Investing

Investing for your future

Investing can be a daunting proposition, simply because investments carry a degree of risk. This could

result in you losing money as the value of the investment and any income they produce, can go down as

well as up.

Why Invest?

As we all know, money doesn't grow on trees, so in order to be financially secure for the future we need

to create wealth. Unless we are fortunate enough to experience a substantial windfall such as winning

the lottery, the only real option left is to create our own wealth. This is where constructive investment

comes in. By identifying our needs for the future, we can build an investment process which enables us

to create a secure and balanced approach to achieving this goal. The reasons people invest are varied,

but some of the main ones are school / university fees, down payment for a house or other large

purchases, a holiday, and the obvious one, retirement.

Investment Principles

One of the principles of investing is to spread risk and to diversify your investments. Diversification is the

process of investing in areas that have little or no correlation to each other. Diversifying your assets

helps spread risk and should therefore reduce the potential for any losses. If you had all of your money

invested in to one asset, sector, or region and it began to drop in value, your investments would suffer

significantly.

By i esti g i assets that a e t elated to ea h othe , if o e pa t of you i est e t po tfolio is falli g in value, then the othe s should t e goi g the sa e ay. So e assets ill a tually go up i alue he others decrease.

You can diversify through investing in different markets, countries, companies and asset type.

Diversification is an essential part of building your investment portfolio. It can give you peace of mind

that your investments will sustain in adverse market conditions and cushion losses. It will not however

mitigate the form of risk involved with any one particular investment.

Types of asset classes

There are three main asset classes which are, cash, fixed income and equities. In addition some

investors would also include commodities and property. Each asset class is expected to reflect different

risk and return investment characteristics, on the basis that they perform differently under the same

market conditions. It is for this reason, that having diversification in asset classes is of paramount

importance to building any successful investment portfolio.

Cash investments

Cash investments are best suited for the funds you may need immediately, for your rainy day or

emergency fund. Cash investments may have a lower rate of return than fixed interest investments, but

they offer easier access to your funds.

Fixed interest investments

The term Fixed Interest Investments covers a broad range of investment options, ranging from a local

bank's term deposit, through to government and corporate bonds. These investments are for a fixed

period of time, in which you lend to the institution funds, and they agree to pay back that sum (or

principal) at the end of the term (or maturity date). They also agree to pay you interest (or coupon

payment) at regular intervals.

The range of fixed interest investment options includes term deposits, debentures, corporate and

government bonds.

Equities

E uities also k o as o di a y sha es , o sha es , a e issued y a pu li li ited o pa y, a d a e traded on the stock-market. When you invest in an equity,, you buy a share in a company, and become a

shareholder. Equities have the potential to make you money in two ways: you can receive capital growth

through increases in the share price, or you can receive income in the form of dividends. Neither of

these is guaranteed, and there is always the risk that the share price will fall below the level at which

you invested.

Commodities

Commodities are fundamentally different from stocks and bonds. Whilst they are investable assets, they

are not capital assets. Commodities do not generate a stream of dividends, interest payments or other

forms of income that can be discounted in order to calculate a net present value. Rather, commodities

are valued because they can be consumed or transformed into something else that can be consumed.

There are many routes that clients can use to gain exposure to commodities. However, the most

common route is via a collective investment or fund. The benefits of investing into commodities this way

is that, the investor can gain exposure to a broad range of commodities, which tends to enhance

diversification and reduce volatility.

Property investment

Relative to shares, cash and fixed interest investments, property is a medium risk investment,

potentially offering medium returns over the longer term. Property investments can be used to achieve

either capital growth or income, or a combination of the two.

Risk

You can't plan financially without understanding risk. Many people, when they hear the word 'risk',

automatically think about the chance of being defrauded or not getting all of their money back. This is

'capital' risk and whilst it is important, it isn't the only form of risk.

When you make an investment, it can be difficult to say with any certainty what return you will receive

he you fi ally o e to ash it i , this is k o as i est e t isk. Sha e prices fluctuate, interest

rates vary and inflation is a risk too.

There is also shortfall risk which means failing to reach your investment goal because the return you

make on your investments is too low. Just concentrating on capital risk and ignoring these other risks

can mean that you take too much of a cautious approach to investing.

How to invest

Now having identified the need to invest and understood and identified our attitude to risk, there are

two simple ways to invest, you can either employ the services of an advisor or if you are comfortable

with your own investment decisions you can take control and invest yourself.

Cautious

Cautious growth is intended for investors who are risk adverse and value capital protection over capital

growth.

Balanced

Balanced growth is intended for investors who are looking to benefit from global growth with some

defensiveness.

Aggressive

Aggressive growth is intended for investors seeking growth who are willing to accept a greater degree of

risk. Once this has been identified then we can start to build a portfolio of investments to suit the risk

profile.

Portfolios

Now having identified the need to invest and understood and identified our attitude to risk, there are

two simple ways to invest, you can either employ the services of an advisor or if you are comfortable

with your own investment decisions you can take control and invest yourself.

Cautious growth is for the more risk adverse investor looking for steady growth with low volatility. The

portfolio is constructed with approximately 1/3 large cap dividend producing equities, which tend to be

less volatile.1/3 fixed interest, which are less volatile than equities and 1/3 Multi Asset absolute return

funds which aim to produce steady uncorrelated returns.

Balanced growth offers a medium level of risk and is aimed at investors looking to benefit from global

equity markets. The portfolio has the majority of its assets being invested in developed markets covering

defensive companies along with more dynamic mid and small cap companies, about 1/6 of the portfolio

is invested in fixed interest assets.

Aggressive growth is for the investor looking for pure growth, is comfortable with a higher degree of risk

and is willing to have exposure to Asian and Emerging Market equities. The Aggressive growth is an

unconstrained global equity portfolio, with exposure to large, mid and small cap companies. It has the

potential to produce greater returns by investing in faster growing regions and more dynamic

companies but does come with a greater degree of risk.

The Income portfolio is for investors seeking a regular income with the potential for moderate growth.

The portfolio is invested across fixed interest assets within the credit quality spectrum including

defensive dividend paying companies. This combination aims to provide moderate growth over the long

term whilst paying dividends throughout the year.

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