Controlling Investment Risk

  • by Graham Bond
  • 03 May, 2017

Making the most of investment market volatility

Controlling Investment Risk

In the light of recent market volatility, it's perhaps natural to be looking for ways to smooth out your portfolio's returns going forward.

In a fluctuating market, investing regularly – a strategy known as 'pound-cost averaging' – can help smooth out the effect of market changes on the value of your investment and is one way to achieve some peace of mind.

Increasing the long-term value
This simple, time-tested method for controlling risk over time enables you, as an investor, to take advantage of stock market corrections. By using pound-cost averaging, you could increase the long-term value of your investments. There are, however, no guarantees that the return will be greater than a lump sum investment and it requires discipline not to cancel or suspend regular Direct Debit payments if markets continue to head downwards.

Investing money in equal amounts
The basic idea behind pound-cost averaging is straightforward – the term simply refers to investing money in equal amounts at regular intervals. One way to do this is with a lump sum that you'd prefer to invest gradually – for example, by taking £50,000 and investing £5,000 each month for ten months.

Alternatively, you could pound-cost average on an open-ended basis by investing, say, £1,000 every month. This principle means that you invest no matter what the market is doing. Pound-cost averaging can help investors limit losses, while also instilling a sense of investment discipline and ensuring that you're buying at ever-lower prices in down markets.

Taking advantage of market down days
Investment professionals often say that the secret of good portfolio management is a simple one: market timing. Namely, to buy more on the days when the market goes down and to sell on the days when the market rises.

As an individual investor, you may find it more difficult to make money through market timing. But you could take advantage of market down days if you save regularly, by using pound-cost averaging.

Committing to making regular contributions
Regular savings and investment schemes can be an effective way to benefit from pound-cost averaging and they instil a savings habit by committing you to making regular monthly contributions. They are especially useful for small investors who want to put away a little each month.
Investors with an established portfolio might also use this type of savings vehicle to build exposure a little at a time to higher-risk areas of a particular market.

Averaging out the price you pay for market volatility
The same strategy can be used by lump sum investors too. Most fund management companies will give you the option of drip-feeding your lump sum investment into funds in regular amounts. By effectively 'spreading' your investment by making smaller contributions on a regular basis, you could help to average out the price you pay for market volatility.

Giving your savings a valuable boost
Any costs involved in making the regular investments will reduce the benefits of pound-cost averaging (depending on the size of the charge relative to the size of the investment and the frequency of investing). As the years go by, it is likely that you will be able to increase the amount you invest each month, which would give your savings a valuable boost. ν

Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.

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by Graham Bond 25 May, 2017

Personal Finance Portal (PFP) has evolved and can now give you access to your entire financial portfolio including all short, medium and long-term savings and investment information in one place 24/7 – anywhere, on any mobile or web device. It features redesigned screens and layouts which makes it much easier for you to use. There’s even a dedicated mobile phone app for iPhone and Android users coming soon.

As well as the great functionality you currently enjoy with PFP, you can also now get:

Additional access to PFP Premium

PFP Premium is an additional service that enables you to collate information on your short-term finances like bank account(s), credit cards, loans and mortgages together your advised products, giving you powerful insight into your total net worth. Plus, you’ll also be able to receive alerts and insights into spending and saving habits so you can keep track on how you’re progressing against the goals you’ve set. Why not give it a try?

Of course you can still view your fund information and financial portfolio at the click of a button. So whether you’re looking for an up-to-date valuation of your portfolio, want to assess how you’re progressing against your goals or simply wish to get in touch, PFP has it covered.

Secure messaging between us and you

With email and post increasingly open to being intercepted, we treat the security of the data you share with us with utmost importance. PFP provides you with a secure messaging service, so you can quickly get in touch with us and have the peace of mind of knowing that any information you share is encrypted and completely private.

A secure document vault

PFP provides you with a secure document vault, so you can house all your financial documents online where they are secure and fully backed up - much safer and more convenient than the bottom of the filing cabinet.

The new service will offer improved screens This upgrade will provide improved features for our clients. The link below give an overview of the new PFP

If you are not already using the PFP facility and would like to please contact us.

by Graham Bond 25 May, 2017

Capital Gains tax on shares and investments. When you sell shares, you will either make a profit or a loss. Profits made are classed as a capital gain.

There are some exemptions where capital gains tax (CGT) is not liable:

  • Individual savings accounts (Isa’s)
  • Venture Capital Trusts
  • Enterprise Investment schemes
  • Gifts to Charity
  • Government Securities
  • Corporate Bonds of a qualifying status
  • Transfers of shares between spouses or partners in a civil partnership
  • betting, lottery or pools winnings

Apart from the exemptions, sales or disposal of the shares will normally be classed as a potential capital gain.

Each person has an allowance each year they can use to reduce the amount of CGT they might pay. If your total gains for the tax year are below the “annual exempt allowance” you will not have to pay any tax.

If your gains are over the allowance then tax would be due on the balance. It might also be possible to offset any losses from previous tax years. If you do not use your annual exempt allowance for CGT in a tax year, then you lose it and you cannot carry it forward to another year. The CGT tax rate payable will depend on your total income and any gains made for the tax year in question.

The government changed the way Capital Gains were taxed from April 2015. The amount of tax due will depend whether you are a basic or higher rate taxpayer.

by Graham Bond 23 May, 2017

If you sell a property, you might have to pay tax. This tax is called capital gains tax. The amount you might have to pay will depend on the amount of profit you make.

If the property you are considering selling is your main residence then you would normally be entitled to “Principle private residence relief”. This relief normally allows you to you to sell your home without incurring capital gains tax (CGT).

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