accumulate sufficient wealth to bring us to – and by – retirement usually requires near-life savings and patient investment.
It involves placing money in the construction company, buying a house (perhaps also a buy-to-let), paying the work pension, managing a share portfolio and taking out a tax-friendly Isa.
Often the journey is smooth, but on occasion the hiccups start to frighten – unexpected events such as redundancy and nerve-racking episodes such as sliding stock markets. Certainly, recent recent sharp declines in equity prices have unsettled many investors.
Solid foundations: there are some key elements that should be in everyone's portfolio
Anyone who builds long-term wealth must diversify its assets by combining risky but potentially rewarding investments with cash.
Here we highlight some of the foundations that should support a portfolio.
No asset portfolio should be without money. It should not only be there to meet financial emergencies or requirements – a new car or an unforeseen trip – but to offer a counterweight to risky assets. It is the ultimate ballast.
Forget that the return on cash is meager and lower than inflation. Remain stuck to the fact that £ 1,000 saved in the future means at least £ 1,000 in the future, with a steady infusion in between.
Of course, you must act smartly and ensure that your savings are protected by the Financial Services Compensation Scheme. So do not save more than £ 85,000 with a bank or construction company.
Investment platforms are increasingly trying to attract money savings. For example, Hargreaves Lansdown now offers an Active Savings & # 39; service that allows customers to store in a series of savings accounts for a specified period of time. It means that investors can also be savers under one online roof, so they can easily monitor a large part of their portfolio.
A necessity: no capital portfolio without cash
Active savings are not without defects. It currently only offers access to nine providers – from the well-known, such as the Coventry Building Society, to the lesser known ones, such as Close Brothers and Vanquis.
This means that none of the best rates in our best-buy table on page 107 is embraced by the service. Money can not be held under the duty-free wing of a Self-Invested Personal Pension (Sipp) or an Isa, although Hargreaves Lansdown says that this will be possible sooner than later.
Other cash management services are offered by Flagstone, Octopus and Raisin. They all differ in terms of available accounts, how they work and fees – some cost savings, while others charge the providers' fees. Reviews from all four platforms are available at savingschampion.co.uk.
Anna Bowes, director of Savings Champion, says: & # 39; The emergence of cash management platforms is welcome. It means that savers are escorted to better savings. Hopefully more choice will be available as the platforms increase in popularity. & # 39;
Savings Champion, an assessor of rates, offers both a & # 39; money advice & # 39; as a & # 39; concierge service & # 39; which savers can maximize the return. Both services are for a fee.
Just like cash, no asset portfolio should be without a sprinkling of products from National Savings & Investments.
In fact, the government offers the savings arm, no other provider offers more financial security.
The choice of products is more limited than before, but popular wallets include Premium Bonds (with a maximum of £ 50,000), offering tax-free prices ranging from £ 25 to £ 1 million per month.
Security: like cash, no asset portfolio should be without products from National Savings & Investments
Income bonds remain a favorite and pay a monthly income equivalent to 1.15 percent per year (with a maximum of £ 1m), as does the Direct Saver account, a bill without notification that pays 1 percent (with a £ 2m) saving limit).
Patrick Connolly is a chartered financial planner with Chase de Vere. He says that National Savings & Investments is an integral part of the portfolios of many customers and adds: & With NS & I savers get a name and a brand that they can trust and that is supported by the government. They can also benefit from competitive interest rates for some of their products. & # 39;
Gold is considered by many to be a safe haven in stormy times. In the past months, while stock markets have undergone a correction and economic tensions have risen, the gold price has risen.
From a low of 2018 in August of $ 1,180.40 per troy ounce, the gold price has risen to just under $ 1,300.
A recent survey of precious metal investors by online precious metal dealer Bullion Vault indicated that almost one in four is of the opinion that the gold price could rise by as much as 20 percent this year – with the consensus for a 10 percent increase. For investors there are different ways to get exposure to gold.
Safe bet? Gold is considered by many to be a safe haven in stormy times
The cheapest approach is to buy an investment that follows the gold price. These are called exchange traded funds or ETFs and are offered by iShares (part of asset manager BlackRock) and Invesco. They can be purchased through a stock broker and most fund platforms.
Purchases will incur a trade expense and there will be a continuous annual fee for the fund. IShares Physical Gold, for example, calculates 0.25 percent.
