Reviewing your needs and goals

Take the time to think about what you really want from your investments

You need to consider what you really want from your investments. Knowing yourself, your needs and goals, and your appetite for risk is a good start.

1. Consider your reasons for investing
It’s important to know why you’re investing. The first step is to consider your financial situation and your reasons for investing.

For example, you might be:
Looking for a way to get higher returns than on your cash savings
Putting money aside to help pay for a specific goal such as your children’s or grandchildren’s education or their future wedding

Planning for your retirement
Determining your reasons for investing now will help you work out your investment goals and influence how you manage your investments in future.

2. Decide on how long you can invest
If you’re investing with a goal in mind, you’ve probably got a date in mind too. If you’ve got a few goals, some may be further away in time than others, so you’ll probably have different strategies for your different investments. Investments rise and fall in value, so it’s sensible to use cash savings for your short-term goals and invest for your longer-term goals.

Short term
Most investments need at least a five-year commitment, but there are other options if you don’t want to invest for this long, such as cash savings.

Medium term 
If you can commit your money for at least five years, a selection of investments might suit you. Your investments make up your ‘portfolio’ and could contain a mix of funds investing in shares, bonds and other assets, or a mixture of these, which are carefully selected and monitored for performance by professional fund managers.

Long term
Let’s say you start investing for your retirement when you’re fairly young. You might have 20 or 30 years before you need to start drawing money from your investments. With time on your side, you might consider riskier funds that can offer the chance of bigger returns in exchange for an increased risk of losing your money.

As you get closer to retirement, you might sell off some of these riskier investments and move to safer options with the aim of protecting your investments and their returns. How much time you’ve got to work with will have a big impact on the decisions you make. As a general rule, the longer you hold investments, the better the chance they’ll outperform cash – but there can never be a guarantee of this.

3. Make an investment plan
Once you’re clear on your needs and goals, and you’ve assessed how much risk you can take, we’ll help you identify the types of investment options that could be suitable for you.

4. Build a diversified portfolio 
Holding a balanced, diversified portfolio with a mix of investments can help protect it from the ups and downs of the market. Different types of investments perform well under different economic conditions. By diversifying your portfolio, you can aim to make these differences in performance work for you.

You can diversify your portfolio in a few different ways through funds that invest across:
Different types of investments
Different countries and markets
Different types of industries and companies

A diversified portfolio is likely to include a wide mix of investment types, markets and industries. How much you invest in each is called your ‘asset allocation’.

5. Make the most of tax allowances
As well as deciding what to invest in, think about how you’ll hold your investments. Some types of tax-efficient account mean you can normally keep more of the returns you make. It’s always worth thinking about whether you’re making the most of your tax allowances too.

You need always to bear in mind that these tax rules can change at any time, and the value of any particular tax treatment to you will depend on your individual circumstances.

6. Review your portfolio periodically 
Periodically checking to see if your portfolio aligns with your goals is an important aspect of investing.

These are some aspects of your portfolio you may want to check up on annually:

Changes to your financial goals
Has something happened in your life that calls for a fundamental change to your financial plan? Maybe a change in circumstances has changed your time horizon or the amount of risk you’re willing to handle. If so, it’s important to take a hard look at your portfolio to determine whether it aligns with your revised financial goals.

Asset allocation
An important part of investment planning is setting an asset allocation that you feel comfortable with. Although your portfolio may have been in line with your desired asset allocation at the beginning of the year, depending on the performance of your portfolio, your asset allocation may have changed over the period in question. If your actual allocations are outside of your targets, then perhaps its time to readjust your portfolio to get it back in line with your original targets.

Along with a portfolio with a proper asset class balance, you will want to ensure that you’re properly diversified inside each asset class.

Consider if there are certain aspects of your portfolio that need rebalancing. You may also want to consider selling to help offset capital gains you might take throughout the year.

Long-term care

Corporate bonds are a type of fixed interest security. A fixed interest security is a way of ‘lending’ money to a company in return for a fixed rate of interest over a set period. This type of investment is intended to provide you with a regular, reliable income.

Here are five ways to help you to plan for long-term care.

1. Using ISAs

The over-50s received a boost in October when their annual Individual Savings Account (ISA) allowance increased by £3,000. Those who turn 50 before April 6, 2010 may now shelter £10,200 a year from tax. Of this, up to £5,100 may be held in cash.

ISA savings are a highly tax-efficient way to generate additional income and income is free from further tax and does not count towards the age-related allowance means test.

2. Insurance bonds

Insurance company investment bonds are usually invested in managed with-profits funds or unit trusts. Once you have invested in an insurance bond, you may withdraw up to 5 per cent per year, for up to 20 years, and have tax on this income deferred until the bond is encashed – usually after death in the case of bonds used to pay for care-home fees.

This is because the 5 per cent withdrawal is treated as a return of capital, rather than income, for tax purposes. Insurance bonds are not always counted towards a means test for financial assistance. However, this varies from authority to authority, and any withdrawals are counted as income.

3. Care annuities

Immediate-needs annuities provide a guaranteed income for life, in exchange for a lump-sum investment, which is forfeited on death. The annuity is paid direct to the care home and is free of tax.

The poorer your health is, the better the rate you can expect to be paid. The cost will depend on a number of factors including age, gender and the state of the applicant’s health.

4. Trusts

A gift-and-loan trust can be used to fund long-term care, with the added benefit of reducing inheritance tax on your estate. The individual places a small amount, such as £1,000, in trust and then lends a large sum, such as £100,000, to the trustees.

The individual may not benefit from the trust by law but they can have the loan repaid, typically at 5 per cent per year, which can then be used to pay for care fees. The trustees can invest the capital, and the aim is that it grows in value outside the individual’s estate.

5. Equity release

Even with recent falls in house prices, most elderly people have significant equity in their homes. Equity-release schemes are loans against the value of your home, with interest deferred until the property is sold – normally on death.

Most lifetime mortgage schemes will allow you to borrow between 20 per cent and 45 per cent of the property’s value. Unlike selling your property to raise funds for care-home fees, you will still benefit if the housing market gains value. You can also keep your house.

Making a will

People who die without a valid will, or intestate, leave costs and complications to their loved ones and often gift thousands of pounds to the State in what may be avoidable Inheritance Tax (IHT).

The Law Society says that anyone with assets and family or friends should make a will, regardless of their age. It is especially important if you are not married to your partner, because the law does not accord partners the same automatic rights of inheritance as spouses.
Assets which are jointly owned by unmarried partners on a joint tenancy basis would still pass automatically to the surviving partner under the rules of survivorship. Under the current intestacy rules, an unmarried partner has no rights to any assets that were not jointly owned (although the Law Commission has recently proposed to change this).

Making a will is also vital if you have children, as you can nominate guardians to care for them.

It is important to create a list of assets and debts and their approximate values. Include your property, investments, savings, insurance policies and pension.
In addition, consider details of individual bequests. Simply telling a relative that an item will be his or hers one day could cause trouble later.

You should receive professional advice on IHT planning as part of writing your will. Simple measures could save the beneficiaries of wealthier homeowners thousands of pounds in tax.

A key element of making a will is the naming of executors to ensure that your will instructions are carried out.

You should also update your will every five years or so and whenever your circumstances are changed by a significant life event, such as marriage, divorce or a birth or death in the immediate family. Another example would be after a house purchase or move.

Whoever draws up your will, make sure one copy is kept secure or deposit one with a probate registry.