Few would claim that the financial crisis is still at its peak, but this week’s news certainly confirms that we continue to struggle with its aftermath.

The housing watchdog Shelter has revealed that over 2 million people in the UK have recently used a credit card to pay their mortgage or to cover rent. This confirms other reports from the large insurers, such as Aviva, in the past year, indicating that savings levels in UK households are alarmingly low, and that most families would struggle to survive for more than a month in the event of a main breadwinner losing their income through illness or being made redundant.

With regard to retirement saving, we know from Halifax that the majority of UK working population is currently (as of end 2010) not saving into a personal pension or company pension, and that of those that are, many are unaware that, due to the recent market downturn, there may be a need to seek investments advice, review their pension, and step up their pensions contributions.

The underlying reality is that UK householders need to overcome their traditional tendency to look only at the short term in their financial planning. More  then ever, consumers have a need to seek investment advice from a qualifed, independent investment adviser who understands their short-term need to build down debt, but can balance this with the longer-term need to plan for the future.

If anything good has emerged from the financial wasteland of the last 5 years, it is the realisation that a stable and benign economic climate cannot be taken for granted – and that an investment enquiry to put in place a balanced financial plan may be the most prudent strategy, moving forward.

Venture Capital Trusts are investments in smaller UK companies, with a government incentive built in: tax relief of 30% paid up front. Investment advice should be taken on VCT investments, however, to assess the risk level of the underlying company or project in which your chosen VCT invests.

Furthermore, a VCT carries with it the condition that it is a minimum 5-year investment, and if you withdraw your cash before the end of the term, the tax relief you received must be repaid.

When VCTs were first introduced in 1995, they were initially regarded as high risk investments, due to the proviso that they had to invest in companies with less than 50 employees, and market capitalisation of under £7m. In other words, government thinking was that VCTs would provide an alternative to bank finance for small, growing companies struggling to expand.

However, market conditions are slightly different today, and a prudently chosen and well-managed VCT investment, chosen with quality investments advice from an independent investment adviser,  may well be a lot less risky than it used to be.

VCTs are the unwitting beneficiaries of the recent ‘credit crunch’ which as of today (January 2011) seems largely still in place, as government continues to urge banks to step up lending to smaller companies.

As a higher percentage of small companies are unable to obtain bank funding, the quality of those looking to VCTs as an alternative cash source has dramatically increased – which is good news for VCT investors, as the risk level of the trusts themselves may be considerably reduced.

As a result, more and more investors see a place for a Venture Capital Trust as a building block in their  investment portfolios.

 The beauty of funds investments lies partly in the nature of stock market investments in general. Any good investment adviser will tell you that, in general terms, the higher the risk level of a fund investment, the higher the potential return. In other words, while there are many rapidly growing companies to be found in the emerging markets of China and Indonesia, for instance, there is also unpredictable demand for their products and the economies in which they operate are perhaps relatively unstable, when compared to the mature economies of the US, Japan and Europe.

On the other hand, there are fund investments at the defensive end of the fund investment spectrum which focus on these very mature economies, and indeed on the largest, most stable sectors and companies within them, to offer fund investment returns that minimise risk. These market conditions are relatively predictable, so much so that ready-made investment portfolios can be built around them, and distinguished according to their risk level.

As a result, an investment enquiry directed to a good independent financial adviser can enable you to set up an excellent, long-term funds investment programme.

Your adviser can help you to monitor and regularly review the stocks investments portfolio you have created, gradually moderating and lowering the risk level of your overall investments in keeping with your changing attitude to risk. Simply put – you can take much of the ‘pizzazz’ out of your funds investments.

As you grow older, for example, and approach retirement, your taste for adventure in your investment portfolio may be lower than at the beginning of your (investment) career.

You may wish to see your money gradually shifted into funds that adopt a more conservative approach, lessening the risks taken with savings you have earmarked for your retirement. In this case, a good option might be a fund similar to that mentioned above, investing in the so-called ‘blue chip’ stocks, household name companies where growth is dependable, and risk is low, but returns are usually moderate.

