principles of investment planning Flashcards
asset selection
- a defensive methodology concerned with capital preservation which is achieved.
- with asset classes can select classes that have greater or lesser risk
portfolio optimisation
- efficient optimised portfolios are expected to give higfesr return for their risk level
-stochastic modelling generates large number of portfolio with different allocations of same classes.
- they generate best return within a volatility range.
stochastic models are sensitive to change . Need to understand the portfolios rule base and effects of variations
tactical asset allocation
- strategic matches risk agents with a set of assets that are appropriate in relation to risk and are long term
- tactical - applies judgment of the allocation and the investments. Tactical need to be reviewed monthly. can put 80% strategic and 20% in tactic
suitability
- capacity for loss risk tolerance annual target timescale
- when risk is determined the portfolio can be added using historic , stochastic or adjusted historic
top and bottom
- top down investment the initial decision is geography , then sectors then investment. they pay attention to benchmark index.
- not other this is driven by stock . They often state that a divergence to benchmark is to be expected. The manager allows for stocks matching cryteria which can limit percentage allocation to regions. They are more volatile. Fund managers may use a mix.They also have star. To messurs how they select and diverge can found.
fund management style
- approach to stock deflation based on a limited set of principles
- approach to stock election based on principles
- value believe that there’s value in it
- GAARP - high quality companies
- contraists - believe can hedge
- now momentums
structured products
- limits the capital risk of equity investment rerun.
- they are locked in for 6 years
- can give hard protection ie 120% of the ftsee or full return.
- soft protection when capital is risked when a threshold
- not liquid
- time
- not practical
fund fee
- AMC 0.1%- 0.75% for passive and 0.75% to 1.75% for active.
- OCF includes other fees as well
- exit fees and initial are not
- perfoamce fees can be apparent
- bid offer spread unit
- sdtr on UK shares
- fees for constant dealing
ongoing one off incidental transaction fees tbc by FCA
selecting funds
- fund management style
- size and access
- quality of staff
- experience of specific sectors
- admin
- cost
- past performance
- structure
factors when selecting
- performance over 12 can hide bad amounts
- funds can be classified wrongly
- specialist funds can be tag bags
- some sector can change
- measurement of return ignores risk
platforms
- reduce paperwork
- most offer UK authorised funds some offer investment trust
- tax wrappers - most offer pensions and isas
- allocation across tax wrappers - can have same investment starved or others ie all capital in ISA and all equity in other bonds
- consolidated statements
- rebalance
- can model one
Suitability
- method of the funds
- summaries if important info
- expalanition if tax wrapper
- costs
- next review
ESG
e - waste greenhouse climate
g - accounting bribery board diversity
- s - working conditions employee diversity and interaction with community
fund structure
- open ended is less volatile then closed ended. Remember NAV
- gearing - closed can use gearing and leveraging increasing profit
- multi manager and fund of funds. they can be narrow ie geirgrsohh us equity
passive management
- index selection they track an index. they can have big differences in the index.
- need to understand the methodology as yields can be different is high yield or private equity.
- structure - ETFs can replicate the index and be ‘physical’. or they can use derivatives and be ‘synthetic’. The advantages and drawbacks of these structures need to be understood
Tax issues in switches
- cashing in bods can affect higher rate tax payers
- can transfer funds into partners name to use their CGt allowance
- gains can be ofset by losses
- remember searching for the purpose of generating fees is not ok according to COBS
legal issue when switching
- the trust at set out investment strategy
- the trustees act allows trustees to use investments as if they were their own.
overall investment objectives
- capital growth - income require lta are not prime concern and emphasis should be placed on investments.
- income priority - income considerations will he given priority over long term prospects for capital growth. this should result in erosion of purchasing power
- balance between capital - some want a mix
risk and assets
- higher - smaller companies and speculative investments.
- medium - large uk company and oversees listed companies oeics
- low - credit rating and bond
tax wrapper
collective are most tax efficient and simple way to hold. Dividends are races in usual way and gains are subject to CGT when the shares are disposed off rather than when individuals ones are. The freedom from corporation tax on gains within funds makes collectives a confinement tax shelter. Collectives can also be held
tax wrapper
ISA
- they can hold first investments i shares fixed interst
- the income and capital is tax free
- for most people it’s not a massive benefit as they are not higher / additional rate tax payers bu they may change
- they don’t have to contact HMRC
tax wrapper life policy
- qualifying like polices can be used to accumulate funds that are feee if higher or additional rate tax after 10 years contribution.
- tax free access possible after three quarter - or sdduibsl rate after ten years of contributions
- max is 3,600
tax wrapper
- offshore
- fund not subject to UK tax but this may be offset by the tax at encashment where there isn’t any tax credit for the insurance company’s rate or corporation tax
- returns for offshore bonds tend to be lower. They suit non dons and non payers
tax wrapper VCT
- tax benefit from investing in then needs to be weighed up against the requirement for investment ti be in small illiquid
tax wrapper
bond
- underlying fund subject to income tax
- funds suffer a deviation for tax on capital gains.
- investment bonds allows 5% withdrawal more attractive to higher an md additional
- make investor basic rate at end
- top slicing relief is for those pushed into higher rate or additional rate
- t can be fifteen to trustees or other individuals whereas other gifts would trigger CGT
