Noticed some changes? You can read all about the improvements we've made on the Forum in our latest announcement. We also have a new set of Forum rules so please take the time to give them a read and familiarise yourself.

Risk Profiles and Sector Allocations

edited 30 November -1 at 1:00AM in Savings & Investments
3 replies 636 views
nicko33nicko33 Forumite
1.1K Posts
edited 30 November -1 at 1:00AM in Savings & Investments
Can we have some views on these please?

When someone says they are "low" or "medium" risk, the question comes back
"What does that mean for you?" because each individuals perception of "low" and "medium" will differ.

In March I will be selling my house and will have ~70k lump sum and at least £1000/month to do something with. I am a higher rate taxpayer. Age 42.

I'm going to look for an IFA, but I want some idea of how to think about risk.

In general, I would say I am after something "low" risk, maybe "low+a bit"
but I don't know how to think about it in terms of how much I'm prepared to lose.
In those terms, I might say 10% or less, but I'm not sure.

And then Sector Allocation:
what sort of distribution might i be looking at for that sort of risk?


I currently have no ISAs
I don't want to miss out out on my 06-07 ISA allowance, so time is going to be tight, but then again, I also don't want to rush anything.

and, different topic, but sort of related to how to allocate investments
Is it better to have the higher potential return investments in ISA or maybe things that are more certain to grow, in order to keep more money tax-free ?
i.e. growth outside ISA + low/no growth inside ISA is worse than
low/no growth outside ISA + growth inside ISA
Is that something that needs to be considered ?


any help appreciated.

Replies

  • dunstonhdunstonh Forumite
    106.4K Posts
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    ✭✭✭✭✭✭
    In general, I would say I am after something "low" risk, maybe "low+a bit"
    but I don't know how to think about it in terms of how much I'm prepared to lose.
    In those terms, I might say 10% or less, but I'm not sure.
    10% if fine for low. Although if you are serious about less than 10% then you should perhaps not be considering investing at all or investing a lot less than you planned.
    And then Sector Allocation:
    what sort of distribution might i be looking at for that sort of risk?

    The typical sector allocations would include
    Cash
    UK fixed interest
    International fixed interest
    property
    uk equity
    EU equity
    US equity
    Far east exc japan
    Japan
    Emerging markets
    global specialist.

    A low risk spread could find many of those areas are not included or only have a tiny exposure to them.

    Some may prefer to use asset allocation which is a varience on the theme.
    Is it better to have the higher potential return investments in ISA or maybe things that are more certain to grow, in order to keep more money tax-free ?

    In your case its probably better to have the higher yield fixed interest funds in the ISA as they are truely tax free. With £70k you arent going to need to worry about CGT too much as you can use your annual allowance when necessary. Obviously with the monthly contributions, that will get harder to monitor but it may well be worth feeding the monthly into the ISA at the maximum as this will make things a little easier from a monitoring point of view.
    Is that something that needs to be considered ?

    It may be worth making sure the IFA has software which provides a transactional history making it easier to track purchases and disposals from a CGT point of view. A couple of the fund supermarkets can do this into the back office software of the IFA.

    If married, use of both ISA allowances would be common sense.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • nicko33nicko33 Forumite
    1.1K Posts
    thankyou
    dunstonh wrote: »
    10% if fine for low. Although if you are serious about less than 10% then you should perhaps not be considering investing at all or investing a lot less than you planned.
    This maybe where I start confusing myself. Say I'm thinking 10%.
    If I then stick half into NS&I Tax-Free Index Linked, should I then be thinking 20% of the other half ? (or any other combination that results in the same overall outcome)

    edit:
    even if I thought I might be more towards medium, I woould prefer to start low and move towards medium over time
    dunstonh wrote: »
    Some may prefer to use asset allocation which is a varience on the theme.
    What is asset allocation?

    dunstonh wrote: »
    If married, use of both ISA allowances would be common sense.
    single
  • purchpurch Forumite
    9.9K Posts
    If I then stick half into NS&I Tax-Free Index Linked, should I then be thinking 20% of the other half ? (or any other combination that results in the same overall outcome)

    Not necessarily, but it should allow you to take on riskier investments with the part not held in NS&I....the ultra low risk element can balance out riskier elements

    Personally I hold about 20% of my portfolio in directly held Gilts and Bonds which helps me take on other riskier investments, than I otherwise might
    'In nature, there are neither rewards nor punishments - there are Consequences.'
This discussion has been closed.