With the aid of good quality investments advice, all of the risk permutations you will need during your investment life can be achieved within the single arena of funds investments.

Some say that history can teach us only so much. Nonetheless, experience does show that funds investments have proven themselves, time and time again, as superior to cash savings in bank accounts, for those who can afford to invest with a medium-term investment horizon (i.e. 10 years or more).

The statistics are clear. Scottish Widows recently plotted the performance of a (hypothetical) long-term investment in stocks and shares made in 1945, and showed that returns on funds investments or a stock market investment, over a 60-year term, were 70 times greater than returns from a bank or building society account.

According to the Scottish Widows calculations, a sum of £100 invested in a building society account in 1945, and left there for 60 years, would have been worth just £1,767 by 2006. Invested in bonds, the same sum would have been worth £4,323.

However, the fund investment returns on the same £100 invested in the UK stock markets, as measured by the Barclays Equity Index (and with dividends reinvested), would have been £125,243 over the same time 60-year period.

While bonds may be attractive for an investment of 5-10 years, as you are told in advance what your minimum return will be, fund investment returns are clearly superior in the longer term.

The cyclical nature of a fund investment means that it is wise to take investments advice from an independent investment adviser, who can explain the risks involved in stocks investments for those who cannot commit for the longer term. By making an investment enquiry you can set up a fund investment that will set your cash working much harder for you than if invested in cash or near-cash products.

And with interest rates currently at an all-time low, seeking alternative investments for your savings cash may be a prudent strategy, to keep your money from losing its value due to inflation.

The government’s decision to scrap compulsory annuitisation – the requirement to buy pension annuities before we turn 75 – will undoubtedly provide some of us with additional freedom in retirement.

While the purchase of an annuity may well remain the best option for the majority of people, those who do avail of the ‘increased flexibility’ so vaunted by government in the new proposals may well be in for a shock.

The flexibility referred to here is the ability to pass on the remainder of your pension savings to your children, when you die.

By not purchasing a pension annuity, we remain the owners of our pension savings, but may well find we face a hugely increased flat rate tax of 55% (previously 35%) on funds left to our children and heirs. This has led some observers to slate the proposals as a stealth tax, and an additional way for government to reclaim the cash so painstakingly built up (and possibly taxed once already!) by pension savers during our working lives.

Another controversial issue is the possible announcement of new rules that allow earlier access to pension pots. The ‘locked box’ pensions model, where your money is out of reach until you retire, has been seen as discouraging pension saving for many who feared they may have a sudden need for cash, at some point before retirement.

In recent years, savers who opted not to contribute to personal pensions or company pension schemes have instead used their ISA allowances to save for their retirement, while keeping their cash close and accessible.

The government sees an early access model as a way of diluting these fears, by reassuring pension savers that the ‘locked box’ is not locked for for quite so long in the future.

Human nature being what it is, however – the spirit is willing, but the flesh needs a suntan - it is possible that the real winners could be the hotel owners of Majorca and Lanzarote, or the car dealers of Birmingham, Bristol and Belfast, as many delve into their pension savings to fund their annual holiday (or a larger home, or a new car), leaving less on which to retire.

One sector of the ethical investments market that has been of considerable interest to investors in recent months has been the range of funds known as “ecology” funds, which take a fairly broad remit in the relatively focussed landscape of ethical investing.

The ethical investment criteria of ecology funds are designed to locate companies that are involved in improving the environment, in a wider sense. This can mean investing across the broad spectrum of water treatment, pollution control, and alternative energy.

Some other ethical investment companies offer ethical funds that focus on only one of these areas.

Due to the potentially narrow focus of ecology funds, some investors may be better suited to a compromise strategy where they combine one or more ecology funds as additions to the core equity funds in their investments. They therefore achieve exposure to the ethical investing sector as part of a broader, more balanced, non-screened funds portfolio.

As ever, quality ethical investments advice from an independent financial adviser will ensure that the funds you choose are the funds most suited to your preferred risk level, and overall attitude to risk and return.

Do you have a particular view of the risk levels of ethical investments? Blog here!

