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Fall&#39s gold

I have spent the last few years using my Isa allowance to invest in equities and, having seen my investments grow, they have now fallen or remained stagnant. I have enough capital to use my full maxi Isa allowance for this year and need advice on where to invest. I am told that the best buying opportunities are when markets are low but I am a little nervous of investing in equities again as I already have enough money waiting for the markets to pick up.

I do not want to take any income from the Isa and, while I am willing to hold it for at least five years, I would like to be able to get at the money if I need to.

Obviously, I would need a great deal more information before making a recommendation but my initial thoughts would cover the following.

First, you are not alone. Many investors have lost money in the market turmoil and face exactly the same dilemma as you. They want to take advantage of their Isa allowance but are concerned that they may be throwing good money after bad if markets do not pick up for some time.

It is comforting that you have decided not to dispose of your current equity holdings and can afford to wait for those funds to pick up again as the markets lurch towards a recovery. It is probably an idea to review where this money is invested to see if your portfolio needs adjusting and I would recommend that you do this in the not too distant future.

However, for the present, we need to concentrate on investments that offer reasonable rates of return with minimal risk to your capital. Not surprisingly, the market for low-risk investments has grown in the past few years. Many product providers have launched so-called structured products that offer capital protection with high headline rates of return. While many of these products do produce good levels of return, the complicated formulae mean that early withdrawal sometimes carries heavy penalties. For this reason alone, any product that offers a fixed term is not suitable because of your desire to have access to the capital in an emergency.

There are three main types of low-risk investment that can produce reasonable rates of return – fixed interest, corporate bonds and gilts. By nature of the underlying investment class, the risk to your capital for all three is minimal.

All of them are also affected by interest rates – the lower the base rate, the lower the yield. Therefore, in the current environment, you need to pick the class that will produce the most promising opportunities for growth in the medium to long term.

Over three and five years, corporate bond funds have produced greater returns than fixed-interest and gilt funds. However, some care needs to be taken when selecting a corporate bond fund because, unlike gilts, there is a risk that the company issuing a bond can go bankrupt and default on the bond. Non-investment-grade bonds are also called junk bonds.

While there can be a greater return from these bonds, as with all investments, it is a question of balance. The type of corporate bond fund that suits your requirements needs to have a heavy weighting towards high-grade investment bonds issued by big institutions which have a much lower (although not impossible) likelihood of defaulting.

Once a fund has been identified that holds the correct balance between highand low-grade bonds, the next step is to consider the charging structure and select a fund manager that has the correct pedigree in this type of asset class.

Choosing between the funds with the correct amount of investment-grade bonds and a good track record, M&G and Britannic are bigger managers although a new entrant to catch my eye, Lincoln Unit Trust Managers, is backed by Goldman Sachs and has boosted the yield further after reducing its charges.

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