It may be that you have built up a tidy nest egg by regularly saving over the years, sold your business, inherited money or won the lottery, but if you find yourself with a sum of money to invest, it is important that you receive proper independent financial advice to ensure the money is invested wisely so that its spending power is not eroded over time.
Leaving large sums of money in a bank or building society account is unlikely to be the long-term answer. Whilst cash is an important asset class, the returns on it, especially in today’s low-interest environment, are likely to be limited and may not even keep pace with inflation.
So what alternatives are there? The other main asset classes are property, equities (shares) and gilts and other bonds. Direct investment in equities, gilts and bonds is generally conducted through stockbrokers who will charge a commission for dealing on your behalf, either as a flat fee or as a percentage of the value (subject to a minimum charge). Because of the cost of dealing, it is not worthwhile investing directly unless you are buying a large amount of a particular share, gilt or bond. However, in order to avoid losing a substantial percentage of your investments if, for example, a company which you own shares goes bust, it is vital that you own a wide selection of shares in different companies – you don’t want all your eggs in one basket. The problem is that owning a large number of shares in a large number of companies is only possible for very large investment pots.
The solution to this is the other way of holding shares, gilts and bonds, which is indirectly, through “pooled” investment vehicles such as unit trusts, open-ended investment companies (OEICs) or investment trusts. These vehicles pool the money of a large number of investors and put it in the hands of a professional fund management company. The manager will choose of broad spread of instruments to invest into, the type of which will depend on the stated aim of the fund. Because of the amounts of money involved, the manager will negotiate very cheap terms for dealing in the shares, gilts or bonds, so reducing costs, and will also have a wide spread of investments, so should one company fail, it will have a very much reduced impact on the value of your investment.