The funds research company Morningstar is a byword in the funds business, and so when its mighty pen issues a commentary on a particular funds sector – as it did about ethical investments this month – investors should sit up and take note.

Morningstar has pointed out that there is often a ‘trade-off’ between strict ethical investment criteria and the level of risk of a particular fund, if the fund’s policies are so strict as to severely limit the number of companies that qualify as potential investments. However, these ethical funds may be just the kind of dark green ethical investment that some investors require – it is a matter of personal taste.

Other ethical investment companies can apply less stringent ethical criteria, and have a broader range of investments open to them as a result. This may be where a “best in class” approach means that a wide range of industry sectors are open to the fund, and the manager simply identifies the ‘least worst’ offenders among, for example, the oil & gas companies. These ethical investment funds are known as  light green investment funds.

The simple way to evaluate the screening policies of a particular green fund is to seek ethical investments advice from an unbiased, independent finanancial adviser. An independent adviser can not only lift the lid and take a look at the holdings of any fund, but can use their whole of market approach to compare the fund to its peers, in terms of ethical criteria and likely returns.

When that is done, the individual investor can be sure they are matched with a fund that suits their own individual concerns and beliefs – on the basis of ‘what you see is what you get’!!!

When ethical investments appeared on the UK scene in the early 1970s, they had taken their inspiration from the US-based PAX Fund, which was launched in 1971 to allow investors to ‘vote with their money’ by avoiding companies that had benefited from the Vietnam War.

Since then, the UK market has grown to nearly 100 funds which operate according to strict – or less strict – ethical investment criteria, and offered by a range of over 40 ethical investment companies.

Traditionally, ethical investments were felt by consumers to be driven by the investor’s personal environmental concerns, with absolute performance in comparison to non-screened, mainstream funds perhaps of secondary importance. For that reason, ethical investments advice looked as much at the ethical policies and exclusions of a particular fund, as much as at its track record on investment performance.

Investors came to ethical investments wishing primarily to avoid certain sectors and activities for moral reasons, and moral discussions were the key focus in building ethical investment portfolios.

Lately, however, ethical investments have taken off, and there were some 750,000 UK investors in ethical funds at the beginning of 2010. Many of these are not purebred ‘ethical investors’ at all, but mainstream investors with quite different reasons for the funds they choose.

One reason is to mitigate risk, by choosing ethical funds in order to avoid industries that have had their ups and downs of late. A clear example is the BP disaster in the Gulf of Mexico, which reduced BP’s share price by 50% between April and July this year, wiping millions of pounds off the leading investment and pension funds. Holders of ethical funds were at least partially shielded from the negative effects of BP’s fall on their investment portfolios, while specialist ethical investors may have been in the fortunate position of hardly being affected at all.

There are other reasons for mainstream investors to look closely at ethical funds, however. Many ethical investment funds are heavily weighted towards renewable energies, and some actually specialise in this very specific market sector. The EU statistics office Eurostat revealed that renewable energies contributed over 10% of the EU’s energy consumption for the first time during 2008, and noted that renewable energies are due to provide over 20% of total EU needs by 2020.

Ethical funds are clearly poised to benefit strongly from those companies actively developing and providing renewable energies, particularly in Sweden, which already takes nearly half of its energy needs from renewables, and Finland, which takes nearly a third.

The UK remains one of Europe’s novice users, with renewables providing only 2.2% of energy needs here so far.

 While ethical investments are more popular than ever before in the UK, they continue to have an image problem, with many potential ethical investors making sceptial noises about the ethical investment criteria they apply.

This largely accounts for the fact that, while over 70% of UK adults claim to have an interest in the environment, and in ethical investing with their cash, only 8% have taken the leap by actually placing money in ethical investment funds.

It is interesting to listen to what some of  the ethical investment companies give as their response, when clients and investors express surprise at the holdings contained in some ethical investment portfolios.

Here are some of the viewpoints that can be taken on the more controversial holdings in ethical funds.

