Life Insurance Reviews

It is true that the more risky policy of limiting one’s investment to a “specialist” fund (for example, one investing only in Far Eastern stock markets or only in gold-mining shares) can also produce higher profits just because of the greater volatility of these sectors of the overall investment market. So the problem of selection finally comes down to the question of how much risk the individual is prepared to take.

Normally, the answer is determined by two factors (apart from the temperament of the individual) - the resources available and the time period involved. If you have only a small amount of money to devote to saving, then you should be wary of putting it into the higher-risk alternatives. If you have more, then you can afford to split your saving between the plan involving lower risk and another involving higher.

In general, therefore, the type of fund best suited for those with limited resources and no wish to take unnecessary risks is the managed fund. Here, the managers will aim to adjust the proportions of the fund invested in the three main sectors (property, shares, fixed-interest securities) to minimise losses in falling markets and maximise gains in rising ones. Over any short period, through this spreading of assets, they are likely to do less well than at least one of the three sectors might do individually, but over a longer period this should be outweighed by the ability to mitigate the poor performance of one of the individual sectors over other periods.

For those interested in being more venturesome, the next best choice is an equity fund or unit trust with a broad spread of holdings in UK companies. A point worth noting is that funds aiming to produce high capital growth normally invest in low-yielding shares and therefore generate a low annual income (this applies especially to unit trusts investing in overseas stock markets). Over the long period of a life insurance policy (minimum l0 years) the reinvestment of income can account for a large proportion of growth.

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