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Wrap up winners

People who have spare money to invest at the moment are presented with a tremendous and potentially unprecedented opportunity.

Equity markets are still looking extremely attractive in the medium to long term despite a recent recovery over the last month or so, corporate bonds are looking good in the short term and, while we may not have seen the worst in commercial property markets yet, property still offers some relatively good long-term value when compared with prices a couple of years ago.

I am not saying we have reached the bottom of the market for any of the above asset classes but, relatively speaking, they all look attractively priced as medium to long-term investments.

When we bear in mind that, for many investors, their main aim is to achieve a long-term return better than might be reasonably expected from leaving funds on deposit, then that is where the benefit of a diversified investment comes in.

It should be noted that diversification does not provide investors with immunity from the risk that their investment may fall as well as rise, as was most certainly the case for many investors last year, where generally the only asset classes posting positive returns were gilts, global bonds and cash.

We all know what has happened to cash returns over the last six months as the Bank of England has slashed bank rates with the resulting effect on deposit rates but this has just restored balance to the investment universe.

In October last year, investment guru Warren Buffett said: “Today, people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”

Well, I think those people are maybe not feeling quite so comfortable now and those who have sheltered savings in deposit accounts over the last year will have to start looking at investing once more to achieve their longer-term goals.

If spreading investments is to be advised, what products should consumers consider?

There are a host of different tax wrappers available, ranging from Isas and pensions to investment bonds and collectives, each of which offers differing benefits that meet differing needs.

There is a wide range of options available to investors but, by using a suitably qualified independent financial adviser, clients can not only ensure that the appropriate wrapper is matched to the their needs but also that the most appropriate provider is recommended, based on research from the whole of market.

With the end of the tax year just past, attention is naturally drawn to the Isa. It seems hard to believe that Isas have been around now for 10 years but I still definitely see them as a worthwhile investment vehicle and, despite their relatively low contribution limits, Isas still present themselves as one of the most effective savings regimes available.

Recent legislation now makes it possible for those considering an Isa but initially not wanting to invest, to effectively park their savings in cash, subject to limits, and transfer into an investment at a later date.

This allows investors to make sure they do not lose their annual allowance but it should be noted this feature is only usable one-way, as the investment cannot be transferred back to cash at a later date.

Recent research by Fidelity has shown that a higher-rate taxpayer could double their real return by wrapping their investments in an Isa rather than leaving them outside and exposed to the taxman and so, when taking this into account along with the plan’s flexibility, an Isa in most cases should still be the first port of call for investors and advisers.

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