Oil and gas holdings – some oil companies point out that they spend more on researching renewable energies than many small and medium-sized renewable energy specialists, and that parts of their activities are ethical for that reason.

Nuclear power – while many investors are opposed to nuclear power on ethical grounds, others accept it as less pollutant than fossil fuels and believe it is therefore the ‘lesser of 2 evils’ in a situation where no perfect solution is yet possible.

Animal testing – some investors believe that, while animal testing should never be used by cosmetics companies, the benefits may outweigh ethical concerns when it is used for researching potentially life-saving drugs against cancer, Aids and other diseases. On that basis they do not exclude pharma companies from their ethical portfolio.

Clearly, then, one person’s grey is another person’s green – and the only issue is to ensure that, when you wish to select ethical investments, you work with your financial adviser to identify the ones that are right for you.

The Norwegian government’s self-professed policy of ethical investments has put it in the firing line for adopting ‘hypocritical’ double standards, with Greenpeace leading the criticism of its ethical investment criteria.

The criticism focusses on Norway’s investments in Malaysia, where it recently made a very positive move by ending investments in Samling Global, a timber company accused of illegal logging and environmental damage.

However, Norway still has over $16m invested in Sinar Mas, a Malaysian company which includes biofuels in its product range. Sinar Mas stands accused of destroying rainforest and orang-utan habitats as part of its campaign to free up land for production of palm oil, which is a key ingredient of its biofuels. Sinar Mas has already admitted to clearing land for palm oil plantations, before it had received permits or made conservation assessments.

This is not good publicity in the short term for Norway, but it does show the positive way that environmental watchdogs and also ethical investment companies can engage positively with large investors, to ensure that their cash is used to invest ethically in those companies which demonstrate high standards of environmental commitment and corporate governance. Norway’s policy of investing ethically also means that the country leads the world in avoiding companies, markets and regimes with skeletons in their ethical closet.

The Indonesian government is promoting the creation of palm oil plantations in Papua, as a way of bringing development to the region, but there has been widespread bullying and coercion of local communities to force them to allow their land to be used in this way.

In one case, a 4-year-old boy was forced to sign documents giving a plantation company control of his family’s land for decades.

While Indonesia claims its policies of promoting the global switch to biofuels is a highly ethical pursuit, this comes at a high price for the environment. The rapid deforestation necessary for palm oil production has already turned the region into the world’s 3rd-largest emitter of carbon.

For anyone interested in voting with their money and making a positive environmental impact with ethical investments, the range of products now available in the UK has spiralled in recent years.

Today there are around 100 UK funds marketing themselves as ethical.

However, regulation of the term ethical fund is still in its infancy, and each of the ethical investment companies has considerable freedom in choosing the ethical investment criteria it applies, when putting together individual funds or ethical investment portfolios for the market.

For example, most investors might expect oil and gas companies, or tobacco manufacturers to be excluded from an ethical fund – but certain funds, at the light green end of the scale, may well include those companies (and openly state that they do so), because some investors like to see them in the investment mix, as they offer stable growth prospects.

The key is to be aware of the broad range of ethical and ‘even more’ ethical funds on offer, and to take ethical investments advice from a qualified independent financial adviser, before dipping your toe in the water.

Do you have a view on light and dark green ethical investments? Blog here!

There is nothing more powerful than an idea whose time has come – and in finance at least, the idea of the next decade looks set to be ethical investments.

A new campaign is calling on Government to support ethical investment funds and socially responsible investments by including a new ethical ISA allowance in next year’s budget. This would put the whole prospect of saving according to ethical investment criteria centre stage, in the world of UK savings and investments.

An additional allowance for ethical investing would pave the way for the creation of a ‘Green ISA’, which would be a variation on the existing stocks and shares ISA to meet the demands of the 13 million UK adults* who have said they would be interested in tax-incentivised investment with a green twist.

Ethical investments now 40 years a-growing

Ethical investing is nothing new in the UK, however. Since the first ethical fund was launched in 1974, the market has grown and now, as the ethical investments sector approaches its 40th birthday, there are some 100 ethical investment funds and products available from over 40 ethical investment companies.

