Investment Planning

Why Is This Area Important?

We firmly believe that the key to financial success is a diversified and balanced portfolio which is invested at a level of risk you feel comfortable with and are able to take.  By drawing on our years of professional experience and knowledge we are able to guide and assist our clients through the investment maze, helping them to make the financial decisions which are right for them.

Risk Versus Reward

When an individual is deciding about what sort of savings or investment is right for them, one of the first things to consider is what is known as the risk / reward ratio.  This refers to the fact, that generally, the more risk you are willing to take with your investment, the higher the potential rewards that can be gained; however, conversely the fall in the value of the investment can also be that much greater.

Asset Classes

Generally speaking there are 4 main types of asset classes in which an individual can invest:

  • Cash
  • Fixed Interest Securities
  • Property
  • Equities


This is essentially money held on deposit within a Bank or Building Society which can be accessed on demand whenever the need arises.

Fixed Interest Securities

This refers to products which are quite simply loans, which you as an individual make to either the government, in which case it is referred to as a gilt, or to a company, which is referred to as a corporate bond.  The issuer (i.e. the government or a company) will then agree to pay a coupon (i.e. a set rate of return) which can either be fixed or inflation linked.  These products are particularly useful for those wishing to generate an income from their portfolio with reduced investment volatility.


This can be residential, such as buy-to-let properties, or commercial, which covers investments made in offices, warehouses, industrial units, shops or other retail outlets.


Shares in a company (please see below for a more detailed description).

What types of savings and investments are generally available?

There are many different types of investments and savings products on the market and below is a summary detailing the main ones that may be considered as part of your investment planning requirements.

Deposit Accounts

Interest paying deposit accounts are the most common form of savings vehicle.  Banks and Building Societies are the main providers of these accounts.  Rates can vary significantly according to the different providers, as well as between the different types of accounts offered.  For example, if you are prepared to open or administer your account online, or you are prepared to limit your access to the funds (a term deposit), a better rate of interest can often be had.

National Savings & Investment (NS&I) products

National Savings and Investments are backed by HM Treasury, and as such, any capital deposited is 100% secure.  NS&I offer a range of different deposit-based savings products, some of which are tax free.  Accounts are offered with a variety of interest rates, which may either be index linked, fixed or variable.

Individual Savings Accounts (ISAs)

ISAs allow an individual to invest in cash, fixed-interest securities, property or equities in a tax-efficient manner.

Individuals have an annual ISA allowance which is the maximum amount they can invest, the limit of which is set by the chancellor for each fiscal year.  Full details of the limits for any given fiscal year can be found on the HM treasury website at

There are basically 2 different types of ISA, a Cash ISA or a Stocks and Shares ISA and you may choose to invest the maximum amount into either one or split the amount between the two types.

Under new rules you can also transfer funds from previous years ISAs to a new ISA, either cash to Stocks and Shares or vice versa.  You can also transfer an existing year’s ISA subscription in one type of ISA to the other as long as the annual ISA allowance is not exceeded.

In the event that you wish to make a withdrawal from your cash ISA, you can re-invest those monies back into the same cash ISA within the same tax year subject to the annual ISA allowance not being exceeded.

Investment Bonds

Investment bonds allow you to invest in a variety of investment funds managed by, more often than not, a variety of different companies.  They are usually held to provide long-term capital growth, a regular income, or a combination of both.  The underlying investments are often Unit Trusts or OEICs (see below for an explanation of Unit Trusts & OEICs).  Theoretically, Investment Bonds are classed as ‘single premium life insurance contracts’, which means that an element of life cover is provided, which is paid out if you die during the term, however they must not be seen as a form of life insurance.  The main benefit for an individual holding an Investment Bond is that an income of 5% per annum may be taken, which is deemed to be a return of your original capital invested.  This can occur for a period of 20 years before any tax liability may occur, subject to certain conditions.

