If your money is languishing in cash accounts paying low rates of interest, investing could offer a better option. After 3 years of the Bank of England’s Rate of Interest still held at 0.5% per annum and all likelihood that this status quo to remain then maybe an income portfolio would be a better approach?
An income portfolio with a diversified portfolio, typically with distributions around 4.5% per annum (net of basic rate tax) and with the potential of capital growth. Remember, this is an investment rather than cash, so values can go down as well as up but with an investment focus of income. Historically, I have seen my client’s income grow over time and yes, the capital value has fluctuations but then the risk profile of the portfolio can control volatility within a range.
The markets have been hugely volatile, with big swings up and down since the turn of the century.
There are several choices to make: the type of investment, how you invest, how it’s managed, how long you want to invest for, the level of volatility and investment risk you are prepared to take with your money.
HOW DO I INVEST?
There is a wealth of information about funds to be found on the internet. Many websites provide free guides and factsheets with details about funds and how they work. These factsheets list the aims of a fund, its risk and performance history. They also tell you some of the companies your money is invested in, and where in the world they are.
To buy into an investment fund, you can go through a broker, fund supermarket, a financial adviser or to the company directly.
WHAT DOES IT COST?
There is always a fee for investing and it is, in the main, deducted from your investment. If you get independent advice then you will have to pay for this, too.
Funds normally charge a one-off fee, typically around 5%, for your initial investment, and then an annual charge of between 0.3% – 2.5%, depending on the fund type. However, you may avoid some or all the initial charge, or get a discount on the annual cost if you go through an independent financial adviser, broker or fund supermarket.
WHAT CAN I INVEST?
You can deposit a lump sum or/and pay a regular contribution into your portfolio over time. There are pros and cons whichever you decide, but neither comes with any guarantees. A lump sum deposit has the benefit of immediate exposure to the chosen investment strategy, funds and asset allocation.
INCOME OR GROWTH?
Do you want to receive some income from your investment or for the potential value of your capital to grow or a combination of the two? This will have an essential effect on the structure of the portfolio, possibly type of fund, asset allocation, etc. because your focus and requirements will need to be prioritized.
A portfolio with a heavy weighting in favour of dividend-generating attributes could provide you with a regular source of income. This helped many investors to profit last year, after dividend payouts soared by more than 19% compared to 2010. Investors will have different goals, so best to have the portfolio designed to align with your goals, within your risk profile and time horizon.
Take appropriate independent financial advice from a professional who specialises in investing and wealth management.
Any questions – welshmoneywiz@virginmedia.com
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