Regulation of the ethical sector is still a work in progress, however, and there is much debate about what should and should not be included in an ethical funds. Some funds apply ethical investment criteria much more strictly than others, and investors would do well to take ethical investments advice from an independent financial adviser, who can look inside a particular fund and check how ‘green’ its holdings really are. Not every fund is suitable for inclusion in all ethical investment portfolios.

Due to the differences in the ethical investment criteria of the various funds providers, ethical investments are currently informally graded from light green to dark green investment funds , where the latter apply more strict definitions of what qualifies as green. 

*Source: research by the UK Sustainable Investment and Finance Association (UKSIF)

Do you have an opinion on ethical investments and the current debate over light versus dark green funds? Tell us about it here!

Investor interest in ethical funds has soared in the last year, with ethical funds investments up 25% over autumn 2009, according to the Investment Management Association (IMA).

Net sales of ethical funds was £74 million in the last quarter, having averaged £64 million in the previous 4 quarters.

Rosy future for ethical funds

The market looks set to really take off over the coming year, according to the Investment Management Association IMA. While only 8% of investors currently have cash in an ethical fund, a further 37% have declared that they will be considering ethical investments in the near future.

The traditional barriers to ethical investment had been the difficulty investors experienced in ‘getting a look inside’ funds, when considering ethical investing. Many investors simply did not trust the ethical investment criteria applied by investment companies eager to cash in on the growing demand for ‘investing with conscience’ in the UK.

However, matters have not been helped by this month’s news that 34 of the UK’s 42 ethical and global ethical funds had oil and gas holdings in September 2010 (read our article here). The effects of these revelations remain to be seen, but the general rise in positive sentiment towards ethical investing seems unstoppable, as we roll into the 2010s.

Do you trust ethical investment companies? Tell us why (not!) – blog here!

With Mervyn King, the Governor of the Bank of England, still giving mouth to mouth to the UK economy by keeping interest rates at an all-time low of 0.5%, returns on savings in a bank or a building society are, frankly, dire.

In the current climate, savers would be prudent to seek investment advice when planning to set up, or make additions to investment portfolios.

Bearing in mind that your money has to grow with inflation in order to hold its value, you need to achieve above-inflation rates of interest, in order to stay afloat. Now, Coventry Building Society has just launched a 1-year fixed interest bond that offers 3.11%, and is being hailed as one of the best cash savings deals currently available – but that currently does not keep up with inflation, which was running at 3.13% in October.

In other words, even with one of the current good saving deals, your money can still be losing value.

ISA Funds investments through ISA savings plans

This is why many consumers are seeking investments advice on the best stocks and shares ISA funds investments, if they can afford to leave their money invested in the medium term i.e. 10 years or more.

History shows that funds investments usually strongly outperform cash in the medium to long term, and ISA funds investments bring the added bonus of a tax advantage as well. In fact, Scottish Widows released some figures lately which showed that £100, invested for a long term of 60 years in the UK equities market, returned growth that was over 60 times better than what would have been achieved by keeping the same amount in the bank.

And with funds investments now on offer via a whole range of monthly savings plans using ISAs, your only problem is which fund to choose. An investment enquiry to an independent investments adviser can help you decide which ISA savings plan is the right one for you.

A new report published this month has lifted the lid on UK ethical funds in the ’ethical and global ethical funds’ sector*.

The information confirms what we have mentioned in this column in the past, that not all ethical investments are equally ethical, and that each ethical fund must be examined on its own merit, to ascertain where it stands on the spectrum from ‘light green’ to’dark green’ ethical funds investments.

It would appear that, of the 47 ethical investments in the ethical and global ethical sector, 34 (or 72%) have a touch of tummyache – in that they were holding oil & gas stocks as of September 2010. The report highlights yet again that regulation of ethical investing sector in the UK is not yet fully developed, and that investors need to seek quality investment advice from an unbiased, independent investment adviser, to really have an insight into the innards of each individual fund.

