Whether you’re new to investing or a seasoned veteran, it helps to review investment options which you might want to include in your portfolio.
There are many different types, each with their distinct pros and cons. There are also different styles of investing. These can be more or less appropriate for you depending on your distinct financial circumstances and goals.
As such, the list of investments we have included here is not to be taken as financial advice or a personal recommendation for your own investment strategy.
Rather, feel free to use this for information purposes. Just make sure you speak to your financial adviser prior to making any important investment decisions.
#1 OEICs and Unit Trusts
These are investment funds managed by professional fund managers.
With Open-Ended Investment Companies (OEICs) you buy shares, and with unit trusts you buy units. Your money is combined with other investors, which the fund manager uses to buy assets.
The assets the manager invests in will differ, depending on the fund. Some, for instance, will only invest in UK companies. Others will invest mainly / solely in overseas companies.
If the value of the assets rise, then so does the value of your own shares or units. If the value of the assets fall, then unfortunately the same applies to your shares / units.
The advantage of OEICs and unit trusts is they allow you to spread your risk across different investments, without breaking the bank (because you are combining your money with others).
The downside is that there is still risk involved, and the fund management fees can be high.
#2 Buy-to-let property investments
This type of investment is straightforward on the surface. You buy a property, and then let it out to tenants for a profit over the medium-long term.
You can buy a residential property using cash, or you can take out a buy-to-let mortgage with a cash deposit. Your money is then tied up with the property / mortgage until it is sold.
Regardless, remember there are extra fees involved with a property purchase. These include survey fees, solicitor’s fees and stamp duty land tax
Holding buy-to-let investments effectively turns you into a landlord, running a business. You can earn profits in two main ways:
–Capital growth: when you sell your property for more than you originally paid.
–Rental yield: tenants’ rent payments, minus your expenditures (e.g. repairs).
#3 Stocks and shares ISAs
An ISA (individual savings account) is a kind of “tax wrapper”. In 2018, you can currently save up to £20,000 per year into an ISA, to protect it from tax.
You can put in up to £20,000 as a lump sum, or make consistent / ad hoc payments throughout the financial year. Any unused allowance at the end of the year cannot be carried forward.
A Stocks and shares ISA can be attractive if you do not need immediate access to your money, and you are happy to invest it for at least a few years.
They are also good to consider if you want to invest and protect profits / interest from tax. You can also use them to shield dividends from higher-rate and additional-rate tax.
You can invest in a variety of investment types using a Stocks and shares ISA, including the OEICs and unit trust options we’ve already mentioned.
#4 Venture Capital Trusts
Venture Capital Trusts (VCTs) is a recognised company which invests in smaller companies, in order to make a profit.
A VCT has shares which are traded on the London stock market. The companies they invest in are not quoted on the stock exchanges, as they are usually developing their business.
The idea here is that you band together with other investors, to pool your money into the VCT. There is a tax relief available to encourage people to do this.
The VCT then invests the money, spreading the risk around smaller, developing companies.
You can invest in a VCT by buying shares from other investors in an established trust. Or you can sign up to new shares in a freshly-launched trust.
For the former, you can apply for Income Tax relief. Presently, the rate is 30% on up to £200,000 worth of investments per financial year.
VCTs carry risk, due to their investment in startup companies. You also need to keep your money invested in shares for at least 5 years to claim the Income Tax relief.
Yet they can also be a great way to make higher returns with a great tax relief.
#5 Tracker funds and exchange traded funds
ETFs (exchange traded funds) and tracker funds are investments which follow an index.
This market index follows the performance of a set of investments. For instance, the FTSE 100 tracks the performance of the UK’s top 100 most valuable companies.
Both can be a great way to spread your risk across different shares / bonds, usually at a cheaper cost compared to when you use an active fund manager.