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when markets have been looking vulnerable to correction and also making volatility work for you through pound cost averaging. Your regular monthly subscription buys more shares when prices have fallen and fewer when prices have risen, with the result that the average cost of shares purchased over a given period is less than the average price. Where, then, to invest? For private investors
‘For private investors seeking to spread their risk across a portfolio of shares, I would recommend the choice of an investment trust’
seeking to spread their risk across a portfolio of shares rather than picking out one or two, I would recommend the choice of an investment trust – where Scotland has a proud reputation and history. There are more than 300 to choose
from. They offer a wide range of objectives, specialisms and management styles. Manage- ment charges at investment trusts are generally lower than those of unit trusts and open- ended funds. And research has shown that trusts consistently tend to outperform their unit trust counterparts over medium- to long- term periods of three, five and ten years. Investors can further diversify their risk by
opting to feed their regular monthly investment across more than one trust. And, by using a fund platform, it is possible to invest in investment trusts run by different management groups. Popular and accessible fund platforms include Alliance Trust Savings, Hargreaves Lansdown, Transact and Charles Stanley Direct. Take care to check on charges, exit fees and switching options. Finally, what sort of ISA portfolio can
investors construct? Quite the most difficult problem in retail investment is matching
Ask the experts We answer your financial queries
personal circumstances and preferences to investment decision-making. The vital key is ‘Know Thyself ’: no amount
of investment advice can substitute for the investor taking a long, hard look at what risk they are prepared to take, the spare cash they have separate from their investment funds to deal with emergencies, what the investment objectives are, the time frame of investment and the tax position. Before making any decision, investors must
work out these questions and test them against their life situation, personality and experience. By way of illustration, I have set out on page
147 two regular monthly saving ISA investment trust portfolios – a defensive, income-orientated portfolio and a more eclectic, growth-orientated portfolio. Each is spread across five different investment trusts. Thus, by the end of the 2014-15 tax year, and
assuming the investor opts to put in £600 a month (£7,200 over the year), a total of £1,440 will have been invested in each trust. Income can be re-invested within the ISA plan. I have sought to present diversification
by management group and geographic and sector area. The trusts I have selected are well- established companies and most are standing at a discount to their net asset value. Excellent starting points for research and
selection are the Association of Investment Companies website and the TrustNet website. The trusts chosen here are for illustrative
purposes. These are for the medium- to long- term. And never forget the time-honoured warning: shares can go down as well as up.
Q: What tax planning should I be considering for my portfolio before 5 April? Peter Hillier Tel: 0131 270 3004
peter.hillier@cazenovecapital.com YOURSF
TO HAVE YOUR QUESTIONS ANSWERED EMAIL THEM TO
EDITOR@SCOTTISHFIELD.CO.UK
150
WWW.SCOTTISHFIELD.CO.UK
A: Good tax planning is an integral part of successful portfolio management and our financial planners are busy in these areas. Changes to the pension regime were noticeable by their absence in the last autumn statement. However, the significant reduction in the Lifetime Allowance (LTA) from £1.5 million to £1.25m in April is an urgent issue. ‘Fixed Protection 2014’ is available for those who wish to protect the higher LTA at the expense of future contributions or continued scheme membership. A decision whether to continue funding pensions and accept the reduced allowance – or stop funding and protect the tax savings – is therefore required. However, your pension savings do not need to be huge to warrant protection. If you do not intend to draw your pension within the next ten years then a pension fund of around £750,000 today could still breach the new LTA later. Getting this decision wrong could have a financial cost of up to £62,500* by virtue of the lost allowance, so it is vitally important to appraise your specific position to determine whether or not further action is required before the window closes in April. Taking professional advice in this complex area is vital as other forms of ‘Individual Protection’ may be available to you. Another regular April deadline is the annual tax year-end and now is the time to consider whether offsetting or deferring some of your tax liabilities is a suitable option. Good investment managers will be utilising capital gains tax and ISA allowances where appropriate but there are many other strategies that could also be considered including gifts to charitable trusts, as these offer capital gains tax, income tax and inheritance tax relief, or making other tax-efficient investments.
*This is for a 40% tax payer. Statements concerning taxation are based on our understanding of the taxation law in force at the time of publication. The levels and basis of, and reliefs from, taxation may change.
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