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How to find the right investment for you

In the wake of the Woodford debacle, there’s a lot of buzz around investments and the rationale for choosing them. So we thought it would be useful to outline what you should be thinking about when it comes to choosing an investment to enable you to get the best outcomes for your money.

Review your goals

It sounds obvious, but taking the time to think about what you want from your investments is key to selecting the correct fund for you. Writing down your needs, your goals and how much risk you may be prepared to take is a good starting point. 

Consider your investment’s lifespan

How soon will you need your money back? Timeframes will vary between goals and will affect the level of risk you are prepared to take. For example:

  • If you’re saving for a pension to be accessed in 30 years’ time, you can ignore short-term falls in the value of your investments and focus on the long term. Over longer periods, investments other than cash savings accounts tend to deliver a better chance of beating inflation.
  • If your goals are shorter term, i.e saving for a big trip in a couple of years, investments such as shares and funds might not be suitable as their value can fluctuate, so it may be best to stick to cash savings accounts. 

Make a plan

Once you’ve identified your needs, goals and risk levels, developing an investment plan can help you to find the sort of product that’s best for you. Low risk investments such as Cash ISAs are a good place to start. After that, it’s worth adding some medium-risk investments such as unit trusts if you’re comfortable with higher volatility. 

Adding higher risk investments is something you’ll only really want to approach once you’ve built up a few low to medium-risk products. However you should only do so if you’re willing to accept the risk of losing some or all of the money you put into them. 

Diversify, diversify, diversify

You’ve probably heard it before, but diversifying is a key part of investment planning. It’s a basic rule that to improve your chances of better returns, you have to accept more risk.  Diversification is an excellent method that improves the balance between risk and return by spreading your money across different investment types and sectors. 

Avoid high risks 

As mentioned above, it’s best to avoid high-risk investments unless you’re willing to accept the chance that you might not see any returns or even lose your investment. Adverts that proclaim to offer high levels of return will rarely come without risk and we’d urge caution before investing in anything that you’re not 100% certain about. If you do decide to pursue a high-risk product, it’s vital to make sure you fully understand the specific risks involved. 

With all investments comes a degree of risk, and returns can never be wholly guaranteed. Of course, we would always advise talking to an independent financial adviser. 

Sources
https://www.bbc.co.uk/news/business-48510235
https://www.moneyadviceservice.org.uk/en/articles/making-an-investment-plan
https://www.investorschronicle.co.uk/portfolio-clinic/2018/08/30/think-carefully-about-swapping-cash-for-bonds/
https://www.moneyadviceservice.org.uk/en/articles/top-tips-for-choosing-investments
https://www.investopedia.com/articles/investing/103015/cash-vs-bonds-what-pick-times-uncertainty.asp

Neil Woodford making headlines and the lessons it tells us

If you read the financial press, this is big news. ‘Star fund manager’, Neil Woodford, stopped investors withdrawing money out of his Woodford Equity Income Fund on 4th June, after the sum total of investment withdrawn from the fund reached a staggering £560m in less than four weeks. Kent County Council wanted to withdraw a further £263m, but was unable to do so before trading halted.

Investment analysts have attributed this action to the significant poor performance of the fund over recent months. Neil Woodford was once the darling fund manager who could do no wrong. A few years ago he was riding high when he left his employer, Invesco Perpetual, to set up his own company, Woodford Funds. With a reputation for having the midas touch, he’d built a large following amongst both retail and institutional investors, many of whom followed him to his new venture.

Once the blue-eyed boy, his public apology probably hasn’t gone far enough in the minds of some investors who are unable to withdraw their funds and are now nursing significant losses.

There are a number of issues at play here which, as advisers, we seek to address when managing client portfolios.  

Don’t put all your eggs in one basket

Investing is about managing risk and diversification is a key part of this. Committing all your money to one investment manager is never a great idea. By selecting a range of funds, we spread the risk within portfolios.

Good governance is essential

A robust governance process is important when managing client portfolios. When selecting funds as part of a portfolio, our established investment governance process ensures that these are regularly reviewed and action is taken where and when appropriate. This framework ensures that we act early on managing any potential risks that may impact portfolio performance.

