When seeking financial advice, it will benefit you to understand exactly what you want to achieve from the outset. Once you have that in mind, then it’s a case of speaking to the correct financial adviser who is a specialist in that area.

For instance, are you looking for investment advice on how to invest a lump sum? Or are you seeking advice on how to save on tax? These two areas of financial planning do overlap but they can also be fields in their own right and a financial adviser can be a specialist in at least one area of financial planning. The conversation and expertise you receive from a financial adviser will depend, therefore, on what you want to achieve. It’s good for you to know your main objectives beforehand.

How would you benefit from investment advice?

Imagine you have cash savings which you have accumulated over several months or years from your income, or you received an inheritance from a late relative. Unless you have immediate and large expenditure needs, you might be asking yourself “what should I do with this?” or “how can I maintain its purchasing power?”. This is where an investment service, such as investment advice from a financial adviser, has its value. Let’s elaborate on this.

Inflation risk – a term to represent the cost of goods and services increasing – would mean that leaving your wealth in a cash account would overtime reduce its purchasing power. Your £10,000 would essentially become £9,000. It’s very likely you will want to mitigate this risk as much as possible.

Investment risk – a term to represent the values of assets fluctuating up and down – would mean that investing your wealth in volatile assets would increase or decrease it’s purchasing power. Over time your £10,000 might become £15,000 or it might become £8,000. The longer it is invested, however, the more likely the value of your capital will grow and the less likely it will fall (which is based on 100+ years of market performance). You will likely want to explore this outcome since there is potential for growing, or at least maintaining, your purchasing power through compounding returns. Investment diversification can mitigate investment risk and investment advice can help you achieve that.

Investment Management and Asset Allocation

Before reaching the stage of asset allocation and deploying your capital into volatile assets, you should first think about some investment principles, of which we think there are four:

• do I have sufficient cash available as an emergency fund for any unexpected short-term costs?
• have I considered the impact of inflation risk on the purchasing power of remaining cash savings?
• for how long do I wish to invest for (i.e. do I have a specific goal to access these funds?)
• how can I mitigate investment risk through investment diversification (e.g. different assets and strategies), so that its less likely all of my wealth falls at the same time?

It’s the fourth key investment principle that people struggle with which can, consequently, lead to falling short of reaching their overall objective (e.g. growing or preserving their purchasing power). An investment service, such as investment management, can help you understand your attitude to investment risk, as well as aspects such as your time horizon and capacity for loss. A financial adviser can provide you with a well-diversified investment plan by evaluating which assets suit your attitude to risk (i.e. volatility) and time horizon, as well as what proportion of those assets should make up your overall portfolio.

It tends to be that the longer your time horizon, the more volatility (i.e. the more high risk investments) you will want your wealth exposed to so that you benefit from the upside in market performance  – International Equities can provide this. Whereas the shorter your time horizon, the less volatility you want your wealth exposed to so you avoid large swings to the downside during weak market performance – Government or Corporate Bonds can provide this. Remember, you are more likely to grow your wealth with a time horizon well into the future.

Finally, once your adviser has selected a well-diversified investment plan for you with appropriate assets and investment strategies, they will recommend which tax-wrapper suits your financial position (to mitigate income tax, capital gains tax and dividend tax).

Struggling to decide which assets to include in your investment portfolio or which tax wrapper to use? You can make an enquiry via our website for a no obligation consultation.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount initially invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.