Investment
Products and Services
Birchwood provides a comprehensive personal financial
planning and investment management service. Investment management
services can be on either an advisory or a discretionary basis.
Portfolios are arranged on a bespoke basis and can include
any of the following products
Savings and Investment -
Cash Deposits
Cash deposits are provided by banks and building societies. Capital
should be secure and interest earned on the account. The accounts would
normally provide instant access to cash, although some may offer higher
interest rates for accounts that require notice of withdrawal or apply
penalties when capital is withdrawn.
Current accounts normally pay little or no interest
and high street bank or building society branches offer modest rates
of interest on deposit accounts. The best rates are offered by accounts
that operate either by telephone or on the internet.
National Savings
There are a number of schemes that offer a secure means of saving
but returns may be disappointing. For example, the Investment Account
operates a one-month notice cash deposit account similar to those provided
by banks and building societies. Whilst the interest rate offered is
competitive with high street bank or building society accounts it does
not compare favourably with rates available on the telephone or internet
accounts. Equally, Income Bonds provide a monthly income savings option
but impose a 90-notice period for withdrawals and offer an interest
rate that is below rates available on instant access telephone or interest
accounts offered by the banks or building societies.
Capital secure growth options are available with Savings
Certificates or Index Linked Certificates but returns are likely to be
modest unless there is a period of high inflation in the economy.
Government Stock
When the government wishes to borrow money it issues stock on which
it guarantees to pay a fixed rate of interest and guarantees to repay
the face value of the stock at a set maturity date. Gilts, as government
stock is commonly known, makes a very secure investment if purchased
at issue and retained until maturity but it is also widely traded and
can be purchased through the National Savings Register, stockbrokers,
or purchased in managed funds.
Gilts can prove an attractive option if purchased at
a time when interest rates are likely to fall as they will continue to
pay a higher rate of interest than may become available from a variable
rate investment, and are likely to increase in value. However, care should
be exercised in purchasing gilts if interest rates are at relatively
low levels as this could result in a capital loss, even if held to maturity.
Corporate Bonds
Corporate bonds are very similar to gilts but are issued by large companies
and, as the company could default on its obligations, carry a higher
degree of risk than government stock. In return for the higher level
of risk they usually offer a higher level of interest and are classified
by the degree of risk as identified by the major credit rating agencies.
It can generally be assumed that the greater the interest rate the
greater the risk.
Guaranteed Income Bonds
From time to time insurance companies may issue short term policies on
which they offer a fixed level of income and guarantee to repay the
capital at a set period, varying between one and five years. This is
a very secure option and could provide an attractive option for cash
that is not required for a longer period, depending upon market conditions
at the time the investment is placed.
Unit Trusts
Managers of unit trusts pool money together from a broad range of investors
and invest it in a managed portfolio of shares, either on the United
Kingdom stock market or any other international market. This makes
it possible for the private investor to obtain a globally diversified
investment portfolio whilst also reducing risk compared to holding
direct investments in a small number of individual companies.
However the investor should always be aware that the
value of the units could fall as well as rise in response to stock market
movements and, although units can be sold at any time, they may need
to retain the investment during periods of depressed market conditions.
As the level of risk associated with individual funds can vary substantially
it is important to choose funds compatible with an investor’s personal
attitude to risk.
Investment Trusts
The managers of investment trusts also manage a diversified portfolio
of shares but unlike unit trusts, where the underlying investments
are held in trust for the investors and the unit price reflects the
value of the portfolio divided by the number of units in issue, the
Investment Trust issues a fixed number of shares in the company and
those shares are traded on the stock market. The shares can, therefore,
trade at either a discount or a premium to the value of the underlying
investments. It is also possible for the investment trust to issue
different classes of shares so they should be regarded more complex
investments that carry a higher degree of risk compared to unit trusts.
Investment Bonds
Insurance companies offer investment bonds that can be linked to funds
invested in equities, fixed interest funds, property funds, or with-profit
funds. They also offer a high degree of income flexibility in that
it is possible to withdraw a monthly income at a level determined by
each investor. This can be a very attractive feature provided care
is taken to ensure that income withdrawn is no greater than the returns
generated by the fund. They can also be useful for tax planning as
it is possible for the higher rate taxpayer to withdraw 5% income for
up to 20 years with no personal liability.
Individual Savings Accounts
There are two forms of Individual Savings Account, or ISA – a cash
ISA or a stocks and shares ISA. ISAs are offered by providers including
Banks and Building Societies, National Savings and Investments, Financial
Advisers and some retailers, including supermarkets.
The minimum age to open a cash ISA is 16. You can invest up to £3,600
and can only invest with one provider in any one tax year. The interest
you earn on the cash invested is tax-free.
The minimum age to open a stocks and shares ISA is 18. You can invest
up to £7,200, again with only one provider in any one tax year.
Your money may be invested in individual shares, a unit trust or an investment
trust.
The earnings from these will be exempt from capital gains tax and from
the higher rate of income tax on dividends (a ten per cent tax credit
is deducted from all dividends before these are paid and cannot be refunded
for ISA investments).
If you want to operate both a cash ISA and a stocks and shares ISA in
the same tax year, you cannot invest more than £7,200 in total
in the two accounts, which can be with the same or different providers.
The maximum that can be placed in a cash ISA is always £3,600,
but you can chose to invest less and use the balance of your allowance
for the stocks and shares component.
With both types of ISA, you can take your money out at any time (although
some types of ISA have a notice period). You can also transfer your ISA
to another provider. Cash ISAs can be transferred to another cash ISA
or a stocks and shares ISA but stocks and shares ISAs can only be transferred
to another stocks and shares ISA.
