Identifying your investment objectives is a lifelong process

Identifying your investment objectives is a lifelong process. If it is not properly implemented through an appropriate investment strategy, a total wealth solution has no value. If you have an adequate amount of money in your cash savings account – enough to cover you for at least six months – and desire your money to grow in the long run, you should take into consideration investing some of it.

Investing is a life long process, and the earlier you start, the better off you may be in the long term. Irrespective of the financial stage of life you are in, you will need to take into account what your investment goals are, how long you have to pursue each objective, and how comfortable you are with risk.

Future objectives and current finances

The appropriate savings or investments for you will depend on how willing you are to take risks, and on your future goals and current finances. Investing is separate from simply saving money, as both your potential returns and losses are greater.

If you’re retiring in the next one to two years, as an example, it might not be the correct time to put all your savings into a high-risk investment. You may be better off choosing something like a cash account or bonds that will safeguard the bulk of your money, while putting just a modest sum into a more growth-focused option like shares.

Deciding on your investments and savings

You may be a few months away from placing a deposit on your first property purchase. Here, you might be contemplating cash or term deposits. You might also opt for a more conservative investment that keeps your savings safe in the short term.

Alternatively, if you have just recently begun saving and working, you may be willing to invest a more substantial sum of your money into a higher-risk investment with higher potential returns, recognizing you won’t need to access it in the immediate future.

Diverse types of investment choices

You should consider various different investment options, if appropriate. A diverse portfolio can help safeguard your wealth from market corrections. There are four main types of investments, also called ‘asset classes’, each with their own benefits and risks.

These are:

• Cash – savings put in a bank or building society account
• Shares – investors buy a stake in a company
• Property – investors invest in a physical building, whether residential or commercial
• Fixed interest securities (also called ‘bonds’) – investors loan their money to a company or government

Defensive Investments

Defensive investments prioritize generating regular income, rather than growing in value over time. The two most common types of defensive investments are cash and fixed interest.

Cash investments include:

Savings accounts with high interest rates

The main advantage of a cash investment is that it provides steady, regular income through interest payments. It is the least risky type of investment. It is possible the value of your cash could decrease over time, even though its pound figure remains the same. This may occur if the cost of services and goods rises too quickly (also known as ‘inflation’), meaning your money buys less than it used to.

Fixed-interest investments include:

Term deposits, government bonds, corporate bonds

A term deposit enables you to earn interest on your savings at a comparable, or slightly higher, rate than a cash account (depending on the amount and term you invest for), but it also locks up your money for the length of the ‘term’, so you can’t be tempted to spend it.

Bonds are essentially loans to governments or companies that sell them to investors for a fixed time period and pay them a regular interest rate. At the end of that period, the price of the bond is paid back to the investor.

Bonds are considered a low-risk investment. Certain types can decrease in value over time, so you could potentially get back less money than you originally paid.

Growth investments

Growth investments intend to increase in value with time and potentially generate income. Growth investments may deliver higher returns than defensive investments, because their prices can rise and fall considerably. You also have a stronger chance of losing money.

Shares and property are the two most common types of growth investments.

At its most basic, a single share represents a single unit of ownership in a company. Shares are typically bought and sold on a stock exchange.

Because their value can rise, shares are considered growth investments. You may make money by selling shares for an increased price than you initially pay for them.

If you own shares, you may also receive income from dividends, which are effectively a portion of a company’s profit paid out to its shareholders.

The value of shares may also fall below the price you pay for them. Prices can be volatile from day to day, and shares are generally best suited to long-term investors, who are comfortable withstanding these downs and ups.

They have in the past delivered better returns than other assets. Shares are considered one of the riskiest types of investment.

Returns are the profit you generate from investments.

Depending on where you put your money, it could be paid in different ways:

• Dividends (from shares).
• Rent (from properties).
• Interest (from cash deposits and fixed interest securities).

The difference between the price you pay and the price you sell for makes up your capital gains or losses.

Lawsons Equity are here to satisfy our clients by recommending the highest quality products and services in line with our clients’ aspirations, expectations and objectives, whether these are over the medium or long term, and in accordance with a desire to generate a regular income and/or capital growth. To schedule a no obligation initial consultation with one of our financial advisors, click here.

We look forward to hearing from you.

Source data:.

[1] YouGov Plc carried out the research online across a total of 5,757 adults aged 18+. Data was weighted to be representative of the GB population. Fieldwork was carried out 26 March– 11 April 2020. YouGov Plc carried out an additional survey online across a total of 2,251 adults aged 18+. Data was weighted to be representative of the GB population. Fieldwork was carried out 11 March– 12 May 2020.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested.

Lawsons Equity Limited is a company registered in Malta with company number C49564 and licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994.

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In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.