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Personal finance - investing for growth

In the fourth feature of our series on personal finance, Ric Belcher urges GPs to invest their hard-earned money wisely

In the fourth feature of our series on personal finance, Ric Belcher urges GPs to invest their hard-earned money wisely

At some point in our lives most of us will be in a position where we have to save for the future. In an ideal world we would all enjoy a high return with no risk and with no tax to pay on the proceeds. We would also enjoy having full access to the money that we have saved whenever we wanted it. However, in the real world it is unlikely that we will have all of these features wrapped up in one particular asset.

If we cannot have this perfect investment, we must choose a spread of investments to reflect different levels of risk, access and tax efficiency. To most investors, whether experienced or not, it is generally recommended that you seek independent financial advice, preferably from a firm of financial advisers or IFAs that has many years' experience in providing bespoke investment advice.

When meeting with an adviser, you should take time to get an accurate understanding as to the level of investment risk that are associated with different investments, and to ensure that your adviser can help you manage the expectations that you might have on any particular investment type. Many advisers will ask you to complete a risk profile questionnaire which, in conjunction with sophisticated computer software, can help to select a range of investments to suit your needs and meet your own goals and objectives.

Normally, the first port of call, once one has considered deposit accounts for rainy day money, will be to consider an Individual Savings Account (ISA). This is effectively a tax-efficient wrapper in which you can hold either stock market-based investments (shares or unit trusts) or a traditional deposit account. As an incentive, any interest earned on savings or bonds and any capital gains made on investments held within an ISA are tax free. This is particularly good news for higher rate tax payers, who are taxed at the rate of 40% on all their savings and investment income.

There is a limit on how much you can invest each year. ISAs come in two types, maxi and mini, and there are rules surrounding how much you can invest into each.

Unit trusts are collective funds which allow private investors to pool their money with thousands of other investors into a single fund, potentially spreading their risk, getting the benefit of professional fund management, and reducing their dealing costs. This can be more attractive to novice investors than having direct holdings in shares listed on the UK or overseas stock markets. Before purchasing such an investment, be sure that you understand the risk profile of the asset that you buy. You may have a liability to capital gains tax upon encashment of a unit trust or a shareholding that is held outside of an ISA wrapper.

In recent years, many investors have perceived the UK Property market to be a strong performing, low risk investment. Whether investing in commercial property funds as part of their pension or ISA, or having a direct property holdings such as a buy-to-let residential or commercial property, many investors have seen a slowdown it this particular asset class, due to higher interest rates, a higher risk of being unable to let properties and concerns about property prices generally. Again, while most portfolios should have some exposure to property it should not be considered as a risk free investment. Under current rules, rental income will be taxed as income unless offset against interest costs and other expenses and profits on the sale of property could be liable to Capital Gains Tax.

Whichever route you choose, regular reviews of your investments are as important as the initial selection of your particular investment. Just because one particular asset has performed well in the past, there is no guarantee that it will continue to do so in the future, and you must therefore ensure that your adviser or you directly, carries out regular reviews of the investments that you hold. You must be prepared, at some stage, to expect tweaks and adjustments to your holdings to ensure that it remains on target to meet the goals and objectives that you had set. Indeed, a professional IFA should review what existing savings and investments that you have at the same time as, if not before, he advises on new investments. Please note that the value of these investments may fall as well as rise, and should generally be looked upon as a medium to long term investment (5 to 10 years).

Over the next year or so, all healthcare professionals will need to take advice over their long term financial position because of the choices that must be made about NHS Pension; the biggest investment of them all.

Ric Belcher is a partner with Medical Money Management and has been advising GPs for over 17 years. Medical Money Management is authorised and regulated by the Financial Services Authority.

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