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.
Published by Goldmine Media Limited, Rivers Lodge, West Common, Harpenden, Hertfordshire,
AL5 2JD. Content copyright protected by Goldmine Media Limited 2021. Unauthorised
duplication or distribution is strictly forbidden.