It can be reassuring to take a long-term perspective

As wealth grows, so too can the complexity of its management. Our approach is to cut through complexity and offer you clear guidance to achieve your goals. Today’s challenging economic and global conditions, coupled with uncertainty in Europe, North America and China, have combined to create a degree of cautiousness among many investors. A long-term investment strategy will provide you with a clear advantage during uncertain times.

 

When stock markets are going through one of their inevitable periods of turmoil, it can be reassuring to take a long-term perspective and remember that you are investing for years, rather than days or months. This may remind you that there is plenty of time for the markets to recover from any temporary setbacks.

Another benefit of taking a long-term perspective is the way it helps us see that the general trend in stock markets has been positive, even though there have been many times when share prices have fallen sharply. When you are devising a long-term strategy for your investments, it is important to tailor it to your specific needs. The most important aspect of the decision is likely to be the length of time you are investing for.

A highly successful investor
Warren Buffett is one of the world’s richest people and is a highly successful investor. He’s achieved this partly by identifying companies that he believed were worth more than their market value, investing in them and, crucially, holding that investment for the long term. It sounds remarkably simple, but given the ups and downs of the global markets, it takes a high level of discipline, nerve and conviction in your decisions.

Keep focused on your end goals
It’s important to have in place a sound investment strategy to keep you focused on your end goals and not to let market noise sway you. If appropriate, consider investing at regular intervals over the long term. Keep on investing through market lows when share prices are undervalued, so that you gain more wealth when markets rise again. This can help smooth some of the stock market ups and downs, and you avoid investing all of your money when the market is at a peak.

Your attitude towards investment risk
Understand your time horizon and your attitude towards risk. They affect how you invest. We’re all different, and our personal risk attitude can change with our circumstances and age. The nearer you approach retirement, the more cautious you’re likely to become and the keener you’re likely to be to protect the fund you have already built. Note that the value of your fund may fluctuate and you may not get back your original investment.

Spread risk through diversification
Diversify your portfolio so that when one part of the market does not perform it is balanced out by another part of the market that does. View your investment portfolio as a whole. Asset allocation is the process of dividing your investment among different assets, such as cash, bonds, equities (shares in companies) and property. The idea behind allocating your money among different assets is to spread risk through diversification – the concept of not putting all your eggs in one basket.

Assets that behave differently
Balance your portfolio and maintain a sensible balance between different types of investments. To benefit from diversification, you need to invest in assets that behave differently from each other. Each asset type has a relationship with others – some have very little or no relation to each other (known as a ‘low correlation’), whereas others are inversely connected, meaning that they move in opposite ways to each other (called a ‘negative correlation’).

Mirroring the performance of a particular share index
There will always be times when one asset class outperforms another. Generally, cash and bonds provide stability while shares and property provide growth. Funds are either actively managed, where managers make decisions about the investments, or passively managed (typically called a ‘tracker’), where the fund is set up to mirror the performance of a particular share index rather than beat it.

Benefit from compound growth
Think long term. It is time in the market that counts – not timing the market. The longer you are invested in the market, the greater the likelihood of making up for any losses. What’s more, the sooner you start investing, the more you will benefit from compound growth.

Investing as tax-efficiently as possible
Different investments have different tax treatments. Tax is consequential to many wealth management decisions. Our understanding and experience can help you manage and protect your wealth, whatever form it takes. We can advise you about the tax treatment of your current investments, and of any investments you are considering, to ensure that you are investing tax-efficiently. It’s important to remember that your requirements are unique to you. What’s a good investment for one individual is not automatically a good investment choice for you, so don’t follow the latest investment trends unless they fit with your plan.

Review your portfolio
As the years go by, it is important to review your portfolio regularly to make sure that it still suits your long-term strategy. If an investment has done particularly well, you may find that it now accounts for a disproportionate share of your overall portfolio and you need to do some rebalancing.

In addition, you will probably need to adjust the weightings of your investments from time to time – for example, to reduce the amount of risk you are exposed to as you get nearer to retirement.

Offshore investments

 Utilising tax deferral benefits

For the appropriate investor looking to achieve capital security, growth or income, there are a number of advantages to investing offshore, particularly with regards to utilising the tax deferral benefits. You can defer paying tax for the lifetime of the investment, so your investment rolls up without tax being deducted, but you still have to pay tax at your highest rate when you cash the investment in. As a result, with careful planning, and if appropriate you could put offshore investments to good use.

