We are reminded every day that the global economy is going through a particularly unsteady period. While it is easy to dismiss this problem as affecting only governments or big business, the reality is that many individuals have a significant stake in the success of the world markets. Many personal savings schemes are linked to market performance and, as such, the state of the economy is important to many small- and medium-scale savers. Devising methods by which estates can be protected from market fluctuations and instability is particularly important in these uncertain times.
Stocks and Shares
It is very difficult to predict market movements. However, the most effective methods by which individuals can protect their assets from financial turbulence will depend on the time-scale of their investments. Short-term investments in high-risk interests such as company shares carry, by their nature, a greater risk of failure. Short-term share investments tend only to present the potential for significant growth when they are relatively risky; the most extreme example of this can be seen with professional traders, who deal in day-to-day market changes.
Conversely, shares in established organisations such as the large utility companies are unlikely to yield much short-term profit. However, while the stock markets may fall in the short-term, long-term patterns indicate that the markets will ultimately continue to rise. There has not been a single eighteen-year period in the last forty years, for example, in which the value of the markets as a whole has fallen. As such, medium- to long-term investments that spread risk across a number of different share types still represent a fairly safe investment.
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If you do not wish to be involved in shares at all, there are a number of safe options. The Individual Savings Account (or ISA) schemes are particularly efficient for those who wish to safeguard relatively small amounts. Established on 6 April 1999, the ISA scheme allows individuals to save up to £20,000 in different types of savings account, although it should be noted that it is necessary to place money in stocks and shares accounts in order to make use of the full allowance. Aside from security and an attractive interest rate, the great advantage of an ISA is its favourable tax treatment; any income or growth generated by the account will be completely tax free.
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Bonds and Gilts
Another potential solution to concerns regarding market performance is to invest in guaranteed schemes such as government bonds. These investments are secured by the government and, as such, have virtually no risk of failure. While the growth rate is not particularly attractive, if you are primarily concerned with the safety of your money then this might well be the best option. This is particularly true of late, as the government are encouraging individuals to invest in bonds and Gilts in their drive to safeguard savings.
Ensuring the safety of your estate should clearly be a priority for everyone. However, the range of methods by which this can be achieved is large and potentially complex. As such, you may find it useful to seek advice from an independent financial practitioner, particularly if your estate is large or your affairs are complex.
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