Asset allocation is a key driver to performance

It is not just about selecting the right funds. When constructing client portfolios, we take into account the importance of asset allocation. This is the split between different types of investments such as UK and overseas equities, fixed interest and cash.  Asset allocation is as important as fund selection.

Follow the fund, not the manager

Fund managers are human, they don’t get it right all the time. The most sensible approach is to consider the fundamentals governing the fund itself, not the individual investment manager. We want to understand the answers to questions such as what process and approach does the fund take to manage risk and the stock selection process? What governance process and framework is in place to ensure a fund delivers against its stated objectives. Fund managers can be flavour of the month, it’s the fundamentals of the fund itself that provide better insight.

How can you make the most out of diversification?

Diversification is a word that seems to get tossed around a lot in conversations around savings and investment. We hear it often, but what does it mean?

Put simply, diversification is a risk management strategy that mixes a variety of investments within a portfolio. Through having different kinds of assets in a portfolio, the goal is to obtain higher long-term returns and lower the risk of any sole holding. Essentially, you are hedging your bets.

By smoothing out the risk of each investment within your portfolio, you’re aiming to neutralise the negative performance of some investments with the positive performance of others. Though your investments will only benefit when the different investments are not perfectly correlated, you want them to respond differently, often in opposition to one another, to market influences.

One drawback to be aware of, though, is that by limiting portfolio risk through diversification, you could potentially be mitigating performance in the short term.

Types of investment

Most fund managers and advisers diversify investments across asset classes and determine what percentage of the portfolio to allocate to each. Such asset classes include:

  • Stocks – shares or equity in a publicly traded company.
  • Fixed-interest securities – also known as bonds, fixed-interest securities represent a loan made by an investor or a borrower and are often used by companies, states and sovereign governments to finance various projects.
  • Real estate – buildings, land, natural resources, agriculture, livestock and water or mineral deposits.
  • Commodities – basic goods necessary for the production of other products or services.
  • Cash and short-term cash equivalents – savings, cash ISAs, savings bonds and premium bonds.

How do you make the most of it?

The unfortunate nature of investment is that all winning streaks end. It’s human nature to be drawn to winners and avoid losers. But investing is much more fluid, with no particular investment reigning as champion for long. By investing only in what’s doing well currently, you might miss out on any rising stars beginning their ascent to success. You may want to jump from top performer to top performer, however more often than not, the best gains will have been and gone by the time you invest. You may even be investing prior to the asset reducing in return.

In an ideal world, you’d get high returns from your savings and investments with no risk. However, reality dictates that there must be a trade-off – high risk often leads to higher returns.

Though it is sensible to hold part of your assets in low-risk investments, such as Cash ISAs, some see value in investigating more high risk investments in order to acquire those lucrative higher returns. However, you need to make sure that you’d be happy with running the risk of making a loss.

A general rule of thumb is that the older you are, the less you’ll want to expose your investments to market risk – meaning that diversifying into more low risk investments may be the ideal approach for you in order to keep your investments secure.

There are also many ways to diversify within a single kind of investment. For example, with shares, you can spread your investments between large and small companies, UK and overseas markets and within different sectors like technology, financials or raw materials.

Finally, remember that the value of investments, and the income from them, may fall or rise and you might get back less than you invested. Always proceed with caution – diversification helps mitigate the risks but won’t remove them entirely.

Agent Million visits London and Dorset this October

Summer travels may be over, however NS&I’s Agents Million continue their tours, spreading
news of £1 million jackpot wins to two lucky Premium Bond holders in London and Dorset.

October’s first jackpot winner, a man from Inner London, becomes the 51st jackpot winner in
the whole of London. His winning Bond was purchased in February 2016 when he
purchased the maximum investment of £50,000 (Bond number: 267FW537456).

