Introduction: the product suitable and affordable for the



Regular savings can be crucial to
your future financial situation. And could increase your wealth significantly
if done correctly.   

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There are however a number
of  different areas you need to consider
when making a regular savings contributions. Risk and attitude to risk, Accessibility/
liquidity, taxation, suitability,  pound
cost average.


What is the clients attitude to
risk (ATR).  How much risk is the client willing to take.

understanding the balance between
how much risk to take versus the reward.  According to SJP “Almost all types of
investment carry the risk that their value could fall, particularly in the
short term. This may be due to stock market fluctuations, changes in interest
rates or other factors.” (SJP Website,2018)


According to Royal
London the “Risk attitude has more to do with the individual’s psychology than
with their financial circumstances. Some clients will find the prospect of
volatility in their investments and the chance of losses distressing to think
about. Others will be more relaxed about those issues” (Royal London Website,


There are a few different
types of risk:


Conservative ( Low Risk )

Balanced (Lower-Medium risk)  

Moderate (Medium Risk)

Dynamic (Upper-Medium Risk)

Adventurous (High Risk)


What accessibility dose the client have to the funds. Are they easily accessed
or are the funds locked away for a certain period of time.


How are the funds treated within
the product. In terms of taxation and growth. 


Is the product suitable and
affordable for the clients current situation. Does it make financial sense for
the client to utilise the product.





pound cost average. According to the Beaufort Group “‘pound
cost averaging’ – or, in laymen’s terms, regular saving – can come into play.
Pound cost averaging works on the basis that putting smaller amounts of money
into an investment reduces the overall risk of investing at the wrong time.
Compared with sinking one large sum in a single transaction, the risk is
mitigated by the fact your smaller, regular sums will buy in over a period of
time at a variety of prices.” (the Beaufort group website,2018)


Asset Classes


It is very important to look at the asset
classes which you have exposure to, as this will affect the risk which you face
as well as the return which you are likely to achieve. What we want to do in this Document is show you
how to diversify assets provide a healthy income as and when you want/need to
access your assets.


key with any investment is that you must diversify the assets which you hold.
When I say assets there are really 5 different areas which you can invest in
within most regular savings products:


– investments into companies from across the world. These will carry risk and
the values will change on a daily basis but over the long term they tend to
outperform most other asset classes. 

Bonds/Gilts –
These are essentially a loan to a company for which you receive a return, they
are generally lower risk than shares.

Commodities –
Refers to raw materials such as gold, copper, coffee etc. They can all go down
in value.

Property –
Commercial property such as an office building. The growth comes from the
increase in the value of the building and the rent which the tenants pay.
Property can go down in value.

Cash – No risk
to the value of the investment however your money may be eroded by inflation
(the rate at which goods increase in price). For example interest rates are
currently at 0.25% and according to BBC “inflation is at 2.3%”( The BBC
website) so keeping cash will mean that the purchasing power of your money is


Asset classes 1 to 4 all
carry risk to the value of your initial investment and you may get back less
than you invested. However, they are the only way which you will be able to
beat inflation and ensure that you make a meaningful return. It is very
important that any investment you make is diversified across all of these asset
classes as this reduces the risk you face. We will touch on this in more detail
in a later section.















Different types of products: including Summary, Risk, Taxation and


1.       Deposit based- Bank Accounts:  According to
Wikipedia “A deposit account is a savings account, current account or any other
type of bank account that allows money to be deposited and withdrawn by the
account holder.”(Wikipedia2018) as mentioned above although cash has little or
no risk your cash savings may be eroded by inflation. However it is a good
place to keep an emergency fund ( easily accessible cash incase of an


2.       Pension Schemes: according to the Pensions Advisory service “a
pension scheme is just a type of savings plan to help you save money for later
life. It also has favorable tax treatment compared to other forms of savings” (Pensions
Advisory Service 2018) while a pension scheme is a long-term regular savings
plan here is a brief example of how a pension works:

