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Help me choose
Once you have decided which investment product is best suited to your financial objectives, you need to consider which funds to include in your portfolio. This will largely depend on your attitude to risk. It is important to remember that different types of funds will have very different potential returns and will expose your money to different degrees of risk. The higher levels of risk the higher potential reward and the higher potential loss.
Stock market-based investments
Putting your money into a savings account will give you an interest rate with minimal possibility of losing anything. Your capital will be secure and you will have greater certainty about growth and easier access to your savings.
Consequently, although it’s prudent to keep money you may need at short notice in a cash savings account, there is little potential for stronger growth over the longer-term and the interest you get may not keep up with inflation.
Both the Government and corporations issue bonds, which pay a specified rate of interest. These fixed-interest securities can act as a useful shelter for your money when the stock market is falling, or you wish to consider low risk investments.
While you can invest in them directly, the conventional way of holding Gilts (as Government Bonds are often known) and Corporate Bonds is to put your money into a pooled investment fund, which invests in a range of fixed-interest securities. Although not as secure or accessible, these funds have the potential to achieve better returns than a bank or building society savings account and are generally expected to be lower risk than shares, but it’s important to remember that if you receive income from an investment like this your capital may be eroded, the value of your investment and the income from it can go down as well as up and you may get back less than originally invested.
Three Halifax funds invest in fixed-interest securities:
Corporate Bond Fund
Gilt & Fixed Interest Fund
Index Linked Gilt Fund
Residential or commercial property can be used as a means of generating an income (through rent) or for long-term capital growth.
Generally such investments will be less subject to market movements than stock market investments, but the experience of the late 1980s and early 1990s should remind us that the value of property could fall significantly and past performance is not a guide to future performance. The rental property market is not without risk either as there is no guarantee that a property will always be occupied or that tenants will maintain it in a good condition.
In addition, property is not a liquid asset, meaning that it is not always easy to dispose of. As many of us know from the experience of selling our own house, the sale of any property can be subject to considerable delay.
An alternative way to invest in the property market, without directly owning individual properties, is through a collective fund, which invests in commercial or investment properties. The Property Fund invests in a carefully selected portfolio of properties from the office, shop, factory and warehouse sectors of the UK market, let on long leases to high quality tenants and with regular rent reviews.
However, while this route may be less risky than investing directly in property yourself, it is important to remember that the value of the investment can go down as well as up and you may get back less than you invested. Because it takes time to sell property, you may have to wait to get hold of your money when you cash in your fund.
Stock market-based investments
Investments can be made in companies that are listed on the world stock markets. For example the stock market in the UK is the London Stock Exchange. So your money will be invested in companies that are members of the London Stock Exchange. The value of your investments can go down as well as up and you may get back less than you originally invested.
Levels of risk
This summary aims to give you a general overview of how different funds operate and aims to help you select the ones you feel comfortable with.
Cautious
Deposit based investments where capital is secure even if it means giving up potential growth. These accounts generally provide a steady increase and easy access.
Cautious/Medium
A balance of investments offering some security with potential for long-term growth/income. The value can go up and down.( Index-Linked Gilt Fund, Corporate Bond Fund, Gilt & Fixed Interest Fund, Cautious Managed Fund )
Medium
A balance of investments offering a wide spread of investment with the potential for long-term growth/income. The value can go up and down. ( Property Fund, Managed Fund, UK FTSE 100 Index Tracking Fund, UK FTSE All-Share Index Tracking Fund, UK Growth Fund, UK Equity Income Fund )
Medium/Adventurous
Offering a narrower spread of investment in such areas as UK shares and international shares, the value of the funds can go up and down and potentially by greater amounts than the funds in the medium category. ( European Fund, North American Fund, Far Eastern Fund, Japanese Fund, Investment Trusts Fund, International Growth Fund )
Adventurous
Looking to maximise the potential returns from investments in stocks and shares, these funds involve a significantly higher risk. The ups and downs will potentially be more severe and frequent than the approaches described above. ( Ethical Fund,Special Situations Fund, Smaller Companies (UK Equity) Fund )
Compare the risk levels of different types of investments.
Pooled investments (such as the equity funds available from Halifax ) offer you access to a much wider range of stocks and shares than you would be able to obtain as an individual. This has the effect of spreading your money between different sectors, meaning that the risk you take on is less than it would be if you invested in equities (or shares) directly.
Finally, you can consider diversifying geographically as well . There is an additional risk associated with funds which invest internationally with the risk that changes in exchange rates will diminish any gains. The market can fall in the UK as it rises in North America, the Far East, or even Europe. By spreading your investment around the world, you spread risk and maximise your chances of benefiting from rising markets and reduce your risks to a falling market. There is no guarantee though that the markets around the world will rise and you could see the value of your investment fall as well as rise.
You can achieve diversification either by selecting a combination of different funds and individual assets yourself and switching between these when you feel it is appropriate, or by leaving these decisions to a professional fund manager and investing in a general managed fund such as the Cautious Managed Fund or the Managed Fund depending on your attitude to risk.
You can get further information on all our funds. And don't forget that you can always book an appointment with one of our financial advisers to discuss your options.
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