Act now, while ‘stocks’ last…..!

As the Christmas and New Year festivities fade into memory it may now be time to re-focus your attentions on your financial affairs.  We are now less than three months away from the end of the financial year and a valuable allowance may still be unused.

Our previous newsletter covered the uses, practicalities and tax advantages of an ISA and now may be the time to explore this in more detail before the current allowance of £10,200 per individual is lost.

The information detailed explains the major issues investors face when investing in an ISA and the considerations that have to be made to maximise the potential of the ISA investment.

Asset Allocation

There is no simple formula that can find the right asset allocation for every individual. However, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. In other words, the selection of individual securities is secondary to the way you allocate your investment in stocks, bonds, cash and equivalents, which will be the principal determinants of your investment results.  By investing across the major asset classes you are hedging the portfolio against itself.  As a general rule, when one asset class is not performing well, an alternative asset class is often performing rather strongly, which will have the effect of compensating for, and ensuring any losses incurred through the weaker asset class are counter-balanced to a degree.

Diversification

Once an appropriate asset allocation model has been implemented it is vitally important to understand the correlation between investment risk and reward and why diversification is so important. By diversifying investments across funds and fund managers, you are controlling and managing, and to an extent lowering, the overall risk of the portfolio.

Risk versus Reward

Gresham Wealth Management Ltd operates four risk graded portfolios for the ISA investor, namely Cautious, Balanced, Moderately Adventurous and Adventurous.  The more cautious the investor the less exposure there is to equities with a higher exposure to fixed interest and property.  Conversely, as you move up the risk scale, the exposure to equities increases with less exposure to fixed interest and property.

Cautious Portfolio

The aim of the portfolio is to achieve positive returns through the use of a diversified portfolio of professionally managed assets with the emphasis on protection of the capital sum over the medium to long term.

The current asset allocation is 47% Fixed Interest, 18% Property, 8% UK Equities, 23% International Equities and 4% Cash.

Returns over one and three years are 11.78% and 27.08% respectively.  This is in comparison to the IMA Cautious Managed sector which has returned 8.04% and 5.84% over the same time periods*.

Balanced Portfolio

The aim of the portfolio is to achieve positive returns through the use of a diversified portfolio of professionally managed assets with the emphasis on above average capital growth with short term volatility.

The current asset allocation is 26% Fixed Interest, 13% Property, 13% UK Equities, 44% International Equities and 4% Cash.

Returns over one and three years are 13.88% and 27.07% respectively.  This is in comparison to the IMA Balanced Managed sector which has returned 11.41% and 5.95% over the same time periods*.

Moderately Adventurous Portfolio

The aim of the portfolio is to achieve positive returns through the use of a diversified portfolio of professionally managed assets with the emphasis on capital growth over the longer term with the potential for significant short term volatility.

The current asset allocation is 7% Fixed Interest, 13% Property, 22% UK Equities, 54% International Equities and 4% Cash.

Returns over one and three years are 18.48% and 26.51% respectively.  This is in comparison to the IMA Active Managed sector which has returned 13.62% and 4.98% over the same time periods*.

Adventurous Portfolio

The aim of the portfolio is to achieve positive returns through the use of a diversified portfolio of professionally managed assets with the emphasis purely on capital growth over the longer term with the potential for significant short to medium term volatility.

The current asset allocation is 12% UK Equities, 86% International Equities and 2% Cash.

Returns over one and three years are 20.20% and 30.65% respectively.  This is in comparison to the IMA Active Managed sector which has returned 13.62% and 4.98% over the same time periods*.

Overview

An ISA should be viewed as a medium to long term investment.  Gresham Wealth Management Ltd will review the asset allocation and underlying investment funds on an ongoing basis and rebalance the portfolio accordingly.

We can now confirm that the ISA allowance for the 2011/12 tax year is £10,680.

For further information or to discuss ISA investments in more detail please call on 0161 973 9150 or email [email protected]

Please note that past performance is not a reliable indicator of future returns.

You should be aware that the value of an investment can fall as well as rise and that investors may not get back the amount they invested.

*Source: Analytics, periods ending 06 January 2011

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