There has never been a greater need than for investors to match their risk appetite with the relevant investments in their portfolio. At Ark Finance we assess clients risk profiles to ensure the investments chosen are matched to clients risk and reward expectations. Whether you are looking to save for the future, place funds on deposit or build a medium term investment portfolio, we can help construct the right solution for your needs.
The continued expansion of the world economy provides many global investment opportunities, across all investment classes. There are also greater opportunities for the individual investor to get access to a wider range of investment products.
Let’s look at some of the factors to consider when developing, or rebalancing, an investment portfolio.
The most important aspect of investment is establishing the target investment risk profile prior to deciding the type of investments. Obviously the greater the level of investment risk, the greater the potential for investment gains. Below are some examples of common investments and the risk rating for each.
Low Risk – Deposit accounts, government bonds, guaranteed bonds
Medium Risk – Balanced managed funds, High Yield Equity Funds
High Risk – Direct equities in main markets, leveraged property
Higher Risk – Direct equities in emerging markets, leveraged equity
It may seem obvious, but the first objective for an investor should be to make money. It is only possible to make money if your net investment gains beat the rate of inflation. If your net gains match the rate of inflation during the investment term, then you have maintained the value of your capital, you have not made any money.
It’s important to note that despite some longer term deposit rates offering security, if the net gains from those deposits do not meet the inflation rate, then your capital is loosing real value.
Many investors want a chance to make real returns (beat inflation) but do not want to place their capital invested at risk. A common dilemma is trying to establish an investment plan that gives both the potential of gains, but also minimises the risk of loss of capital. This can be achieved by diversification of an investor’s capital across a number of different asset classes (equities, cash, bonds, property and commodities) and different economic areas (Europe, USA, Asia & emerging markets).
The investment plan should set an investment term in place for each individual investment within a portfolio. Property may be held as a longer term asset, while a one year term deposit, will obviously be seen as a short term investment with a term of one year.
Access to Funds
If you need access to funds during the investment term, you will need to ensure that you can partially encash some of your investment and know what exit charges may apply. There are some investments which will pay a regular income, these may suit an investor who is looking for a regular encashment of funds.
Tax on Investment Gains
Planning for the taxation of gains from the investments is as important part of investment portfolio planning. Knowing what the tax implications are on each particular investment, may shape the investment decision at the outset. For example residential property not only opens the prospect of capital gains tax, but also opens the prospect of income tax on rental income during the investment term.