Whether it is savings you have built up, a redundancy package (a Stamrecht construction for example) or money from the sale of a property, one should investigate about how to sensibly invest for the longer-term.
Stock markets have enjoyed a relatively fruitful time since the lows of spring 2009, with the S&P 500 index, EuroStoxx 50, and FTSE 100 gaining around 75%, 55% and 66% respectively up until July this year.
However when markets see a drop like we have seen (the Eurostoxx 50 lost 20% through August and September) it usually provokes one of two reactions - either concern / anxiety / panic and a reluctance to invest ANY savings in equities, or indeed you see it as a great opportunity to invest at lower prices (buying low to sell high) and get prepared to pick up a bargain.
Many bank savings accounts are failing to pay an interest rate which is any higher than inflation. This means that the value of your long-term savings can be eroded simply by leaving them in the bank.
I have some savings which can be set aside. What are my options for investing?
First, it is always recommended to leave some savings as accessible cash in the bank (at least 6 months income, which you can easily access if required).
Second, you need to establish your attitude to investment risk and return, or your "Risk Profile" as it is known. This should be fully clarified before entering into any investment.
Third, your time horizon is a crucial factor (how long do I have before needing this money?).
"Capital protected" options
There are many of these products available (most often promoted by banks) however not all of them are considered good value.
Independent advisers are in a position to research out the more attractive and sound offers. Characteristics of these products vary however they normally involve "tying up" savings for between 3 to 5 years, offer 100% protection of your capital while your overall return is linked to stockmarket growth.
Recently, the Spectrum IFA Group managed to negotiate exclusive terms with one provider that guaranteed an 8.15% return after one year (a cash deposit) on half of the invested amount, with the other half remaining invested for a further four years.
The return on the second half of the investment is dependent upon market performance, subject to a minimum return of 5%; a very popular plan and it is expected that a similar offer will be available soon.
We were also involved in the creation of a Protected fund from CitiBank and BlackRock which offers 80% capital protection, with a profit lock-in feature. This gives the investor exposure to equity growth with some downside protection. This is a daily-traded fund and so does not have any lock-in period.
Other capital protected plans that offer good value include a product from Barclays Bank which offers a 5-year plan with 100% capital protection and a potential return of 55%, depending on the averaged performance of the FTSE 100 Index. Investors who would like to benefit from positive stockmarket performance, but who are not comfortable with the risk of loss, may be attracted to this sort of plan.
There are also so-called "Kick-Out" Plans which offer a guaranteed rate of return, without the need for a rise in markets. For example, one investment grows at 9.5% per annum, with the return paid out as long as markets are at or above the same level as the starting point at any given six-month point, from and including the end of month 12. The plan "kicks-out" if at one six-monthly point (after year one) the index is at or is higher than its starting point.
It must be noted here that capital is at risk if markets fall by more than 50% at maturity and because of this we would highly recommend that investors take professional advice from a qualified adviser before investing in capital protected plans. What is crucial is who is providing the guarantee; the strength and regulation of the bank or counterparty must be analysed.
Diversification
The golden rule about investing! It is rarely advisable to "put all of your eggs in one basket" by choosing juts one option. You should try to split your capital between your preferred options and sit them together in a well-diversified, tax-efficient portfolio.
Review regularly!
Once investments are in place it is important to keep track of them, reviewing at least twice a year.