If you were to have a pension pot of £1M at
retirement it would be taxed as Follows:

Pension Pot                                                          £1,000,000

25% Tax Free
Cash                                            £    250,000

5% tax free
income                                           £      12,500

Amount Remaining
for Income                    £    750,000

5% Income                                                           £      37,500

Tax on income                                                    £        5,380

Net Income                                                          £      44,620

Marginal Rate of Tax                                               10.76%


point here is that if managed correctly you will receive 40% tax relief on
pensions, tax free growth and you will only pay 10.76% when taking money out of
your pension. Therefore using pensions as a long term regular savings product
makes a lot of sense. The downside is you will not have access to the funds
until the age of 55.


savings accounts (Isa’s): according to GOV.UK “there are 4 types of ISA’s”

Cash Isa

Stocks & Shares Isa

innovative finance ISAs ( mix between cash and Stocks & Shares

Lifetime Isa

Isa are really the first starting point from
a Long term savings standpoint as they allow you to invest with the possibility
of tax free growth( Maximum you can invest is £20,000 per year). They come in
two forms; cash and stocks & shares. The great thing about an ISA is that
is grows tax free so it makes sense to put something in there that will have an
opportunity for growth. By doing this you will be exposing yourself to assets
which do carry risk (if investing in stocks and shares) but will undoubtedly
outperform cash in the long run. overtime equities will outperform cash – the
key is to hold the investment for a minimum of 5 years.

After pensions, ISAs are a brilliant way to be tax efficient and as
described above this can be a really efficient use of savings income and it can
provide you with flexibility to access the capital should you ever need it.
Income from pensions is liable to tax however income from an ISA is completely tax
free. Therefore this is a great way for you to top up retirement income without
every paying higher rates of income tax. With regular contributions you can
actually benefit from volatility as it means that you are picking up units in
investment funds at a lower price. (as mentioned above pound cost average)


4.       Unit Trusts: After
ISA’s and Pensions the next place to be saving is into a Unit Trust.

According to David Burnell Financial Services “A unit trust is
a collective investment created under trust. The trust pools the money of
numerous individual investors to create a fund with a specific investment
objective – income, growth, or both.(David Brunell 2018)

When making an investment you usually make your return in two ways:

Growth in the value of the share price/asset price

Dividends or Income which is paid out to investors

Each return is taxed in a different way
‘Growth’ and ‘Dividends’. A Unit Trust is another way in which we can shelter
the majority of returns from tax.

After an ISA allowance you should look at
using your Capital Gains Tax (CGT) allowance. Everyone in the UK has a CGT
allowance of £11,300 a year which means you can make gains from investments up
to £11,300 and pay no tax on this growth. CGT allowances are like ISA
allowances in the fact that you lose them each year, therefore some assets are
only measured against your CGT allowance when you come to disposing of the
asset, for example property. However by investing into more liquid assets, such
as unit trust funds, you can get into the habit where you are using this
allowance every year. The way in which this works is as follows:

You hold a unit trust fund and at the end
of the tax year we calculate the gain over that year

We then instruct you to make a fund switch
to ‘crystallise’ the gain

We then file this on your tax return and as
long as the gain is under £11,300 it is all tax free

If you make a loss in a year we can
crystallise this and you can offset this loss against future gains

After 30 days you can rebuy your original
funds and the gain is washed away


essentially they are washing away their gains
each year so they never have a large taxable gain as you would with a buy to
let. This means that a £100,000 gain over 10 years could pretty much be
completely tax free whereas with other assets this could be as much as losing
£17,780 (20% rate) or £25,000 (28% rate) to tax.

In addition, new rule changes mean that the
first £5,000 of dividends earnt each year will be free of any tax. This
therefore means that we can set up a Unit Trust investment which, if managed
correctly, will grow tax free up to £16,300 per annum. Assuming a growth rate
of 5% pa.