Unit Trusts - what sort of return can you get

miaxmia

Hi, I have some money to invest and was wondering whether Unit Trusts are worth investing in - I know there are no guarantees, but I was just wondering what sort of return I could expect. Also, what are the tax implications on the money made, i.e. if my husband is in the 40% tax band, would he be liable to pay more tax, should they be held in my name?

dunstonh

You could expect anything from minus 50% a year to 110% a year depending on the funds chosen.

If your husband is in the higher rate tax bracket, they should be held in ISAs first. Once ISA allowance for both of you utilised, you can hold them in your name or you can buy the funds in an investment bond (possibly offshore if the amounts make it worthwhile).

With unit trusts, the potential taxes are income tax, capital gains tax and inheritance tax.

miaxmia

Thanks for this info. I don't really know where to research what is a good Unit Trust and what is not. About 20 years ago we had some Unit Trusts and, as you say, they doubled within about a year (I think it was 1987 in fact) - we were niaive enough to think the increase would just keep going (very young at the time) - the stock market crashed and we panicked, took our money out and probably only got back what the money would have earnt in the Building Society. We are in a different position now - a bit more wise, so the money can be for long-term investment, if the Unit Trust drops and I am guessing the best way to make money is to move the money if the Unit Trusts do exceptionally well in any particular year, before they drop! Just wondering where to start in knowing/picking a good Unit Trust. Are there any sites we can look at past trends? Would we be better going to a financial adviser? How do we pick a good financial adviser? We plan to use our ISA allowance first and would then have about 60K to invest.

dunstonh

Are there any sites we can look at past trends?

Past performance is no guide to future returns.

Have you worked out what your risk profile is, what sort of volatility you will accept, how long the funds are going to be there for and how many and which sectors you wish to invest in? If so, fund information can be found at http://www.morningstar.co.uk/ . Their free feed is not as good as the paid for feed but its not bad.

Would we be better going to a financial adviser?

If you know little about investing and cannot do the research yourself, then yes. A low cost financial advisor could only cost 1% of you investment so the cost may not be that great for the advice you get.

How do we pick a good financial adviser?

Its asked often and the response is that its no different to getting someone good in any profession. Word of mouth and reputation are good starters. Always avoid tied or multi-tied advisors and go with independents. Always avoid salesforces as they have a sales mentality. Ideally pick smaller local firms. They rely on reputation so service is likely to be higher standard. Aim for new model basis advisors who cost less than old model basis.

On 60k, a new model advisor would cost you £600 but an old model basis advsior would cost you £1800.

60k would involve your attitude to risk being worked out and a portfolio being built to suit your risk, needs, goals and tax position.

Investing will involve volatility. Take Japan, for example, you could have had around 50% growth over the last 12 months, lost 7% the previous 12 months and made 50% the 12 months before that. You never invest looking at short term trends otherwise you will end up panicing. You also never invest in one fund. Thats just asking for trouble.

miaxmia

Many thanks for your info.