It would never do to disappoint my mother but the truth is that I do not follow large-capitalisation stocks in detail. The other end of the scale is better for wealth creation.Look at the tax benefits available and you too might wonder why big companies are deemed a good thing. Should it not be the case that large stocks make up a proportion of a private individual’s portfolio while smaller companies make up the majority? An IFA who telephoned me at home recently was sure that I had an inheritance tax problem which could be solved by investing in bonds and large-capital- isation stocks. I was deemed mad, I suspect, by respond- ing that I would solve the problem by investing in shares on the Alternative Investment Market. The role of small company investment needs rethink- ing. In a low-interest-rate, low- inflation and possibly low-growth environment, investors should be seeking exceptions. With individuals having to take on more responsibility for their own retirement planning, shouldn’t small companies form the basis of their portfolio during their working years? The Chancellor recognises the wealth creation that small companies can provide over the longer term and, via the enterprise investment scheme, has engineered an opportunity for individuals to become “business angels” and defer the payment of any tax on their gains. Rather than invest in single companies, individual can also use venture capital trusts to buy into a portfolio of small companies, with the benefits of diversification and participation in the new issue market, which has become much more difficult in recent years. Small companies are, of course, conventionally classified as risky. Yet when Marconi failed, or Enron or Railtrack, the damage to private savings, even via institutional funds, was substantial. It has been estimated that Marconi’s collapse cost that company’s small investors the equivalent of the smallest 1,200 or so quoted companies going bust simultaneously. Interestingly, there are now over 1,200 companies traded on Aim, yet surprisingly few of its companies have gone bust. In fact, the industrial diversity of Aim means that a well chosen portfolio might be suitable for any investor. Many small Aim comp- anies represent good long- term investment value. Specialists in Aim poten- tially find growth comp- anies early. Examples include Furlong Homes, until it was acquired and reappeared as Telford Homes, Mears, AI Claims Solutions, MacLellan and others sold successfully from our portfolios such as Minorplanet, Infobank, Range Cooker and Genus. If, as I believe, Aim is where young companies grow up and develop, then, as A-Day approaches, there should be growing awareness of the virtues of small companies, of their potential capital growth and of the good they do the UK economy – as well as anyone’s pension arrangements. The oft-quoted research by Dimson, Marsh and Staunton remains valid for longer-term investors. They concluded that 1 invested in the UK equity market in 1955 would have grown, with reinvested dividends, to a nominal value of 592 at the start of 2000. In small-cap stocks, such an investment would have grown to 1,676.
Capita Group is in talks with Zurich Financial Services concerning a potential business relationship. The business processing and outsourcing firm says the talks involve assistance with operations within Zurich’s UK life business. Zurich says talks are in early stages but has confirmed discussions are going ahead with relevant staff.
Bank of Ireland has completed the sale of its Bristol & West branch network and associated deposit book to Britannia Building Society.The completed price is 150m. The profit on disposal of the branch network is expected to amount to approximately 120 million after tax and will be reflected in the Interim Results for the half […]
Legal & General is offering a sixth tranche of its protected capital growth plan, with returns linked to the performance of the FTSE 100 index. The product, which runs for six years, offers a minimum of 21 per cent growth or 50 per cent of the rise in the FTSE 100 if this is greater. […]
Individual fund selection rather than asset allocation is the driver for returns in the current economic climate, according to Jupiter’s multi-manager team.
Targeting annuity purchase in lifestyle strategies isn’t anything new but we’ve just lifted the bonnet and injected an enhancement shot into the end-point of these solutions. The recent volatility has shot short-term volatility into equity markets and painted a very turbulent backdrop but we’re also equally faced with a stressed fixed interest environment. This can […]
- Top trends
- Top trends
- Revealed: Fidelity International director investigated over harassment claims
- Lifetime allowance 2018/19 increase confirmed but pensions absent
- How much are advisers charging for pension transfers?
- Steve Bee: Why still no justice for Waspi women?
- Robert Reid: Don’t let social media comments diminish our profession
News and expert analysis straight to your inboxSign up
Latest from Money Marketing
Transact saw funds under direction marginally increase to £29.8bn in the second quarter of 2018, according to a stock exchange announcement from parent IntegraFin Holdings. IntegraFin listed on the London Stock Exchange in March with a £650m valuation. In a Q2 update today, the company says funds under direction at the close of the three-month […]
The impact of weaker markets saw funds under management at St James’s Place drop in the first quarter of the year, when compared to its Q4 2017 result. In an update this morning, SJP says funds under management at 31 March 2018 were £89.9bn, down from £90.8bn in the previous quarter. On a year-on-year basis, funds under […]
The Department for Work and Pensions expects to spend £96.6bn on the state pension in 2018/19, a 3 per cent increase on the year before. The DWP has detailed its cost estimates in a memorandum sent to the work and pensions select committee, published on its website yesterday. The latest forecast for state pension costs […]