INDEPENDENT FINANCIAL ADVICE CENTRE

Authorised and Regulated by the Financial Conduct Authority

97 High  Street

Billericay

Essex

       CM12 9AJ

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Your Home is at risk if you do not keep up any mortgage or payments secured upon it!

You should remember that past performance is not necessarily a guide to the future. Market and currency movements may cause the value of units, and the value derived from them, to fall as well as rise and you may get back less than you invested when you decide to sell your units. The tax treatment of investments and pensions is not guaranteed and may change in the future.  

INVESTING A LUMP SUM

If you deposit your money with a bank or building society you will get a higher return than from the Government, why? Because they are not risk free, your bank or Building Society could go broke and you could lose your money. (Town & Country Building Society and BCCI to name two in recent times and Northern Rock has come close).


Commercial Property offers the first Real Asset investment and is very popular with lower risk investors. As inflation pushes up rents this also increases the capital value of the Property. The higher the rent on a property the more its worth its that simple. There is a risk, property does sometimes fall in value and there may be periods when tenants change and no rent is forthcoming.


Corporate Bonds are when companies borrow money and pay interest on the amount they borrow. These are greater Risk than Banks because Companies quite often fail and go into liquidation. The more likely a company is to fail the higher the interest they must pay to borrow money, these are known as High Yield Corporate Bonds.


High Yield Corporate Bonds then are far riskier than Premium Grade Bonds. In America the extreme risk Bonds are known as Junk bonds. If you can however invest in a high yield bond where the company fortunes improve reducing the risk the capital value will increase.


Equities (Shares) fall into several risk categories in our opinion. One simply cannot state that Tesco for example falls into the same risk category as a new company just starting out on the Alternative Investment Market AIM.


Equities offer capital growth, as companies grow their shares are worth more, increasing income, as inflation pushes up prices it pushes up profits, but they can always run into trouble, Marks & Spencer for example when they lost touch with their customers a few years ago.


However over time only Property and Shares have achieved the main objective of growth above inflation but it can get quite hairy, as investors in 2000, 2001 and 2002 will tell you.


The following table shows the average returns on the above types of investment over the last three and five years, it shows the higher the Risk you are prepared to take the higher the potential return could be but so could the potential loss.

 

For more information about risk see our section about investment objectives.


How can you achieve capital growth and avoid risk?


The answer is spread; don’t have all your eggs in one basket and build a Portfolio that meets your needs.


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