Endowment Policies

Endowment policies were most popular during the 1980s and 1990s.  As a product they were fairly complex in that they combined a life assurance policy and a long-term savings plan, with the most common use to pay off an interest only mortgage (the policy objectives were that the value of the investment would increase over the period of the mortgage term to the extent that it would have grown sufficiently to pay off the mortgage, whilst at the same time providing valuable life cover throughout the term of the mortgage).  Unfortunately, when the majority of these products were taken out, investment growth rates used in illustrations were higher than has since been achieved, and many individuals have encountered shortfalls at the end of their mortgage term.  This has meant that the vast majority of endowment providers no longer issue new policies, as it is widely accepted there are alternative, more efficient ways of attaining the same objective with less risk.

Collective Investments

  • Unit Trusts

    Unit trusts were the standard collective investment before Open Ended Investment Companies (OEICs) were developed in 1997, and there are still many to choose from.  Unit Trust fund managers take investors’ money and pool it to invest in quoted shares and other investments according to their investment objective and mandate.  Unit Trusts are so called because they are formed and governed by a trust deed, are not incorporated and therefore not subject to company law.

    Unit Trusts are sold in units, with the value of the units calculated on a daily basis to reflect the current value of all the underlying assets held, (also known as the Net Asset Value (NAV)).  The units have 2 different prices, a bid price and an offer price.  The ‘bid-offer spread’ refers to the difference between the buying and selling prices.  There is no initial charge, but there is an annual management charge (AMC).

  • Open Ended Investment Companies (OEICs)

    An OEIC is today’s standard ‘collective’ investment.  An OEIC takes client monies and pools it to invest in quoted shares and other investments.  As an investor, you purchase shares in the OEIC.  OEICs were introduced in May 1997 as an alternative to Unit Trusts.  The main practical difference between the two is that OEIC shares are bought and sold at a single price whereas Unit Trusts have a bid price which is lower than the offer price.  As there is no bid / offer spread, OEICs command an initial charge in addition to an annual management charge (AMC).

    Each OEIC has one or more fund managers whose job it is to achieve its particular investment objective and mandate.  The value of the shares are calculated and set on a daily basis reflecting the current value of all the underlying assets held, (known as the Net Asset Value (NAV)).  OEICs are also known as ICVCs (Investment Company with Variable Capital i.e. ‘open-ended’).  This is intended to distinguish them from a ‘close-end’ Investment Trust.

Investment Trusts

An Investment Trust is not a trust at all, but a fixed-capital investment company, subject to company law, with shares quoted on a recognised stock exchange.  Unlike OEICs, shares in Investment Trusts do not have an initial charge but there is an internal ‘annual management charge’ which together with the cost of running the company is quoted as a Total Expense Ratio (TER) i.e. the cost of investing.  TERs are usually competitive, with many averaging less than 1.5% pa, but some Investment Trusts also add on performance fees.

The price of Investment Trust shares, as with any other share quoted on a stock exchange, are subject to the pressures of supply and demand, and therefore can (and often do) trade at either a premium or a discount, to the value of the underlying assets held.  Another difference is that Investment Trusts are able to, subject to their investment mandate, leverage their position.  This means that they are able to borrow money for the purposes of investment.  This may add to the attraction of Investment Trusts as long-term investments; however it can also increase the risk associated with such a product.

Exchange-Traded Funds (ETFs)

An ETF is a relatively new collective investment product designed to hold assets such as equities or fixed-interest products.  It is a quoted vehicle which can be traded on the stock exchange (as with an Investment Trust), but at a price which moves during trading hours to reflect the changing net asset value of the total underlying assets.  Most ETFs to date are index trackers, but some offer specialist equity or index exposure.

ETFs have been available in the US since 1993, in Europe since 1999, and in the UK since 2000.  So far they are mostly used by institutional investment funds, to which they are attractive because of their low cost (no stamp duty), tradability and the possibility of using the ETF shares alongside the actual assets held to provide more diversification to a particular index or asset class.

Structured Products

Generically, Structured Products are a financial instrument that allows an individual to invest in a product whereby the potential returns are calculated based on a pre-determined and quite specific investment objective.  The product will often have some form of capital guarantee built into it, which can vary according to the performance of the investment objective it is designed to track.

