The main purpose of investment and financial planning is to create financial independence. This is when you own the properties in which you want to live and have guaranteed income after tax that is greater than your budgeted expenditure. In your case, the planning needs to ensure that all of your children’s education fees can be paid without a detrimental loss to yourself.
It is important that your assets are invested in a tax-efficient manner in order to create spare income or capital for you or your intended beneficiaries.
An individual’s tolerance to risk varies based on the time period of investment and how speculative he or she wants to be. In order to achieve long-term real returns, it is necessary to invest in asset- backed investments and you can do this through funds and investment bonds.
My recommendation is that a balanced portfolio is constructed predominantly from the main asset classes because investing in a number of different holdings across the asset classes will be lower risk and less volatile than a small number of holdings.
The underlying asset classes in the portfolio will be equities, property and bonds which all tend to perform differently.
It is currently difficult to make certain profit as there still a considerable level of volatility and unpredictability in the markets but there are undeniably exceptional opportunities in all the asset classes.
As to whether you invest in collective investment schemes or investment bonds depend on your tax position. It may appear that in terms of capital gains tax that unit trusts and Oeics that deliver capital growth may be suitable, with the flat rate of 18 per cent. However, I am aware that you often sell pieces of art that will use up your annual tax-free allowance currently set at £10,100.
If I recommend to you in the future that you need to change the underlying funds in a unit trust or Oeic, this will be deemed as a disposal and will be subject to CGT. Also, if you want to take money out of the investment, units or shares are cashed in and this again triggers a CGT disposal.
Any of the above actions will need to be declared on your tax return apart from the investments held in an Isa.
Investment bonds are deemed as non-income, non-capital gains tax-producing investments. You can change the underlying investments without worrying about a tax charge. If you need to take money from an investment bond, you can take a 5 per cent amount of the original investment each year and no immediate tax is paid. As long as the stated maximum withdrawal limits are not exceeded and you hold the investment until you become a basic-rate taxpayer in retirement, then no tax will be due.
I therefore recommend to you a balanced selectively global investment portfolio including both collective investment schemes and investment bonds.
Kim North is founder of Technology and Technical