Retirement Investments

Published:  29 Oct at 7 PM
When you reach retirement age some individuals, particularly those who do not have traditional pension policy (opting to have alternative savings such as properties or even just simple savings accounts), may decide to invest some of their capital in alternative investments to give them an annual or even monthly return. There are many different ways of doing this and the number is increasing with the introduction of more and more savings options.

One method of saving is through the use of unit trusts which are a type of investment fund, commonly referred to as open ended investment companies (OEICS for short) and are managed asset portfolios that frequently invest solely in shares but can also include bonds, gilts and cash. The premise is really quite simple, the investor buys a unit (or a share when considering OEICS) in the fund and that reflects the value of the total asset portfolio. So assuming ten people invest £10,000, the portfolio is worth £100,000. As the value of that portfolio increases or decreases, the value of the unit (or share) increases or decreases accordingly.

As with all investments, pooled investments does come with a certain level of risk however it does offer the potential for both capital growth and/or income. A pooled investment is one that allows an individuals money to be invested alongside others in order to allow a much larger, professionally managed portfolio of assets - often running into the hundreds of millions of pounds. Due to the fact that the portfolio is spread over a wider set of assets, the investments carry significantly less risk than those that hold a small amount of assets.

Often referred to as ‘collective investments’ are handled by professional fund managers who use a variety of investment vehicles to spread this risk and generally choose from the main asset options such as shares, bonds, gilts, property and various other specialised areas, for example hedge funds (discussed in a separate article). These funds are actively managed and the fund manager spends each day researching the various financial markets and purchases and sells various assets in order to provide good returns for it’s investors.

Equities (shares in predominantly publicly traded companies) are becoming an increasingly popular investment. They offer the chance of an exceptional gain over a relatively short period. Cairn Energy, an oil exploration company provides a recent example. At the beginning of 2004, each one of it’s shares was valued at around 400p. Less than nine months later, thanks to a series of oil finds in India, it’s shares were trading at nearly 1600p, a gain of some 300 percent. The company became of of the 100 largest companies traded on the London Stock Exchange, gaining entry to the prestigious FTSE 100 in the process. Cairn Energy shares have subsequently traded at over 2000p each. Picking which companies to own, which industries to have exposure to, or in other words how to structure and manage a portfolio of equities, is not an easy task and the private investor is well advised to seek professional advice.