Investment Planning

There are a number of reasons why people invest. You may have recently inherited money, or received a lump sum from the sale of an asset or on your retirement, or you may have built your investment portfolio over time and simply wish to review whether it remains suitable in meeting your financial objectives.

You may be investing for a specific purpose, over a particular timescale, or you may have no particular objectives but wish to ensure that your money is working as hard as possible for you.

Your first consideration should be to ensure that you have sufficient ‘short-term’ monies available to meet any planned capital expense (such as education costs, replacing your car or making home improvements) and also to provide you with an ‘emergency’ fund. Short-term monies should be reasonably accessible without incurring any penalties or charges (you may need an account that is instantly accessible, or you may be able to give a period of notice) and without risk to your capital. Deposit-based accounts are usually appropriate for this particular purpose.

The size of your emergency fund will depend on your own particular circumstances (for example, whether you are working or retired) but as a minimum it should be equal to at least 3-6 months worth of your regular expenditure. However, our clients will often retain much more than this in deposit-based accounts, particularly for larger portfolios.

Although it is tempting to invest solely into deposit-based investments where the value of your capital should not fluctuate (particularly during the present turbulent economic conditions), this is not usually an appropriate investment strategy over the medium to long-term (particularly when taking into account the effect of taxation), as often the ‘real’ value of your capital is eroded over time by inflation.

Instead, investors look to ‘asset-backed’ investments such as equities, property, fixed interest securities and commodities to provide greater potential returns than cash deposits and greater potential protection against the effects of inflation over the medium to long-term. However these types of assets are subject to varying levels of volatility and investment risk. That said, people do not necessarily invest into these types of assets to take on additional investment risk for the sake of it, but because it improves the chances of achieving their financial objectives.

For an explanation of how we build investment portfolios for our clients, please see our Guide to Our Investment Advice Process, which is available to view or download here:

 

Past performance cannot be relied upon to predict future returns and the value of investments can fall as well as rise.

 

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