Investments

The term ‘investment’ can mean different things to different people.

For you, it might mean “making my money grow” or “getting a decent income from my capital”. While these may seem like simple concepts, the current low interest rate environment could render the achievement of an investment return that meets your expectations more challenging.

Even in an economy with higher interest rates, such as those seen during the 1980s, the impact of tax and high inflation can also work against savers, combining to diminish the buying power of cash.

Regardless of the wider economic backdrop, generating good investment returns has never been simple.

Investment

1. Setting your investment objectives

Identifying your goals is the key starting point for your investment plan. As with any journey, you can only plan your route map after you have decided upon your destination.

For example, you might be aiming to build up a capital sum that you can access at a predetermined point in the future, or to produce a certain level of income after a set period of time. Thinking about your goals (there may be more than one) will influence your investment strategy.

If you think the objectives you’ve set are likely to change, it’s important to be clear about this up front. It then makes it much easier for us to build an appropriate level of flexibility into our recommendation. Once we have agreed on your objectives, it is advisable to stick to them unless circumstances force you to rethink. While altering your destination mid-journey may not cause problems, you could find that you have been heading in completely the wrong direction, wasting time and money.

2. Establishing your attitude to risk

Risk is a short word, but it is a major factor in deciding how – or even whether – your investment goals can be achieved.

  • Market risk: This is the general risk that comes from the political and economic environment, which ultimately drives the valuation of investments.

  • Inflationary risk: This can be defined as the risk that inflation will erode the buying power of your investment. This is a major risk affecting all deposit-based investments in low interest environments, as well as any fixed interest investments, such as bond related funds.

  • Regulatory risk: This is the risk that financial regulations could change in future, thereby reducing the returns available on your investment. A good example of an industry impacted by regulatory risk is the utility sector, where companies’ earnings are largely dictated by regulatory decisions.

  • Event risk: External events – be they political, social or natural – have the power to alter investment values almost instantly and they can be completely unpredictable.

  • Currency risk: If you invest in foreign markets or currencies

  • – or UK companies exposed to foreign markets – your returns are likely to be influenced by the relative performance of the pound.

3. Choosing your investment strategy

As previously mentioned, it’s important to consider the level of risk you are prepared to accept. We firmly believe that the single most effective way to reduce investment risk is to diversify your portfolio.

 

One way of achieving this is investing in funds, rather than individual stocks. What’s more, because your money is pooled with many other investors’, the cost you pay for this diversification is low.

 

The first thing to consider is the different types of funds available and identify those which will suit you best. We offer over 140 recommended funds, including the Omnis investment funds range.

i. Omnis Investments

As part of Openwork, we have access to the Omnis Investments fund range.

 

Each fund in the Omnis range is managed by a specially selected expert fund management group, each of which has demonstrated years of experience and excellent fund management performance in their particular specialism.

Omnis offers a range of funds, which appear in four different kinds of investment solution:

  • Sector Funds

  • Multi-manager

  • Managed

  • Income

For more information about Omnis Investments, please visit omnisinvestments.com

ii. Recommendable funds

This range includes around 106 funds, each one individually approved by the Openwork Investment Committee, categorised within its risk-profiling system and managed by a wide range of highly rated external fund managers.

Oversight of your investment

You can rest assured knowing that your investment will be overseen by a group with a huge amount of investment firepower and members who not only represent Openwork’s senior management, but also external investment professionals, with the skill and expertise to offer wider perspectives. This group oversees all aspects of Openwork’s investment offering – both our list of available funds and the Omnis range.

In essence, the group’s top priority is to take full advantage of our key belief and provide some of the market’s very best fund managers to take care of your money.

4. Tax considerations

Tax can have a significant impact on your investments. Investing in the same fund at the same time, but through different ‘tax wrappers’ (the specific type of investment, eg. ISAs, pensions, etc), could deliver totally different returns.

  • Direct ownership exposes you to full Income Tax on the interest paid, as well as Capital Gains Tax on any profits, but only once you have exhausted your annual capital gains exemptionfor the year (£12,300 of gains in 2020/21).

  • Ownership via an ISA is free of UK Income Tax and Capital Gains Tax. The ISA allowance for 2020/21 is £20,0002. 

  • Ownership via a registered pension plan also means you don’t have to pay any UK tax while you hold the investment. You also normally benefit from Income Tax relief on your initial investment; however, you usually have to pay full Income Tax on 75% of any amount you withdraw, with the balance being tax-free.

