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You
may be reading this in the hope that it will answer the question…
“What
shall I do with my money?”
Well, a Web Page cannot
provide an answer in the form of advice or guidance (it is certainly rare
for the same advice to be applicable to any two Clients), but it can try
to answer some common questions, and may help you to understand exactly
what investment is, and decide whether you need advice.
To
Save or to Invest?
A first principal of
investment is to differentiate between money that needs to be saved, and
money that can be invested. Whilst the two terms can be thought of as
inter-changeable, there are distinct differences, and a vital part of the
investment planning service we offer is to balance your capital between
“Savings” and “Investment” in order to match the needs which we
agree and review at our meetings.
·
Savings ~ Is a generic term for
any money that is readily accessible in a low risk, short-term home.
Although the interest you receive will probably be low, particularly after
taxation and inflation is taken into account, such money will invariably
maintain its face value. Building Society and Bank deposit accounts, as
well as some National Savings Certificates are categorized as savings, and
will form an important basis for any sensible Portfolio. The first stage
of the investment advice we give is to agree the amount of an easily
accessible Emergency Fund for use in the event of unexpected expenditure,
and savings will also need to be accumulated for expensive items such as a
new car.
- Investment
~ Is a
generic term for money that has been put aside for use at a much later
date – at least 5 or perhaps 10 or more years away. It is because
this capital will probably not be used within an agreed time frame
that the possibility of downward fluctuations in value over the
shorter-term can be accepted, in the hope that over the longer-term
returns will be higher. As well as providing the possibility of higher
returns, some longer-term investments can provide an opportunity to
address other issues as mentioned later.
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Risk
and Reward
You probably want the highest
possible investment returns with no risk to your capital, but even a
Building Society account carries risk. The sensible strategy is to create
a mix of investments that is tailored to achieve your investment
objectives, without subjecting your capital to more risk than is necessary
to achieve those objectives, which leads to an important question.
“What is the
net return from a Building Society Account after taking into account
taxation and inflation?”
It is unfortunate that for
many people the real value of money held on deposit will be eroded over
time through the twin “evils” of taxation and inflation. It is simply
not possible for a Deposit Account to provide a meaningful level of income
and at the same time maintain the value of the
remaining capital in real terms. In practice the buying
power of your capital and the interest it earns will simply be eroded
unless you diversify and invest in a wider selection of assets.
THE VALUE OF INVESTMENTS WILL
FLUCTUATE AND FUTURE RETURNS CANNOT BE GUARANTEED. BECAUSE OF THESE
FLUCTUATIONS IN VALUE YOU MAY RECEIVE BACK MORE OR LESS THAN YOU INVESTED
WHEN YOU WITHDRAW YOUR INVESTMENT
Other
Issues
There is more than the
possibility of higher returns to consider when making investments, for
example our advice takes taxation issues into account (Income Tax, Inheritance
Tax and Capital Gains Tax). Different investment products have
very different personal taxation implications – particularly where
income is required. Our standard investment review will help you
understand your taxation position and may lead to taxation savings.
“If you have, or if you expect to receive
capital that you are prepared to invest for more than 5 years and if you
want to receive a regular income from it and/or maintain its value in real
terms, then you should make contact with Caliber Financial Associates Ltd.
for impartial advice”.
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