The investment vehicles are situated in financial centres located outside the United Kingdom and can add greater diversification to your existing portfolio. Cash can also be held offshore in deposit accounts, providing you with the choice about when you repatriate your money to the UK, perhaps to add to a retirement fund or to gift to children or grandchildren. Those who work overseas or have moved abroad to enjoy a different lifestyle often want to pay as little tax as is legally possible.

Many offshore funds offer tax deferral. The different types of investment vehicles available offshore include offshore bonds that allow the investor to defer tax within the policy until benefits are taken, rather than be subject to a basic rate tax liability within the underlying funds. This means that, if you are a higher rate tax payer in the UK, you could wait until your tax status changes before bringing your funds (and the gains) back into the UK.

The wide choice of different investment types available include offshore redemption policies, personalised policies, offshore unit trusts and OEICs. You may also choose to have access to investments or savings denominated in another currency.

Many banks, insurance companies and asset managers in offshore centres are subsidiaries of major UK, US and European institutions. If you decide to move abroad, you may not pay any tax at all when you cash-in an offshore investment, although this depends on the rules of your new country.

Regarding savings and taxation, what applies to you in your specific circumstances is generally determined by the UK tax regulations and whatever tax treaties exist between the UK and your host country. The UK has negotiated treaties with most countries so that UK expats in those countries are not taxed twice. Basically, if a non-domiciled UK resident is employed by a non-UK resident employer and performs all of their duties outside the UK, the income arising is only subject to UK tax if it is received in or remitted to the UK.

Investor compensation schemes tend not to be as developed as in the UK, so you should always obtain professional advice to ensure that you fully understand each jurisdiction. It is also important to ensure that you are investing in an offshore investment that is appropriate for the level of risk you wish to take.

If you are an expatriate you should find out if you are aware of all the investment opportunities available to you and that you are minimising your tax liability. Currency movements can also affect the value of an offshore investment.

Time to aim for higher returns

When it comes to taking investment risk to secure a higher return, those aged 55 and over are most likely to be taking the lead with Stocks & Shares Individual Savings Accounts (ISAs), according to research from Standard Life (08 April 2013). Over one in ten (11 per cent) of 55 and overs invest in the stock market via their ISA, compared to just 7 per cent of 35 to 44-year-olds.

 

A round two fifths (41 per cent) of UK adults are currently investing in Cash ISAs. However, less than one in ten (9 per cent) are investing in Stocks & Shares ISAs, despite low interest rates meaning that even tax-efficient Cash ISAs could be struggling to keep pace with inflation.

Reviewing your approach
With the Monetary Policy Committee (MPC) continuing to keep interest rates low and inflation relatively high, cash held in an ISA or a savings account could be eroded in real terms. So now might be worth reviewing your approach and, if appropriate, considering whether you could take more risk with some of your cash. You could potentially invest in the stock market instead, through a tax-efficient Stocks & Shares ISA, to try to beat inflation. However, it’s always sensible to keep some money in cash, where it is safe and you can get instant access to it.

Consider your options
For those individuals willing to take more risk with a proportion of their money, there is the option to consider using as much of the current annual £11,520 (2013/14) Stocks & Shares ISA allowance as they can this tax year. The annual ISA allowance is per individual. This means that a husband and wife, or registered civil partnership, for example, can invest up to £23,040 between them into ISAs this tax year.

The research from Standard Life (08 April 2013) also reveals men and women take a very different approach to their investments. Over one in ten (12 per cent) men currently save into a Stocks & Shares ISA, compared to only just over one in twenty (6 per cent) women. An equal percentage of men and women are currently saving into Cash ISAs (41 per cent for both).

ISA matters
Use as much of your current £11,520 (2013/14) ISA allowance as possible in this tax year. You can invest this full amount in a Stocks & Shares ISA so you have the chance of greater tax-efficient growth over the longer term. Investing regularly each month can help to smooth out any short-term ups and downs in the stock market.

Review your Stocks & Shares ISA investment regularly to make sure it is performing as expected. Reinvest to help generate more income. Remember that if you choose an ISA that generates income, you can reinvest this money as well as paying it into a bank account. This means you have the opportunity to continue to generate income based on your long-term investments.

Source: All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,059 adults. Fieldwork was undertaken between 25-28 January 2013. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).

Past performance is not necessarily a guide to the future. The value of investments and the income from them can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Tax assumptions are subject to statutory change and the value of tax relief (if any) will depend upon your individual circumstances.