We are now in a new tax year, so I have been talking to a lot of clients about their investments over the last few weeks – especially their Stocks & Shares ISAs and their Pension Funds.
I find it amazing how many people have investments that they have built up with their hard earned cash, and yet have absolutely no idea where their money is invested. Even more amazing, some of these people have built up substantial amounts of money over the years in their Pension Funds, or by funding years and years of ISA payments, and are still completely in the dark.
At the same time, other people avoid starting any sort of investment plan, because they do not feel qualified to make any kind of investment decision, and/or are scared of doing the wrong thing.
The good news is that with most Pension Plans and ISAs, you can change your fund choice. Some providers limit how many ‘free fund switches’ you can have a year, others offer unlimited numbers of free switches. This means that you can start a pension plan or ISA, and change your initial fund choice at any stage, and it is not a life-changing decision….
If you have investments already in place, you will more than likely be able to make changes within your existing plans.
What are managed funds?
Most Pension and ISA providers offer default ‘Managed Funds’.
A Managed Fund is a type of investment where a large number of investors pool their money into one fund which is then invested by a professional Fund Manager in a wide variety of assets, including government bonds (also known as ‘Fixed Interest’), stocks, shares, property etc.
The idea is that by investing in lots of different areas, you are reducing the risk, as you are not putting all your eggs in one basket.
The Fund Managers also actively buy and sell investments within the fund. Their aim is to try and increase the fund’s value by more than the general increase in the value of the markets they invest in (the value of funds can go down as well as up).
Low, medium or high risk funds?
In addition, you will usually be given the opportunity to choose Low, Medium or High Risk Managed Funds.
As a rule of thumb, the longer the investment, the more risk you can afford to take, as markets then have time to recover from any dips. Risk and reward go hand in hand, so the higher the investment returns that you’re after, the lower the markets can fall.
Low Risk Managed Funds will invest more in Fixed Interest and Property, and less in Stocks & Shares – so are thought to be less volatile.
So, if you are unsure as to where you should be investing, think first about how much Risk you are prepared to take – an Independent Financial Adviser will be able to help you more with this, as well as the product particulars – and then consider a Managed Fund. You could always switch to more specialised funds later, when you have done some research.
Henrietta Oxlade is an Independent Financial Planner with Radcliffe & Newlands and MyFamilyClub’s in-house finance sage! She has been advising individual clients since March 1988, which is why many of her clients consider her part of the family. If you want to contact Henrietta, email us on [email protected] and we’ll put you in touch.