Saving or investing for your own and your family’s future is not a complex matter, when you are working with a good financial adviser. We like to make it easy!
Here is our jargon-free round-up of the basic savings and investment types, to show you the advantages and risks of each. These are just some of the options that we, as independent financial planners, might suggest you consider as part of your financial plan.
Cash investments in a bank or building society account are seen as the lowest-risk investments, but tend to provide lowest returns, especially now that interest rates are low. In the current climate, cash savings may actually fail to keep up with inflation.
Bonds are a way of ‘lending’ your cash to government or a company, over a set period and for an agreed rate of interest. The interest agreement may be fixed, or linked to an index such as the Retail Price Index, and the bond issuer undertakes to repay the original loan plus interest at the end of the loan term. While returns on bonds can be higher than from a bank or building society account, risk is also slightly higher, as the bond issuer may fail to make the interest rate payments.
Property You can invest in property to live in, to let, or to develop and sell. You can derive an income from a property you rent to tenants, at the same time regarding the property as part of your retirement planning, for example. However, if the property market declines, you could have to sell your property for less than you paid. The 1980s were good years for property values, but many investors were lulled into a false sense of security and discovered in the last decade that property values can also nosedive. When buying and selling property, timing is essential.
Equities are stocks and shares in companies. If you own them, you are entitled to a share of the profits – these are known as dividends. Values of equities can fluctuate in the short term, but tend to do better than cash over longer periods of ten years or more. As such, they are a long-term investment.
You can invest in all of the above asset classes directly, or through investment funds. Investment funds and unit trusts pool the cash of many investors, and buy cash, bonds, property and stocks and shares in many companies, to diversify and spread risk. These days, there are also ethical funds available, which aim to invest only in ‘green’ companies, or avoid certain industries known to pollute the environment.
Deciding how to save for your future is much less daunting, with just a little knowledge of the products on offer – and, of course, with good financial advice.
Interested in learning more? You can drop us a line right now by making a free financial advice enquiry here, or call 0800 6785929
