Get your cash to go the distance

Investing for growth: here and on page 8 we show how to enhance the value of your savings as you plan for future commitments
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The Independent Online
Everybody has their own reason for investing for capital growth. You might be saving for early retirement, to put a child through school, for a wedding, car or simply a rainy day.

Whatever the motivation, we should all have the same underlying goal: to beat inflation and maintain the purchasing power of our money. Anything above that is a bonus.

There are a number of questions you should ask before choosing a growth investment vehicle, says Philippa Gee, an independent financial adviser (IFA): "How long do you want to leave the money? How much access do you want to that money? Are you prepared to take a risk? What is the most tax-efficient way of investing?"

Your answers will largely determine the type of investment you choose. For example, the longer you can leave the money, the more scope you have to invest in stocks and shares.

Unit trusts are probably the most popular way for individual investors to enter the stock market. They pool money from thousands of different investors and put it into a wide range of companies. Most PEPs and individual savings accounts (ISAs) are unit trusts, offered by well-known names such as Fidelity, Jupiter and Perpetual. Alternatively you could try investment trusts, which are companies that invest in other companies.

If you are averse to risking your money, you might look at safer investments such as guaranteed equities, which protect your initial capital, or corporate bond funds, which are IOUs issued by companies to fund their expansion. Figures from the Association of Unit Trusts and Investment Funds show that pounds 1,000 invested in the average corporate bond fund 10 years ago would now have risen to pounds 2,211, far better than a building society and only a little more risky.

"You could also consider with-profits bonds, which smooth out your investment returns because annual gains are locked in," says Ms Gee. "National Savings five-year fixed-interest certificates should give you steady growth." The NS five-year certificate currently pays 4.3 per cent gross on investments between pounds 100 and pounds 10,000. This may not sound much but it is tax free and, because it is backed by the Government, very low risk.

So who should be investing for growth? "Younger people and the pre-retired typically have the greatest amounts to invest for capital growth," says Mark Dampier, head of research at IFAs Hargreaves Lansdown. "They already have income and don't need any more so are saving for their future."

If you are saving for retirement your first step should be to join an occupational pension scheme, if your employer offers one, or set up a personal pension. "People always ignore pensions when talking about growth but they are savings vehicles invested primarily for growth," says Mr Dampier.

Invest in stocks and shares or cash through an ISA and, although you won't get tax relief on what you put in, you can take returns free of tax. The maximum ISA investment limit is pounds 7,000 this financial year and pounds 5,000 the next.

Ian Millward, investment market manager with IFAs Chase de Vere, recommends choosing areas that seem likely to drive future international economic growth. "I would look at financial services, pharmaceuticals, technology and emerging markets. These will fuel growth around the world over the next 20 years. I would stick with pooled investments such as unit trusts as these are far easier to organise than trying to become a stock picker."