Another man, this time from Dorset, has also hit the jackpot, winning the £1 million from a
£25 prize that was won in October 2010’s draw and reinvested into his total Premium Bonds
holding (Bond number: 173HT264915). He has £19,725 invested and becomes the ninth
jackpot winner in the county since the jackpot was introduced in 1994.  Agent Million last
visited the region in April 2018.

The pair become the 395th and 396th winners of the £1 million jackpot prize.

Jill Waters, Retail Director at NS&I, said:
“Re-investing Premium Bond prizes can be a great way of saving and it has paid off this
month for Dorset’s jackpot winner, scooping the £1 million jackpot from a £25 reinvested
prize. While the London winners’ savings habit has proved particularly fruitful, winning the
top prize just over two and a half years after investing.”

Customers can opt to have their prizes paid directly into their bank account, or to have their
prizes automatically reinvested into their Premium Bonds account, as long as the total
holding is below the maximum threshold of £50,000. More information about these options is
available on nsandi.com.

Do you have an unclaimed prize?
There are over 1.5 million unclaimed prizes worth just over £60 million.
In Inner London, there are over 119,000 unclaimed prizes worth nearly £4.8 million. These
prizes date back to June 1960, with a prize of £100. The highest unclaimed prize in the
region is £50,000, having been won in May 2016. The customer has £9,175 invested in
Premium Bonds and the winning Bond number is 33XT435809. There is also one £25,000
prize and four prizes of £10,000 waiting to be claimed.

In Dorset, there are over 18,000 unclaimed prizes worth £672,000. These prizes date back
to February 1964 with a prize of £25. There are also 17 prizes worth £1,000 each in the
region, with seven of these being won by customers with less than £10 invested in Premium
Bonds.

October 2018 prize draw breakdown

Value of prize & number of prizes

£1,00,000  – 2
£100,000 – 5
£50,000 – 10
£25,000 – 20
£10,000 – 49
£5,000 – 99
£1,000 – 1,795
£500 – 5,385
£100 – 24,622
£50 – 24,622
£25 – 3,083,096

Total prize fund value
£89,743,200
Total number of prizes
3,139,705

In the October 2018 draw, a total of 3,139,705 prizes worth £89,743,200 will be paid out.
There were 76,922,736,910 eligible Bonds for the draw.

Since the first draw in June 1957, ERNIE has drawn 416 million winning prizes, to the value of around
£18.7 billion.

Customers can find out if they have been successful in this month’s draw by downloading
the prize checker app for free from the App Store or Google Play, or visit the prize checker
at nsandi.com. The results are published in full on Tuesday 2 October.

Some Premium Bond Facts

1. All Premium Bonds prizes are free of UK Income Tax and Capital Gains Tax.
2. NS&I is one of the largest savings organisations in the UK, offering a range of
savings and investments to 25 million customers. All products offer 100% capital
security, because NS&I is backed by HM Treasury.
3. The annual Premium Bonds prize fund rate is currently 1.40% and the odds of each
individual Bond number winning any prize are 24,500 to 1.
4. Customers can buy Premium Bonds online at nsandi.com and over the phone by
calling 08085 007 007. This is a freephone number and calls to it from the UK are
free from both landlines and mobiles. Calls may be recorded. Customers can also
buy by post. Existing customers can also buy by bank transfer and standing order
and each investment must be at least £50 for bank transfers and standing orders.
5. Further information on NS&I, including press releases and product information, is
available on the website at nsandi.com. Follow us on Twitter: @nsandi or join the
conversation on Facebook: Premium Bonds made by ERNIE

financial planning in your forties

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/financial-advice-in-your-forties/?utm_campaign=tmgspk_plr_2144_AqvZbbk8gXHK&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvZbbk8gXHK&utm_medi

explaining fund charges and investment fees

If you hold any investments or already work with a financial adviser then it’s likely that you are familiar with the fees you pay to invest or receive advice.

But what are these fees and why are they so important to keep a handle on?  This video gives you information on what fees you might be charged and why  you should keep track of them.

interest rate rise: what does this mean?

goldfish jumping from small bowl to big bowlThe Bank of England has raised interest rates from 0.5% to 0.75%, only the second rise in a decade. Currently, interest rates stand at their highest since 2009 and reflect what the Bank of England perceive as a general pick-up in the economy.

