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Top tips for investment

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Investing for income

Investing for income means using the interest or returns on your investments to supplement your earnings, rather than ploughing them back into the investment. It means picking shares or funds which pay decent dividends rather than those likely to produce capital growth over the longer-term.

Investors can invest for income in various ways. They can buy shares in companies with a good income record or invest via a collective fund where a spread of company shares is held. This could be through an exchange-traded fund, investment trust or unit trust.

Tips for new investors

Investors can invest in the stockmarket either directly or indirectly. Directly means buying individual shares in an individual company. This can be done via online platforms through a share dealing account, without being offered advice.

Indirect investment means spreading risk by investing in a number of companies. This can be done via an open-ended fund, such as an open-ended investment company (OEIC) or unit trust, which is made up of shares typically from between 50 and 100 companies, and can be sector, country or theme specific. A fund manager will decide which stocks and shares to include in the fund and when to buy or sell.

Alternatively an investment trust is a pooled investment structured in the same way as a limited company. Investors buy shares in the closed-end company, and it is listed on an index.

Funds and trusts will levy charges which should be taken into account. Also bear in mind that past performance of a share or fund is no guarantee of future results.

Beginners are well advised to invest regular monthly premiums into a fund, rather than depositing a lump sum. By drip-feeding money in, it’s possible to negate the risk of market timing – if the market falls, the regular premium will simply buy shares at a cheaper price the following month.

Equity ISAs

An individual savings account or Isa is a way of earning tax-free interest or investment profit. You don’t pay any income tax on the interest and there’s no capital gains tax on any profits.

You can invest up to £11,280 in an Isa each year, either all in equities or a mixture of cash and equities with a maximum of £5,640 in cash (for the 2012-13 tax year).

A stocks and shares or equity Isa allows you to invest in the shares of individual companies, or in funds. However, as equity Isas are stock market investments, be aware the value could go down as well as up and in the worst case scenario you could lose all your money.

The benefit of investing in an Isa is that normally any returns you make over £10,600 would be subject to capital gains tax of 18% for a basic-rate taxpayer and 28% if you are a higher earner. Funds which pay a regular income are also subject to income tax. If you invest directly in shares, dividend payments are normally taxed at 10% for basic rate payers, 32.5% for higher rate payers, and 42.5% for top rate taxpayers. But if you invest within an Isa wrapper you won’t have to pay these taxes.

Investing in property

The most popular way of investing in property is to invest directly in the residential market. Normally this involves getting involved in the buy-to-let (BTL) market: buying a property and renting it out to tenants. Landlords earn money from a monthly rental yield and, hopefully, the capital growth of the property.

Alternatively if you are a DIY enthusiast or are willing to manage a team of tradesman, there could be money to be made by property renovation or development. The most common strategy is to buy a cheap rundown property, renovate it and sell it on at a profit.

Another option is investing in the commercial property market which is generally split into four sectors retail (shops), industrial (warehouses and factories), offices, and leisure (hotels, leisure parks).

Investors can generally benefit from higher guaranteed income on commercial property compared to any income potential from residential rent. You generate this income through institutional leasing which gives you a guaranteed, clear return for a fixed term

For a hands-off investment some people prefer to invest in property through a property fund. Property funds are a way of buying into the property market as part of a collective group that can invest in several rather than just one property, or buying into property companies that own, rent or develop property.

Investing in wine

Wine is one of a number of “alternative assets” – which some view as riskier investments – some investors choose to invest in. The benefit of a riskier investment of course is that it can potentially generate greater returns than more low-risk propositions.

Wine is unique as unlike other luxury items, the supply of fine wine is fixed – you can’t go back in time and produce more wine from a particularly good year. Supplies inevitably dwindle as bottles are uncorked, pushing up the value of what’s left.

Investment-grade wine is considered to be only the top 50 to 100 traded wines.

Wine investors should leave bottle selection to the experts. Wine merchants will put together a portfolio for you depending on how much you want to invest, how much risk you’re willing to take and how long you want to invest. In most cases they’ll store and insure your wine too, for a fee.