Within our Financial Planning and Wealth Management business the central commodity we deal in is advice. Our values and history drive us to build and develop long term trusted relationships, in order to ensure that we constantly deliver value to our clients; principally through providing advice to both individuals and businesses. A good proportion of this advice involves the investment of capital within a wide range of wrappers, such as pensions, ISAs and General Investment Accounts (GIAs).
Every situation is different of course and clients’ overall aims and objectives vary considerably, as do the stories behind where the capital came from. We take in to account the client’s levels of knowledge and experience as well as their personal objectives - whether we are dealing with an investor with entrenched views, for example, those wanting to include ethical considerations within their approach, or preferring a passive rather than active fund management approach; or an inexperienced first time investor with little investment knowledge who needs to be carefully guided through the experience.
We work hard to really understand the level of support required at each stage of a clients life cycle.
We have recently developed and published Our Guide to Investing and within this document we aim to convey both our investment philosophy and the main factors we believe are important, whatever your level of knowledge and experience.
So what are the key factors that we believe sit behind any carefully planned long term investment decision?
Risk - whatever one does with capital there is risk in play. If funds are placed in a savings account then the risk is inflationary - as time goes by if the rate of return is lower than the rate of inflation so the buying power of the funds will reduce.
Where funds are invested in real assets then the risk is that the fund value can fall.
Through a combination of detailed conversations and a risk profile questionnaire we understand the importance of ensuring that each client invests within their own comfort level to best ensure that we minimise the chance of nasty surprises. The level of risk taken also needs to be regularly reviewed.
Diversification – It is unrealistic to believe that it is possible to consistently select the best performing asset classes and avoid the worst performing ones, so it makes sense that all the main asset classes are utilised, but in proportions that take account of the client’s risk outlook. As well as asset classes, geographies and industries need to be diversified to maximise the chances of returns in line with expectations.
Time horizon – Risk is proportional to time. The longer one’s timeframe the more chance there is of meeting the investment objective. Downside volatility has the best chance of being overcome with a longer term outlook.
Taxation – I cannot over emphasis the importance of sound tax planning to run alongside any investment planning and using this approach it is possible to generate a substantial retirement income and pay little or no income tax.
For example, weI recently helped long standing clients enter full retirement and worked for some years to equalise their pensions and built up a good sized ISA portfolio alongside. This has enabled them to take £16,000 per annum each from their pension, where £4,000 is tax free and the £12,000 sits within their personal allowance, so it attracts no income tax. They draw £5,000 each from their ISA portfolio and overall this provides them with £3,500 per month with no tax liability whatsoever. When their State Pensions kick in they will reduce their pension drawings and still only pay a small level of income tax.
Whether you are building up funds for the future, approaching retirement or considering how best to pass funds on to the next generation, it is important to review all of the above regularly.
We do this through cash flow forecasting, where we look at inflation, investment returns, life expectancy, income requirements now and in the future and all sources of wealth and income, then produce a forecast, setting out to what extent your aspirations are realistic. This is repeated at each review to ensure that plans remain on track.
Our Guide to Investing hopefully articulates in simple terms how we support our clients through their own investment journeys, to achieve prosperity, a secure future and peace of mind