Investment Minefield

Yet a new method of getting people to invest for the future has been unveiled by the UK Government.  Called Real Estate Investment Trusts (REIT’s) the idea is to provide another way to increase our savings, this time in property.  Gone are the days when you just bought an endowment policy for 15 or 20 years and sat back waiting in hope of reaping huge profits. Now there are so many products it’s almost impossible to decide which is best. Unit trusts, stocks and shares, ISA’s, SIPP’s, bonds and gilts and goodness knows what else. 

 

For a lot of people buying a property in the UK and letting it seems the easiest way of providing an income in Spain.  If you achieve around 8 to 10 percent from letting, that is a good return.  You will also have the property appreciation value when you sell.   Of course there is a down side, management fees, times when the property is vacant and/or when a major repair is needed. 

 

For others income is generated through an investment portfolio.  Capital (possibly from selling a property) may be tied up in different investments, unit trusts perhaps and bonds or ISA’s.  Alternately, you may have transferred your capital to Spain and invested it in a bank generated package or been to an independent financial advisor.  They may have suggested an off shore trust.  There is so much advice and it all seems good, sometimes the only safe option seems to be to do nothing pending some blinding flash of inspiration from on high.  However this only happens in story books and American films.  

 

I have seen one investment claim a growth of 17%.  This sounds great, however looking back at the 2003 performance of 1.3% it takes on a different light.   Keep in mind too that you may have to pay management fees which will reduce your income. Costs vary so check before you buy. An 8% return with 3 or 4 percent charges is not a great as it first sounds.   The trick is to avoid all hype and read the small print.

 

So what should we be looking at?  I think it is safe to say that investment companies have come of age.  They now realise that it is a competitive market and crucially the public wants to know what is happening to their money.  The new REIT’s from the government is just such a product.  The feeling from the government is that property is a solid growth generator.  The income and capital growth that should materialise will make it particularly attractive.  It is due to be rolled out in early 2007.  Ask your financial advisor for more information or go to www.hmrc.gov.uk. Search REIT’s.

 

What about alternative investment.  Not quite flower power but definitely for the discerning.  For example, you may prefer to invest in alternative power instead of armaments.  Environmentally and ethically sound investments are popular and have performed well in recent years. Better still they have generated profits.  The Ethical Investment Research Service (EIRIS) has a list of ethical independent financial advisors.  Find them at www.eiris.org.

 

Whatever your investments, check the risks.  This is why buying a property and letting it seems attractive.  You have a physical product and you are in control.  It is a low risk investment.  However, it may not be the best.  Let’s face it even those who invest in Premium Bonds have seen a cut in the prize fund; which goes to show that nothing is safe.

 

Perhaps the new guaranteed equity bond from the Abbey may be an option to Premium Bonds.  This bond offers investors 120% of any FTSE 100 index growth in the next five and a half years. Even if there is a fall you are guaranteed to get all you initial capital back.

Check www.engagemutual.com.

 

Independent financial advice is important.  Advisors should always differentiate between low, medium or high risk products.  Like any form of gambling the higher the risk the greater the potential profit and for greater losses.  Your initial consultation should be free. Do ask where their income comes from, through product commission or fees you pay.

  

Finally, the FTSE map looks like waves on the sea at the moment.  This volatility is making everyone hold their breath.  Investment is a serious business, it is important to get and to keep getting as much information as possible about trends and products. Most newspapers have a money section (including yours truly); they are a good source of information that can be obtained without pressure.  Check and double check, it’s your money and your livelihood!

 

©Ann Hobbs 2006

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