INCOME VERSUS GROWTH: Look down the road and go the distance

First think emergency fund then plan long term, says Tony Lyons. And don't touch your investments

Once you have enough money saved in the bank or building society to make a decent emergency fund (see page 8, saving in your twenties and thirties) then you should start to consider how to build up a range of investments for the long term. The goal here is growth, as you should plan to leave your portfolio as untouched as possible.

Don't rule out stock market investment just because you know nothing about shares. If you are planning to leave your money untouched for many years, you should not think too hard about the short-term volatility of the markets. Over the long term - five years or more - equity investment has usually outstripped all other conventional savings. But in a low-inflation, low-economic growth environment, things may not move so quickly.

If you are well off and do not want to take an interest in your investments, there are plenty of people who would be pleased to construct a portfolio of investments to suit you (and then charge you to manage it). All you need is a lump sum of at least pounds 10,000.

"We match our service to the client's individual needs," says Simon Wombwell of Newton, just one of the companies offering this type of portfolio management. "It suits those people who want to leave the investment decisions to a professional manager. A balanced portfolio, for example, will invest in bonds and equities internationally, depending on the manager's views of markets and econ-omies." Newton makes a 4 per cent initial charge, with an annual 1.25 per cent annual fee, for this service.

Fidelity Portfolio, available through independent financial advisers and direct from Fidelity, charges normal unit trust management fees and offers international growth. Richard Wastcoat of Fidelity says: "Its investment is put into a gamut of funds, with asset allocation decided by an investment committee."

While these managed services have their attractions, many investors get hooked on buying and selling shares and many of those who don't take an interest in the market prefer to be advised by an IFA or certified financial planner.

"I wonder just how bespoke some of these services really are. They are usually based on model portfolios and if they use a fund of fund approach, performance could be dissipated," cautions IFA Graham Bates of Bates Investment Services.

Very risk-averse investors could consider moving out from the bank or building society through a with-profits or distribution bond. These are offered mainly by the larger insurance companies. They both have a broad range of assets in their portfolios, including shares (equities), bonds, other fixed interest and sometimes property. A with-profits bond grows through an annual bonus. This is declared annually by the company's actuary and is usually guaranteed. If you want a regular income, a distribution bond is invested in the same with-profits fund.

"The Prudential with-profits bond has a 6 per cent yield and has shown itself one of the top performers," says Kim North of IFA Pretty Financial.

"And the Sun Life distribution bond is a very big fund with a good track record."

But these sort of investments pay lots of commission to IFAs and life company sales people. You can do some extra research (Chartwell has a useful guide) and then buy the bond through a discount house, or go to a fee-based IFA.

"If you are a lump-sum investor or a regular saver and don't mind a higher risk," says Ailsa Craig of RAD Brown, "then spread your money around. Look at a mix of equity and bond funds. Look to groups such as Newton, Gartmore, Fidelity, and Save & Prosper, with good track records. If you are prepared to take a higher risk, move from just UK investments and think about European and, maybe, US funds. Far Eastern and emerging market funds are only for someone prepared to take a very long term view and doesn't mind the high risks involved."

The younger you are, the more risks you can take. As you near retirement, you should make sure you move to lower risk funds, so that you can consolidate your nest egg rather than have it fluctuate too much with the ups and downs of the stock market. "But always make sure your money works hard for you" advises Mr Bates. "While even the best funds can go through sticky patches, if they underperform for any length of time, get shot of them."

And what if you don't have much money to invest or want to keep things simple? A tracker fund is a useful first-time PEP or ISA buy. These funds buy shares in a given stock market index, preferably the FT-SE All-Share. This means funds such as those offered by Legal & General and Virgin invest in around 830 of the UK largest companies, so are diversified. They aim to mirror the performance of the index, less their charges. Even better, these passively managed trackers outperform most actively managed funds.

However, trackers are not risk free. "You could be better off in a balanced equity and bond fund," says Mr Bates. "Active fund managers are there to reduce the risks as well as beat their given benchmark."

n Contacts: Chartwell, with-profits bond guide, 01225 321700; Legal & General, 0500 116622; Newton Fund Managers, 0171-332 9000; Fidelity, 01737 836735; Gartmore, 0171-782 2000; Save & Prosper, 0800 829100; Virgin Direct, 0345 900 900.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
tvSeries celebrates 20th anniversary
Life and Style
Jack Cooksey goes for the grand unveiling - moments before dropping his new iPhone 6 on the floor
iphone launch
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Liam Neeson said he wouldn't

Liam Neeson's Downton dreams

Yaya Touré (left) and Bayern Munich’s Spanish defender Juan Bernat
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
A 'Sir Alex Feguson' tattoo

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear

Thriller is set in the secret world of British espionage

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week