The Bank said that a rise in household spending has strengthened the British economy. Economic growth for the year is predicted to be 1.4% this year and the unemployment rate is expected to fall further below 4.2%, where it currently stands.

How does the rise affect you?
If you are on a variable rate ‘tracker’ mortgage, your repayments will increase. For example, if you have a £100,000 mortgage, this will add £12 to your monthly repayments.

It’s important to highlight that if you are on a fixed rate mortgage, your payments will stay the same until your base rate comes up for renewal. The Bank of England’s announcement does not mean that your rates immediately rise.

For prospective borrowers, the interest rate rise signals a change in the Bank of England’s tone. Further rate rises are a definite possibility. However, the Bank’s governor took a rather cautious tone which indicates that there are unlikely to be any more rises until 2019.

For the time being, base rates on mortgages are unlikely to rise above 3%. That said, the demand for rate fixes will be higher than usual this year.

Unfortunately for those of you going on holiday, after the announcement the pound fell by 0.9% against the dollar. This is due to the extreme political uncertainty surrounding the sterling with Brexit taking an unchartable track.

Reactions from U.K. businesses have been a mixed bag. The Institute of Directors, which represents about 30,000 members in the U.K., has said, ‘the Bank has jumped the gun’, whilst the British Chamber of Commerce similarly described the decision as ‘ill-judged’ at an uncertain time.

This negative perspective wasn’t unanimous among all lobbying groups. The Confederation of British Industry, the country’s biggest business lobby, welcomed the rise saying the case for higher rates had been building.

A small rise of 0.25% is likely to have a minimal impact on your finances. However, larger hikes down the line could have a substantial effect on the British financial landscape.

Sources
https://www.bloomberg.com/news/articles/2018-08-02/pound-fails-to-shake-off-blues-despite-unanimous-boe-rate-hike
https://www.theguardian.com/business/2018/aug/02/how-will-interest-rate-rise-affect-mortgages-savings-and-property
https://www.bloomberg.com/news/articles/2018-08-02/-mark-carney-what-have-you-done-cry-u-k-business-bodies?utm_source=google&utm_medium=bd&cmpId=google

is the Bitcoin bubble close to bursting?

You may have seen Curtis “50 Cent” Jackson make the news at the end of January after becoming a Bitcoin millionaire. The rapper, actor and businessman made his 2014 album, Animal Ambition, available for purchase for a fraction of a Bitcoin upon release, making around 700 Bitcoin from sales. 50 Cent has admitted that he had forgotten about the earnings, which have sat untouched since 2014 and are now reportedly worth somewhere between £5 million and £6 million thanks to the meteoric rise of the cryptocurrency’s value in recent months.

Despite 50 Cent’s good fortune, those in the financial sector continue to warn against Bitcoin and other cryptocurrencies as a sound investment. Alex Weber, chairman of global financial services company, UBS, is one of the latest figures to lend his voice to these warnings, describing cryptocurrencies as ‘not an investment we would advise.’

There have also been warnings from consultancy firms that initial coin offerings (ICOs), which raise funds by providing cryptocurrency tokens, are prime targets for cybercriminals. Ernst & Young analysed 372 ICOs which had raised $3.7 billion in total and found that hackers were taking as much as $1.5 million in proceeds from these each month with approximately $400 million stolen in total.

The announcements from governments worldwide that cryptocurrencies will soon be regulated has resulted in huge price fluctuations, with Bitcoin dropping from its high point of almost $20,000 in December 2017 to around half that towards the end of January 2018. The steep drop is due in part to the announcement by the government of South Korea, the third largest cryptocurrency market in the world, that its planned ban on the use of anonymous bank accounts in cryptocurrency trading would be implemented from 30th January.

Another concern surrounding cryptocurrency technology is the continued hype surrounding it, with companies taking advantage of investor buzz. The US Securities and Exchange Commission has warned that companies will be scrutinised over name and business model changes which have been made to capitalise on the hype.

