A deeper look at how Saving and Investments work

Now we have scratched the surface of what savings and investments are. Let’s take a look at how we choose investments at LR Financial Services.

First, we will listen to your medium and long-term goals, then ask you to fill out a risk questionnaire. This is a very simple prosses and it helps us understand what your attitude to investment risk, as risk and reward are the two sides of the same coin, it is important for us to not only understand how much reward you would like for investing but also how much risk you are prepared to take with your capital to achieve those rewards.

The way we choose where to invest on your behalf, depends on various factors but here are four factors which are, in our opinion, the most important:

1. How long do you want to invest for;
2. Your attitude to investment risk;
3. How much you feel you could lose (Capacity for loss); and
4. Your Tax positions.

How long you invest for – Volatility, where the value of your investment can go down as well as up, will be greater in the short-term but less so over the longer-term. It is therefore, important to view investments as a long-term venture, so that if the market falls in value (as they usually do), you then have time for the market to recover before you need access to your investment.

It would be prudent to think of savings and investments in the following terms:

1. Short term – for up to two years. These types of savings are good for emergency funds or perhaps next year’s holiday (instant access) and is usually held in a bank or building societies deposit account, for example.

1. Medium term – for between two and five years. These types of savings are good for replenishing short term savings and/or for a more expensive project, where you will still need access within the next five years but you cannot risk the savings to go down in value. National Savings Premium Bonds and/or a Fixed Term Deposit Bond through a bank or building society, for example, would be good for these types of savings.

1. Long term – for greater than 5 years. Because short and medium-term deposit accounts are used by banks and building societies, to lend to people who want for example a mortgage; they will charge a higher interest rate to people who borrow from them and use that income to pay the interest rate they offer to savers, which is usually less than they charge, and keep the excess as profit. By making an investment, you are effectively bypassing the banks and building societies and “lending” directly to the borrower by way of a property fund or “asset class”.

The way we work out your level of risk here at LR Financial Services is quite straight forward, first we believe that sitting down and having a discussion with you about you what you have in place does two things. First, it helps you to build a working relationship with your adviser so you can get a better idea of your adviser and your adviser can get a better understanding of you. The second thing it does is it gets us to really understand you and what it is you want to achieve. Are you more concerned with your retirement? Or are you trying to save for that big family holiday. By doing this we can work with you to help you achieve your goals.