Thinking of Investing?

Given the difficult market conditions over the last 18 months, a question we get asked on a regular basis is ‘when should I invest and how should I invest my money?’

As we all know, a crystal ball will only get you so far, therefore, to answer this question we need to draw on the teachings of history and careful research.

Time in, not timing

First of all, markets are cyclical. The economic cycle of growth and decline is fairly predictable, but what we don’t know is how long that cycle will be and the day-to-day path between the two. Therefore, timing a market is almost impossible as by the time you have identified the opportunity, the moment will have passed.

So, rather than attempting to time an investment in financial markets, empirical evidence confirms that it’s about time in the market. The majority of investments should be seen as medium to long-term commitments and we would usually recommend a minimum term of 5 years, although the longer the capital is invested, the more opportunity you will be able to give your investments to capitalise on growth and recover from any losses on the way.

Historically, markets have a propensity to rise over time, although there will always be short-term fluctuations. Ensuring you invest within your own personal risk limitations so that you feel comfortable with the size of these ups and downs is essential. It’s also important that you retain an adequate emergency fund to cope with unexpected costs or planned expenditure, such as a new car, holiday or special event, meaning less worry over your investments during a downturn as you have no need to draw on it at an inappropriate time.

Don’t put all your eggs in one basket

One way to help cushion the investment journey is to diversify. Diversification of your investments means exposure to different asset classes, sectors and geographies. Diversification is crucial in capturing market upside, whilst mitigating downside risk and volatility. Putting your attitude to risk and long-term goals first, we can diversify your investments in a unique way that suits your needs.

The good news is you don’t have to be an expert investor to diversify. Our VT Esprit funds typically contain between 15 and 25 underlying investments, blending a range of asset classes and strategies invested across the globe. Digging even deeper, we estimate that each VT Esprit fund owns more than 4,000 individual securities.

Your adviser will use an external risk questionnaire and risk mapping tool to help determine which fund may be most appropriate for your circumstances.

Make use of your tax breaks

It often feels like we are taxed on almost everything we do, and as Benjamin Franklin said, “in this world nothing can be said to be certain, except death and taxes”. However, whilst that may have been true in 1789, UK savers and investors can access a range of tax efficient wrappers and allowances. These include Individual Savings Accounts (ISAs), pensions and specialist investments such as Venture Capital Trusts (VCTs) for the more ambitious.

Many allowances are available on a ‘use it or lose it’ basis, so we recommend utilising these allowances as early in the tax year as possible. This ensures the money is sheltered from tax at the earliest opportunity, and avoids the inevitable mad rush at the end of the tax year, or perhaps forgetting altogether.

Returns from investments that are held in an ISA are free from income and capital gains tax (CGT). This means ISAs could be a useful way to minimise your tax liability whilst also putting your money to work. To make the most of your money, introducing an ISA into your financial plan should be something you consider. The annual ISA subscription limit for the 2023/24 tax year is £20,000.

To discuss investing in an ISA or any other tax efficient wrappers, please contact your adviser for further guidance.

What about cash?

Whether you are looking for a home for your emergency fund, or nervous about committing money to longer term investments for the time being, seeking the best return on your savings is essential to helping preserve the spending power of this money over time.

Rather than opening lots of accounts across a range of banks and building societies in order to seek out the most attractive rates, which can be hugely laborious and time consuming, we can provide access to an active cash management service. A centralised account provides access to hundreds of savings accounts with at least 35 of the major banks and building societies. This allows you to spread your savings quickly and easily across instant access, notice and fixed-term deposit accounts. Eligible deposits can receive protection of up to £85,000 per individual per account.

Your Skerritts adviser will be happy to provide further information on this service.

If you need any further information on any of the topics mentioned why not check out our comprehensive guides:
Skerritts’ essential guide to ISAs
Skerritts’ guide to Inflation
Skerritts’ investment brochure 2023