R F O R M A N C E
E X P E C T A T I O N S
Managing overall exposure to market volatility
25    |      GUIDE TO INVESTING
Pound cost averaging is a technique 
that reduces exposure to falling 
markets from investing a lump sum. 
Investing at regular intervals can be a good 
idea to help smooth out the ups and downs 
of the market. Timing the exact moment to 
enter or leave the market can be extremely 
di%cult and investors inherently run the 
risk of investing at the top of a market 
cycle, or exiting at the bottom.
Pound cost averaging versus lump sum 
investing is one of the most important 
concepts in investing. Buying at regular 
intervals means that the average price you pay 
can be lower than if you’d made one lump sum 
investment at the peak of the market. In other 
words, over time, regular investments can help 
smooth out the peaks and troughs.
Pound cost averaging is the practice of 
investing a #xed amount at regular intervals, 
regardless of the ups and downs of the 
markets. But with lump sum investing you 
need to decide when you’re going to invest. 
INSTILLING A SENSE OF 
INVESTMENT DISCIPLINE 
$e basic idea behind pound cost averaging is 
straightforward. One way to do this is with a 
lump sum that you’d prefer to invest gradually 
– for example, by taking £200,000 and 
investing £20,000 each month for ten months.
Alternatively, you could pound cost 
average on an open-ended basis by investing, 
say, £2,000 every month. $is principle 
means that you invest no matter what the 
market is doing. Pound cost averaging 
can help investors limit losses, while also 
instilling a sense of investment discipline and 
ensuring that you’re buying at ever-lower 
prices in down markets.
GIVE SAVINGS A VALUABLE 
BOOST EACH MONTH
Any costs involved in making the regular 
investments will reduce the bene#ts of 
pound cost averaging (depending on the 
size of the charge relative to the size of the 
investment and the frequency of investing).
As the years go by, it is likely that you will 
be able to increase the amount you invest 
each month, which would give your savings 
a valuable boost. No matter how small the 
investment, committing to regular saving over 
the long term can build to a sizeable sum. z
P O U N D
C O S T  A V E R A G I N G
Smoothing out the ups and downs of the market
26     |      GUIDE TO INVESTING
Pooled investment funds are usually large funds built 
by aggregating relatively small investments from 
individuals. A professional fund manager (or a team 
of fund managers) determines which assets to invest in and 
then purchases accordingly. They are also known as ‘collective 
investment schemes’.
By pooling resources with other investors, you are all able to 
achieve something greater than what you could achieve on your 
own. $ere is a diverse range of funds that invest in di"erent things, 
with di"erent strategies – high income, capital growth, income and 
growth, and so on.
POPULAR TYPES OF POOLED INVESTMENT FUND
Unit trusts and Open-Ended Investment Companies
Unit trusts and Open-Ended Investment Companies (OEICs) are 
professionally managed collective investment funds. Managers pool 
money from many investors and buy shares, bonds, property or cash 
assets, and other investments.
Underlying assets
You buy shares (in an OEIC) or units (in a unit trust). The 
fund manager combines your money together with money 
from other investors and uses it to invest in the fund’s 
underlying assets. Every fund invests in a different mix of 
investments. Some only buy shares in British companies, while 
others invest in bonds or in shares of foreign companies, or 
other types of investments.
Buy or sell
You own a share of the overall unit trust or OEIC – if the value of the 
underlying assets in the fund rises, the value of your units or shares 
will rise. Similarly, if the value of the underlying assets of the fund 
falls, the value of your units or shares falls. $e overall  fund size will 
grow and shrink as investors buy or sell.
Some funds give you the choice between ‘income units’ or ‘income 
shares’ that make regular payouts of any dividends or interest the 
fund earns, or ‘accumulation units’ or ‘accumulation shares’ which 
are automatically reinvested in the fund.
Higher returns
The value of your investments can go down as well as up, and 
you might get back less than you invested. Some assets are 
riskier than others, but higher risk also gives you the potential 
to earn higher returns.
Before investing, make sure you understand what kind of assets 
the fund invests in and whether that’s a good ! for your investment 
goals, #nancial situation and attitude to risk.
Spreading risk
Unit trusts and OEICs help you to spread your risk across lots of 
investments without having to spend a lot of money. Most unit 
trusts and OEICs allow you to sell your shares or units at any time 
– although some funds will only deal on a monthly, quarterly or 
twice-yearly basis. $is might be the case if they invest in assets such 
as property, which can take a longer time to sell.
Investment length
However, bear in mind that the length of time you should invest for 
depends on your #nancial goals and what your fund invests in. If it 
invests in shares, bonds or property, you should plan to invest for #ve 
years or more.
Money market funds can be suitable for shorter time frames. If 
you own shares, you might get income in the form of dividends. 
Dividends are a portion of the pro#ts made by the company that 
issued the shares you’ve invested in.z
P O O L I N G  R E S O U R C E S
Collective investment schemes
27    |      GUIDE TO INVESTING
28     |      GUIDE TO INVESTING
29    |      GUIDE TO INVESTINGInvesting is important, if not critical, to make your money work for you. You work hard for 
your money and your money should work hard for you. Investing is how you take charge 
of your financial security. It allows you to grow your wealth but also generate an additional 
income stream if needed ahead of retirement.
It’s never too late to become an investor. You may be well into middle age before realising that 
life is moving quickly, requiring a plan to deal with old age and retirement. Fear can take control if 
waiting too long to set investment goals, but that should go away once you set the plan into motion. 
Remember that all investments start with the first pound, whatever your age, income or outlook. 
That said, those investing for decades have the advantage, with growing wealth allowing them to 
enjoy the lifestyle that others cannot afford.
Warren Buffett, the American business magnate, investor and philanthropist, summed up 
investing perfectly, ‘The investor of today does not profit from yesterday’s growth.’ z
I N  C O N C L U S I O N
Taking charge of your !nancial security
This guide is for your general information and use only, and is not intended to address your particular requirements. The 
content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours 
have been made to provide accurate and timely information, there can be no guarantee that such information is accurate 
as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon 
such information without receiving appropriate professional advice after a thorough examination of their particular situation. 
We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content. Thresholds, 
percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation 
are subject to change and their value depends on the individual circumstances of the investor. The value of your investments 
can go down as well as up and you may get back less than you invested. All figures relate to the 2021/22 tax year, unless 
otherwise stated.
WHERE WILL YOUR
MONEY TAKE YOU?
Whatever personal goals and ambitions you have in life, knowing where you 
stand financially and knowing what this empowers you to achieve, is key to a life 
well-lived. We will help you navigate life’s journey, to achieve financial freedom 
and bring you the peace of mind of knowing where your money can take you.
To review your current situation or to discuss the options available, please 
contact us for further information – we look forward to hearing from you.
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