Ethical fund managers offer a range of funds catering to the desires of those seeking a fund with very strict investment criteria, while other fund managers have identified demand from investors who wish for a more mainstream investment with just a tinge of green. At this light green end of the spectrum, funds may invest in companies which allow animal testing for research into medicines and drugs, but exclude the use of animals for testing cosmetics and ‘non-essential’ products.

Equally, some ethical investors are quite happy to have investments in the nuclear power industry, seeing it as a practical solution to global warming by a fossil-fuel based power industry.

The moral of the story is that there really are 40 shades of green – and a few minutes making an investment enquiry to an independent investments adviser can be time well spent, before making your choice of ethical funds.

*Source: A Guide to Climate Change and Ethical Investing 2010, by Holden & Partners

If you are looking for an ethical investment that matches your personal environmental concerns, the first thing you should seek is good investment advice.

It’s a jungle out there, and not everything in it is as green as it appears. Investors who pick an ethical fund based on trawling the web or reading a newspaper article, without taking investments advice from a qualified investment adviser, could be shocked when they look under the bonnet of the fund they have brought into their investment portfolios.

It’s not that there are shenanigans going on – it’s just that some ethical investors are more ethical than others, and the funds market caters to that. One person may object to direct oil & gas and military investments, but be content enough to invest in the global banks, who do business with both.

There are also funds that call themselves ethical, but still include some oil & gas companies. They justify this by saying that the big names like Texaco and Shell are spending more money, dollar for dollar, in researching renewable energies than many pure alternative energy providers.

It really depends on how green is green, in your personal view. If you are looking for a fund with strict ethical investment criteria, however, you should make an investment enquiry to an independent adviser who can lift the lid for you, and see where each fund is invested.

Otherwise, your good intentions could have you turning red, not green!

One of the more unsettling facts revealed by market research of late was uncovered in a recent survey*which showed that 65% of UK investors risk their cash on the basis of their own research, rather than by taking professional investment advice.

This is the financial equivalent of driving your new, expensive car at high speed, and blindfolded. It is not recommended. Please do not try this at home.

We know the potential effects on investment portfolios of a market downturn such as happened in 2007-2009. Only those who regularly reviewed their position with the help of their investment adviser were able to stave off the worst consequences of the stock market bloodbath, as even the finest funds in the land struggled to stay in the air, while many funds crashed to the floor.

Investment portfolios, at their best, are well balanced and finely-tuned mechanisms, and the lubricant that keeps them running smoothly is quality investment advice from an independent investments adviser.

They must be constantly checked, monitored and reviewed and, with the help of good investment advice, gently realigned, to keep them going in just the direction you want – to ensure your money is still in funds that are right for you. 

*Source: Prudential

Do you have a view on investments and investing? Blog here!

Many 100os of pensioners are failing to take up their entitlement to pension credits as a supplement to the basic state pension. For many of the less well-off, this could be costing them up to £34 per week in lost pension income.

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As we slowly emerge from the recession that will forever colour our memories of the years 2006 to 2010, many of the new post-recession generation of young investors are looking once again at funds investments.

There’s no doubt about it – history has consistently shown that stock market investments strongly outperform cash, in the longer term. And funds investment is no longer the exotic option of only the rich – today, funds investing is open to the little guy as well, with a whole range of ISAs and savings plans to meet all budgets and tastes.

Here are some figures to set any investor’s mouth watering.

Taking a (hypothetical) long-term investment in stocks and shares made in 1945, recent figures* show that returns over a 60-year term were 70 times greater than investing the same sum in a bank or building society account.

A sum of £100 invested in a building society account in 1945 would have been worth just £1,767 by 2006, according to Scottish Widows. Invested in bonds, the sum would have been worth £4,323.

However, the same £100 invested in the UK stock markets, would have grown to £125,243 over the same time period.

There are a wide range of funds investments including mutual funds, unit trusts and OEICs and ethical investments.

*Figures from Scottish Widows

Do you have any thoughts or experiences based on investing in funds? Blog here!

A new survey from Age UK has shown that the spending power of pensioners is down £710 per year since 2008, due to the rising cost of living.