Make your money really work for you: the 10 best schemes

Oct, 22   -   No Comments   -   Candice

The right choices will set you on the road to wealth. We list the market’s hottest vehicles

Anyone looking to increase their wealth should be making sure that the money they do have is in the right place. As well as cutting back on spending, clever investing can dramatically add to your financial bundle.

1 Pensions
Putting as much as you can into a pension will prove to be the smartest thing you do.

“It has become essential for nearly everyone to pay into a pension. It is the easiest and best way to save for retirement,” says Patrick Connolly, of Chase de Vere, the financial planner.

Long gone are the days when anyone could count on the government or their employer to provide a good standard of living in old age. At about £8,093 a year, the state pension leaves a person well below the poverty line if they have nothing else saved.

At the moment, pension savers are given a government top-up on their contributions equivalent to their income tax rate — 20, 40 or 45 per cent. You can get this tax relief only on contributions of up to £40,000 or your annual salary, whichever is lower. Different rules apply for those taxed at the additional rate.

These levels of government contribution won’t be around for ever, and sometimes it is good to expect the worst. It has long been mooted that the Treasury will cut the tax relief rate for higher earners on the ground that some consider it unfair that they receive twice as much as basic-rate taxpayers.

2 Global technology
That the western world is beholden to hand-held gadgets, addictive websites and niche technology is unquestionable. Facebook, Amazon, Netflix and Alphabet, the Google parent company, have been among the best- performing tech companies and, barring a few market wobbles, their popularity continues. In future, newer names will emerge and rise to pre-eminence and investors can benefit from a stake in a dedicated technology fund.

The best performing over the past three years are the Invesco Global Technology fund and the Axa Framlington Global Technology fund.

3 European stocks
The British tend to look askance at Europe, ever suspicious of the state of its economies and affairs. Yet, apart from the fact that economic destiny doesn’t dictate a stock market’s fortunes, there should be central bank support for the region and its companies.

There is a risk that the best names on local markets are becoming overvalued, but a nimble fund manager will be able to avoid these. Sheldon MacDonald, of Architas, the fund manager, likes the BlackRock European Dynamic fund. “The manager is very good at adjusting the portfolio to market dynamics,” he says.

There are a few dozen global brands and their power is tremendous

4 Buy-to-let
The lack of affordable homes means the trend for renting is here to stay. Despite the government cutting benefits to landlords — the ability to claim tax relief on mortgage interest will be removed from April next year, and stamp duty on second homes incurs a 3 per cent surcharge — the attraction of buy-to-lets hasn’t disappeared. The changes are “not a big deal. They’re unhelpful, but they’re not going to put people off,” says Ray Boulger, of John Charcol, the mortgage broker.

For those who have the money, buy-to-let provides good capital growth and regular income. However, selectivity is key. Allison Thompson, of Leaders, the property agency, highlights Bury St Edmunds, Brighton, Milton Keynes and Manchester as hotspots where returns can be good.

5 World’s biggest brands
Stock markets are often carried by the strength of a handful of companies. Last year it was Nike, O’Reilly, Starbucks and Home Depot (NOSH) that made the lion’s share of growth on the US’s S&P 500. There are a few dozen global brands emerging and their power, even during downturns, is tremendous. Fund managers tend to highlight L’Oréal, Nestlé, Unilever, Visa, Disney and Dr Pepper Snapple.

Investors could buy individual shares or invest in a basket of global shares through a fund. Popular choices include the Lindsell Train Equity fund or Fundsmith Equity fund.

6 Infrastructure investment trust
Infrastructure stands out as one of the last places where investors can find reasonably secure streams of growth and dividend income. “Bond markets are unanimously thought to be overvalued and if you don’t like bonds, property has its issues,” says Mr MacDonald. Upgrading the UK’s infrastructure is a priority and while there are several projects under way, the government is expected to announce another chunk of investment this autumn.

“The government is able to borrow at next to nothing, so from a hard-nosed financial perspective it is a good time to put money towards projects,” he says, adding that the John Laing Infrastructure fund is well regarded and has a good track record.

7 Strategic bond funds
Bond markets in general are offering exceptionally low yields, with great swathes of government bonds returning nothing to investors. However, people still need investments that pay regular income. Funds with “strategic bond” in the name are able to invest across a wider range of bond types and hopefully find higher levels of payback for investors.

The Investment Association, the trade body, ranks Natixis Loomis Sayles Strategic Income as the best fund over the past three years.

8 Healthcare companies
Professional investors tend to consider healthcare a safe bet. Ageing populations and increasing life expectancy mean the demand for medicine has been steadily rising. The reach of healthcare companies is growing too, because the emerging middle classes in Asia and Africa have more money to spend. Western governments are cutting healthcare spending, but this is forcing chief executives to run slicker, more cost-effective businesses.

Among the most popular healthcare funds are the Polar Capital Healthcare Opportunities fund and the Schroder Global Healthcare fund.

9 Income-paying UK stocks
UK plc has been prioritising shareholders by paying out good and growing dividends. It has caused investors to flock to companies that indicate they’ll increase their dividend payout, so share prices have risen too. With paltry returns from many parts of the bond market, this dynamic could continue. Frequently tipped is the Fidelity MoneyBuilder Dividend fund.

10 Taiwan and China
Economists rave about the potential of emerging markets, but with frequent political crises, corporate governance issues and sensitive stock markets, in investment terms they haven’t always delivered. Taiwan is one bright spot.

“Its companies are part of the new world, such as the internet of things, [the internetworking of devices] smart devices, cloud computing and super-fast chips,” says Gary Greenberg, the head of emerging markets at Hermes Investment Management. “It’s an opportunity that the rest of the market doesn’t seem to be recognising much.” It’s a niche area, so it is best to invest through an emerging markets fund such as the Hermes Global Emerging Markets or Schroder AsiaPacific fund.