Investors would be better
off with a well-constructed portfolio rather than a protected
plan.
Here are some tips.
How can I protect my portfolio from market falls?
Equities are suitable for most long-term
investors, even the most cautious. The key lies in the amount
you have in your portfolio.
We suggest a cautious investor should have
no more than 30% in equities, 30% in fixed interest/corporate
bonds, 50% in commercial property and 35% in cash. This compares
with about 55% in equities, 20% in bonds, 5% in property
and 20% in cash for those willing to take a moderate level
of risk.
There is little correlation between the performance of bonds,
equities and property, so they should not fall simultaneously.
There are a number of funds that give you exposure to more
than one asset class. These can be useful if you have only
a small portfolio or don't want to worry about asset allocation
yourself.
What if I don’t want to take
any risk?
If you do not want any exposure to equities,
consider guaranteed income bonds. (GIBs), offered by insurance
companies, they pay a fixed rate of interest for a set term.
Interest is paid net basic-rate, those in
the higher-rate tax band must make up the 20% tax to 40%,
but the payment is deferred until the end of the term. If
by then you have dropped into the basic-rate band you can
avoid the extra tax. Higher-rate taxpayers can withdraw up
to 5% a year from their Gib with no immediate tax to pay.
GIBs are not suitable for non-taxpayers
because they cannot reclaim the 20% tax.
Are there other alternatives?
Fixed-rate bonds are an alternative to GIBs.
They are offered by banks and building societies, and interest
is paid gross, without deducting tax.
You should therefore compare rates on both products to see
where you can get the best deal. A fixed-rate bond will probably
be better if you want to lock your money away for only a
year or two, or do not have that much to invest.
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