An alternative approach is to buy a fund with exposure to gold, such as personal assets, Rathbone Strategic Growth or Ruffer. More targeted funds include BlackRock Gold & General and Ruffer Gold.
With the exception of personal assets, these funds invest in shares of gold mining companies instead of physical gold.
Finally, physical gold (bars and coins) can be purchased from an online precious metal dealer – such as Goldcore and Bullion Vault – or the Royal Mint. Buyers can have it stored – against payment – or have it delivered, but investors who choose the second option must have a safe place somewhere to keep it.
The Royal Mint has just launched its sovereign and semi-sovereign gold coins for 2019, £ 259 and £ 136 respectively.
Do not be put off by the unfriendly label. These plans offer returns linked to the stock market, but with built-in protection, so that they can generate profit if share prices fall or go sideways.
They can best be explained with an example. Mariana Capital has just launched 10:10, a plan with a maximum lifetime of ten years, but that can be terminated earlier, depending on how the FTSE 100 index performs on the hundred top shares of the London Stock Exchange.
There are three options available, but they all require an investor to stay on their hands for two years. When the stock market closes on February 22, 2021, the level will determine whether the plan continues or ends (known as & # 39; kick-out & # 39;).
Structured plans: these plans offer returns linked to the stock market, but with built-in protection
Under option one, which is the least risky option, if the footsion is more than 2.5 percent higher on February 22nd 2021 than on February 22nd of this year (when the plan started), the plan comes to an abrupt end.
The investor receives an annual return of 9.44 percent for the two years they have secured their money.
So for an investment of £ 10,000, they receive £ 1888 plus their £ 10,000 back. The profit is treated as a capital gain in the tax year that it is received. Under option two and three, the plans kick on the same date as the footsie is at the same level or higher, in the case of option two.
In case of option three, it starts when the footsie is more than 5 percent higher. In these cases, investors receive £ 2,456 and £ 2,902 respectively, plus their £ 10,000 back. This corresponds to an annual return of 12.28 percent and 14.51 percent per year respectively,
If the index levels are not reached (and there is no kick-out), the plans will continue for another year. Then, under options two and three, the same test is applied again, resulting in the continuation or termination of the plan, resulting in a payment of £ 3,684 (for option two) or £ 4,353 (for option three).
Option one is more complex, as the kick-out threshold falls each year, which means that investors are more inclined to get their money back.
Caution is required: structured plans can not easily be thrown overboard, so investors need to be willing to hold money for a while
For example, if the footsie is at the same level on February 22, 2022 or higher than on February 22, 2019, the plan ends, resulting in a gain of £ 2,832.
And on 22 February 2023 it only has to reach 97.5 percent of its original value. But there is a stitch in the tail. If the footsie falls more than 30 percent at the end of ten years, an investor loses part of his original investment, which corresponds to the fall of the market.
So if the index has dropped by 35 percent, an investor gets back only £ 6,500 of his original £ 10,000. Each drop in the index of less than 30 percent results in an investor reclaiming £ 10,000, but of course they have lost the interest they would have earned if the money was in a savings account.
Ian Lowes, managing director of Lowes Financial Management, follows structured plans. He believes that the products & # 39; have a lot better & # 39; are than they were. He says: & # 39; They provide defined outcomes for investors on set dates and under certain circumstances.
Stephen Womack, a chartered financial planner at David Williams IFA, uses them for clients. He says: & # 39; They can yield a positive return, even if the stock exchanges are flat or low. I also like the kick-out feature that forces an investor to take profits. A mistake that many investors make is sticking to investments for too long. & # 39;
Yet they are not without risk. They can not easily be thrown overboard, so investors must be willing to hold money for a while. Investors can also lose money. Moreover, not all plans are covered by the Compensation Scheme for financial services. But it is the plans that are not covered by the FSCS like 10:10 which are the most lucrative.
This concerns the financial stability of the investment bank behind the plan, which is responsible for fulfilling the promises of the plan. It is called the counterparty.
If it gets into trouble or goes bankrupt, investors can suffer huge losses, as some of them when Lehman Brothers – a counterpart of plans that were set up in the mid-2000s – hit the buffers in 2008.
In the case of 10:10 (written according to the Cayman Island law) the counterparty is Goldman Sachs. Others include Citigroup, Credit Suisse and HSBC. Although many structured plans can be purchased online, Womack recommends asking for advice because the products are complex. He adds: "They can account for 15 percent of a new portfolio that we recommend today. & # 39;