Some structured products offer fixed rates of return with the possibility of a guaranteed 100% capital return, which could be seen as quite a low risk product.  However, these guarantees are often subject to a specific financial index, such as the FTSE, reaching pre-determined levels of performance over a given period of time.  In the event that the index does not perform as anticipated or the company providing the guarantee goes bust, then clients may lose a significant proportion of the original invested capital, if not all of it.  These products are very dependent upon the risk appetite of an individual and can prove beneficial as part of an overall well diversified investment portfolio.

Equities (also known as Shares or Stocks & Shares)

In one way Equities are just “what it says on the tin”, that is, equity in a company, which entitle the holder, as part owner of the company, to a share in the profits the company makes.  As such, Equities are often valued based on the predicted flow of future dividends.  But Equities are so much more than that: they represent an interest in the business and its activities, its strategy, its management, its employees, its assets and the countries where the company operates.

The value of Equities depends on many factors including buying and selling demand, liquidity, legal and regulatory rules, global trading events and trends, and many more factors besides.  Prices therefore fluctuate, sometimes significantly, both on a daily basis and over much longer periods of time.

Equities are therefore classed as a ‘risk investment’ and are normally held in portfolios where the risk is diversified across different companies, industry sectors and countries.  They can be combined with other asset classes such as cash, fixed-interest securities and property, to create portfolios of differing levels of risk, which can be held for the purposes of long-term capital growth or the generation of income or both.


Please note that the following products are seen as high risk products, and in most cases will only be suitable for the experienced or professional investors.

Hedge Funds

A Hedge Fund is a private investment fund, usually with a limited clientele of large, expert and well capitalised investors, which tend to be financially very affluent.  Hedge Funds use the techniques of ‘hedging’ (offsetting potential losses), investing in products such as derivatives, swaps, futures, options and ‘short’ selling (selling things they do not own, and then ‘covering’ or buying them later when they are cheaper).  Often, Hedge Funds do not actually hedge, but rather use these methods to ‘gear’ (or ‘leverage’) their investments, (which in turn increases, rather than reduces the risk), in the expectation of larger returns (which can, of course, turn into very large losses).

The assets of a Hedge Fund can run into billions of pounds, which means that their effect on individual markets can be substantial enough to cause very significant market movements.

Contracts For Difference (CFDs)

CFDs were invented in the early 1990s in London.  A CFD is a contract whereby the ‘seller’ (or writer) of the CFD promises to pay the ‘buyer’ the difference between the current value of an asset (such as shares in a company) and its value at the specified contract due date.  Unlike futures and options, CFDs do not have standardised terms, and are unique contracts.  If the difference goes negative, then the buyer owes the seller.  They were initially used by hedge funds and institutional investors to hedge their exposure to stocks on the London Stock Exchange.  In the late 1990s CFDs were made available to private investors.

Futures Contracts

A ‘Future’ is a standardised contract to buy or sell a known quantity of a particular commodity, at a certain time (the ‘delivery date’), at a set price (the ‘settlement price’).  Both parties of a Futures Contract must fulfil the contract on the due date.  The seller may either deliver the underlying asset to the buyer, or, under a ‘cash contract’, money is transferred from the counterparty that lost on the deal to the one which made a profit according to the terms of the contract.

Futures commodities may be real such as cocoa, rapeseed oil or iron ore, but today currencies, bonds, stock indices or other financial instruments are also traded.


Unlike futures contracts, Options offer the right, but not the obligation, to a future transaction in an underlying asset or security.  A Call Option provides the right to buy a specified quantity, at a ‘strike’ price, at a time on or before expiration of the contract.  A Put Option provides the right to sell at a ‘strike’ price on or before the expiry date.

The option buyer has the choice of when and whether to exercise the option.  The writer (one who sells the option) - put or call - has to fulfil the terms of the contract if required to do so.  Exchange-traded options have standard contracts and trade on public exchanges.  The theoretical value of an Option can be calculated at any time using accepted mathematical models, which also determine the value of an Option under changing conditions, which is how the trading price is established.

For more information on any aspects of Investment Planning please contact us