Setting long-term investment goals demands great care in terms of planning for the future. However, it starts with a realistic grasp of the present.
Cash is obviously king, even if its status is somewhat diminished by current low interest rates, quite simply because it opens all other investment doors. Readily available funds can enable you to take advantage of investment opportunities as and when they arise.
On 6 April 2016, the Government introduced a tax-free Personal Savings Allowance. According to HM Treasury, 95% of people don’t have to pay tax on the first £1,000 a year (or £500 for higher rate taxpayers) of interest they earn on their savings. When the new Personal Savings Allowance came into force, banks and building societies automatically stopped deducting basic rate tax of 20% before your interest is paid .
This does not spell the end for saving cash in an Individual Savings Account (ISA) though as with cash ISAs there is no limit on the interest that can be earned without tax being paid and the benefits are available even for those with the highest incomes. You can also transfer your cash to a stocks and shares ISA where you can invest in longer term investments without losing money on tax. These ISAs can hold a wide range of securities and funds and it makes sense to make use of the current £20,000 limit before investing elsewhere. Remember that all eligible individuals have an allowance so a married couple could tax-shelter a total of £40,000 this tax year.
“If you've maximised your ISAs and still have available cash it might be time to think about longer term strategies to help realise your financial ambitions.”
The longest of these for most people is their pension. Saving into a pension, whether it be a professionally managed or Self Invested Pension Plan (SIPP), because of the tax allowances on contributions, seems obvious enough. The Pension Freedom changes implemented in 2015 allow for individuals to have greater control and more freedom as to how they use their pension fund. Options include leaving the pension invested, taking withdrawals as and when required, purchasing an annuity, or doing a combination of all these options based on individual circumstances.
Shorter term goals might include saving for the children's school or university fees while they are still very young, achieving a lifetime's dream such as buying a boat, a flat in a ski resort or by the sea, or any number of other personal goals for which you might seek to grow your wealth.
Realising these goals, however, is the tricky bit. As ever with any form of investment it's about establishing the appropriate risk profile: balancing risk and reward as effectively as possible to, ideally, achieve your ambitions. And even then there are no guarantees.
Many people, for example, invest in UK Government debt: gilt-edged stock or "gilts." Yet although the stated return on these is clear the real return to the investor will depend on inflation. And it will also depend on the price at which the gilts are bought and whether they are sold further down the line before they reach maturity.
Inflation-linked gilts may be one way for investors to hedge their bets but purchase and redemption prices will still play a vital role. Before the recent financial crisis, some analysts would refer to yields on gilts as being "risk free," something they'd be a lot less likely to do today. So exploring a number of strategies to help achieve investment goals makes sense. All of which will have an element of risk and no guarantees in terms of returns.
The benefit of buying shares in publicly-listed companies is that they may produce both dividends and capital gains. Equally they may produce neither. Advisers, analysts and others frequently advise against second-guessing the market.
Nonetheless buying cheap can obviously lower risk and has the potential to increase returns.
Perhaps the single most important element of investing in equities is timing. Holding equities over the long-term with the aim of receiving potentially strong, sometimes inflation-beating, dividend streams can be an excellent strategy but, until they are sold, your funds are liable to investment risk and there are no guarantees.
If equities represent relatively high risk and have the potential to deliver higher returns, and highly-rated bonds are low risk with generally a more predictable level of income, gold is sometimes referred to as a "store of value."
That said, anyone who bought gold on 5th September 2011 when the price peaked at US$1896.50 an ounce is facing a significant loss at a price of US$1,319.80 at time of writing (30/08/16). Once again timing is key.
So, along with bonds and equities, gold can be another long-term option to consider, as can investment funds.
The world of investment funds is vast and varied. Investment funds are not for the faint-hearted and require significant knowledge and experience before considering as part of your portfolio. A visit to Trustnet for example, illustrates the sheer scope, scale and variety of what's on offer.
Whatever your approach, never lose sight of the fact that any funds invested ultimately belong to you the investor and, if turbulence in the markets in recent years has taught us anything, it must surely be that regularly reviewing your investments is essential to ensure you continue to have the best possible chance of achieving your financial ambitions.
The relationships we enjoy with our private banking clients mean that we are perfectly placed to take a holistic view of both your financial portfolio and your personal financial goals, and how, over time, these may change. And our Investment Portfolio Service, provided by Lloyds Bank Private Banking Limited, is designed to help match your individual ambitions with your unique appetite for risk and then manage your funds accordingly.
What this clearly demonstrates is the importance of analysis, of getting to know the areas of risk that face you as an investor, and the value of seeking expert investment advice to help you decide how much risk you should take on and whether this is justified by the potential return.
The turbulence in the financial markets since 2007 has merely reinforced the value of advice in determining where and when to invest as markets fluctuate and change. Working together with your Private Banking and Advice Manager with clear goals in mind, can help develop an investment strategy in line with your long-term ambitions.
Personal Savings Allowance, HM Treasury, 8 February 2016,
Tax treatment depends on individual circumstances and may be subject to change in the future.
Past performance is not an indication of future performance and cannot be relied upon. The value of investments and the income from them can go down as well as up and cannot be guaranteed.
Any views expressed by Lloyds Bank Private Banking are our current in house views as at September 2016 and should not be relied upon as fact and could be proved wrong. Views expressed by contributors are their own. All information correct as at September 2016.
For access to advice from a Private Banking and Advice Manager, you’ll need at least £250,000 in savings, investments and/or personal pensions and/or a sole annual income of at least £250,000.
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