Each month we put one of your questions to our experts. This month, we ask James von Simson, an investment director, and Zoe Bailey, a financial planning director, both from our London office, for their opinions.
Q. I have recently come into £100,000. I have no outstanding debts and would like to invest the lot but have no idea where to start. What should I do?
When it comes to investing any sum of money, the best way to start is by asking yourself the following key questions.
If you want to use the money for something in, say, three years’ time, this may not be long enough to invest in equity markets. On the other hand, if there’s no immediate need for the money, you might want to think about investing in something that is perhaps higher risk. Although this might lead to higher returns, it could also mean that the overall value may fall rather than increase when you need to sell. While the markets do not rise in a straight line, when you have ‘crashes’ they do recover over time. The longer you are able to leave your money invested, the greater the chance the investment has increased in value and there is a larger opportunity for significant growth.
Your ability to withstand volatility in the market is another indicator as to what you should and shouldn’t invest in. While you might consider yourself particularly averse to any sort of financial risk, it’s really important to understand which investments are ‘risky’ before you start. The average market fall within each calendar year is around 15%, yet almost 75% of calendar year returns are positive and more than 50% have double-digit positive returns. To get that year-end return you need to remain invested and not sell through fear.
People often want to know more details about where exactly their money is invested. You need to ask yourself if you are happy just receiving a decent return on your investment or whether you would prefer to know that your money is invested in an ethical fund. While historically these types of funds would deliver lower returns, now some of the best performing funds are environmental or sustainability focused.
There is no right or wrong answer here. Also, it should be highlighted that just because a fund isn’t classified as socially responsible, it doesn’t mean that it’s morally corrupt!
Finally, you need to consider how much involvement you want in the investment process. For example, if you are particularly concerned with socially responsible investing, you may want to know more about the underlying investments and be made aware of any changes. Alternatively, you may not have the time or the inclination to be involved. Therefore, you might want to opt for a full discretionary approach, where the investment decisions are made on your behalf by an investment manager.
Once you have answers to these questions, you’ll be in a far better position to decide how to invest your money successfully.
The answer to your question depends on several personal factors and your current situation.
If a client came to me with £100,000 to invest, I would ask them a number of questions including:
Once I have their answers, I would be able to make a recommendation. Depending on how much they need to retain in cash, how long they want to keep the money invested and their attitude towards investment risk, I may look to use their ISA allowance if they haven’t done so already. Then, depending on how near they are to retirement, I might recommend making a pension contribution or perhaps opening a General Investment Account (GIA). This GIA will then be moved over and wrapped up into the client’s ISA or pension over the forthcoming tax years to continually improve the Income, Capital Gains and Inheritance Tax efficiency of the investment portfolio over time.
Although you could answer these questions yourself and use your answers to make the investment on your own, I would suggest that seeking professional advice could help you to make the most of your money.
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