  • Ownership via a UK investment bond subjects your investment to special life company tax rules – which broadly taxes the total return at 20%. You also have to pay an extra tax charge if you are a higher or additional rate taxpayer when you realise your investment4.

  • Ownership via an offshore investment bond usually means you don’t have to pay any UK tax until you realise your investment, at which point you’ll pay full Income Tax on all of your gains5.

 

Selecting a tax wrapper

As part of our investment strategy design process, we will consider and recommend appropriate tax wrappers for your investment.

Again, this will involve a careful consideration of your investment goals, the income and capital returns from the fund, your current and future tax position, as well as factors like ISA and pension contribution limits.

 

The selection of wrappers will most likely be an ongoing exercise, as HM Revenue & Customs tax rates, as well as your own tax circumstances, will most probably change over time.

5. Ongoing management of your investments

Despite our best intentions, personal circumstances can change - especially over the course of a long-term investment strategy.

And, even if your circumstances and investment goals remain unchanged, other factors beyond your control may have an impact on your investment strategy. For example:

  • The economic environment can change

  • A portfolio can become unbalanced if one part performs better – or worse – than expected

  • Tax rules will inevitably change, meaning your personal tax position could also alter

 

All of these possibilities – and others – could prompt a tactical or strategic change in your portfolio.

As such, regular reviews will play a vital role in keeping your investments on track – a point which is frequently overlooked by ‘do-it-yourself’ investors. If you want us to, we can provide an ongoing review service to help you meet your goals in the years ahead.

Savings

Saving is essential for most of us, we all have a friend who doesn’t save anything and expects us to bail them out all the time. Don’t be that friend!

Savings accounts

Savings accounts are great way to save money for short term needs. They don’t generate much if any growth but the money will still be there when you need it.

ISA

Ownership via an ISA is free of UK Income Tax and Capital Gains Tax. The ISA allowance for 2020/21 is £20,000. You can use it to save in a bank account or hold investments.

LISA

A LISA or lifetime Isa was set up to incentivize saving for your 1st home and old age. Each tax year you can put up to £4,000 in it and receive a £1,000 bonus from the government. The downside is you are penalised if you withdraw the money for any other reason.

Premium Bonds and other NS&I Treasury backed accounts

Premium bonds and NS&I accounts and save but very low yield investments. You will not lose the amount of money you invest but its value will fall each year.

On and Offshore investment bonds

Bonds allow you to choose when to generate a taxable income and don’t require you to do a tax return in the years you don’t. The sale benefits from top slicing so you are not penalised, the gain is divided by the number of years you have owned it. 

Offshore

Ownership via an offshore investment bond usually means you don’t have to pay any UK tax until you realise your investment, at which point you’ll pay full Income Tax on all of your gains if you are resident in the UK.

Onshore

Ownership via Onshore bonds are partially taxed as the grow so are deemed to have paid 20% tax when they are sold.

Investment trusts

Investment trust are large limited Liability companies that invest in bonds, derivatives and shares of other companies. You can buy shares in an investment trust to get exposure to lots of companies in just one transaction. The value of the investment trust shares goes up and down depending on demand, that happens independently of the share price of the companies it owns. This can be a big advantage, a lot of investors sell when share prices falls, investment trust don’t need to sell shares to return the money invested by the owners, the owners just sell the shares to another investor. For those investing for the long term this means greater returns, for those selling at the wrong time it can mean selling at a discount to the net asset value of the investment trust. Investment trusts can borrow additional money to gear the investment which can either increase the gains or losses depending on the market fluctuations.

Unit Trusts OEIC

Unit trusts and  OEICs buy and sell shares to meet customer demand and the value of your investment in them is the same as the value of the shares they hold.

Attitude to risk

Risk is a short word, but it is a major factor in deciding how – or even whether – your investment goals can be achieved.

  • Market risk: This is the general risk that comes from the political and economic environment, which ultimately drives the valuation of investments.

  • Inflationary risk: This can be defined as the risk that inflation will erode the buying power of your investment. This is a major risk affecting all deposit-based investments in low interest environments, as well as any fixed interest investments, such as bond related funds.

  • Regulatory risk: This is the risk that financial regulations could change in future, thereby reducing the returns available on your investment. A good example of an industry impacted by regulatory risk is the utility sector, where companies’ earnings are largely dictated by regulatory decisions.

  • Event risk: External events – be they political, social or natural – have the power to alter investment values almost instantly and they can be completely unpredictable.

  • Currency risk: If you invest in foreign markets or currencies – or UK companies exposed to foreign markets – your returns are likely to be influenced by the relative performance of the pound.