Due to these developments in recent months, many economists are now predicting the cryptocurrency bubble could be about to burst. When, or if, this will happen remains to be seen, but the risks surrounding these relatively new forms of investment continue to be a worrying reality.
Sources
https://www.theguardian.com/technology/2018/jan/23/bitcoin-ubs-chairman-warns-against-cryptocurrency-investment-currency-falls
http://www.telegraph.co.uk/technology/2018/01/25/50-cent-becomes-accidental-bitcoin-millionaire-forgotten-investment/

4 savings habits of millionaires

There are no shortcuts or guarantees when it comes to achieving self-made millionaire status. That said, it can’t hurt to look at the financial habits of those who have managed to do just that to try and boost your own coffers. Here are our top tips from looking at those who’ve become millionaires by age 30. Who knows, they might just lead to you being worth seven figures in the future.

  1. Don’t rely on your savings – The current economic environment makes it very difficult to become wealthy through saving, so increasing your income is an obvious but good way to boost your bank balance. Whilst increasing your main salary can also be a challenge, you might think about other ways to achieve this such as earning passive income through property rental, or taking on freelance or consultancy work on the side (just keep an eye on any tax repercussions).
  2. Invest, invest, invest – Instead of saving for a rainy day, put your savings into investments. If you choose investments and accounts with restricted access to your funds, not only will this ensure your investments pay off, but it will also help you to focus on increasing your income rather than relying on money you’ve put away.
  3. Change your mindset – Nobody has ever become a millionaire without believing that it’s something they themselves can both achieve and control. The best way to do this is to invest in yourself. Spending time educating yourself about both your business area and the financial world in general will help you to understand how to capitalise on opportunities and genuinely believe you can increase your net worth.
  4. Make plans and set goals – You’ll only boost your wealth if you actually plan out how you’re going to do it. Before you can make a plan, however, you need to decide what you’re aiming for. If you really do want to become a millionaire, then think big: if you have a certain figure you want to achieve, aiming higher will help ensure you reach it or even surpass it.
    Sources
    http://www.independent.co.uk/life-style/9-things-to-do-in-your-20s-to-become-a-millionaire-by-30-a7377801.html

where did house prices increase and decrease the fastest in the UK in 2017?

Research into the housing market throughout 2017 has revealed the areas of the UK where property prices increased and decreased the most last year. Cheltenham in Gloucestershire was the place where prices grew at the fastest pace, with the average price of £313,150 marking a 13% rise – nearly five times the UK average increase of 2.7%. At the other end of the scale was the Scottish town of Perth, where prices dropped by 5.3% to make the average property price tag £180,687.

The places which saw the biggest growth were in southern England, with Bournemouth and Brighton coming in second and third place with rises of 11.7% and 11.4% respectively. At the other end of the scale, Scotland, Yorkshire and the Humber were the areas where the biggest falls were seen. The second-biggest fall in house prices was seen in Stoke-on-Trent (4%), with Paisley in third position (3.6%).

Fifteen out of the top twenty areas for house price increases are located in London and southern England. This is in spite of the capital overall seeing its average house price fall by 0.5%, thanks to the economy slowing down and consumers continuing to feel the effects following the Brexit vote of 2016.

The outlook for the year ahead offers little reprieve: many in the property sector, including the Royal Institution of Chartered Surveyors, predict that the market in 2018 will, for the most part, remain flat, with some expecting property price growth to slow even further. Whilst this would be good news for those looking to take their first steps onto the property ladder, it’s more worrying news for people hoping to invest in the market.

It’s expected that the story will differ geographically, but property portal Rightmove has also predicted that different property types are likely to grow at different rates. They have forecast prices for homes with two bedrooms or fewer will rise by 3%, whilst three and four bedroom homes will see growth of only 2%.
Sources
http://www.bbc.co.uk/news/business-42539137
http://www.independent.co.uk/news/business/news/uk-house-price-increases-biggest-2017-cheltenham-bournemouth-brighton-london-housing-market-david-a8137366.html
http://www.bbc.co.uk/news/business-42555351