Investment strategies are down to an individual’s temperament and needs

Investment strategies are down to an individual’s temperament and needs. If there’s any doubt, start building up some cash reserves.After that lot, any spare money can go into a portfolio of investments. The “return” from paying less interest may well be greater than the net (after-tax) return from investing the money.q Make sure you are putting sufficient funds into an employer’s pension scheme, using a top-up plan for additional voluntary contributions if necessary, or a personal pension plan.q Take account of your insurance needs, including life insurance and so-called permanent health insurance, which provides replacement income if you can’t work because of ill-health.q Keep sufficient cash on deposit to which you have easy access for unexpected expenditure.q Consider whether your current job and income are secure. The times when serious financial decisions have to be taken are fairly infrequent, so it’s easy to rely on the experts.But financial knowledge is financial power. Before considering the basics for developing an investment portfolio, look first at the essentials of general financial planning:q Do you have a large mortgage or other debts? With even the lowest interest rates quite high, getting rid of debts is a good place for spare cash. Instead of some reliable enhancement of income, the investor would be risking serious losses.The problem is that the great majority of people are still relatively unsophisticated when it comes to matters financial, and this is hardly surprising. Shame on any adviser who suggests investment trusts specialising in the roller-coaster stock markets of Latin America and the Far East.

That would almost certainly fail to meet the needs and requirements of the individual investor. In either case, the right sort of building society accounts could still be the best place to store that pounds 60,000 of unused wealth.Or consider a different case: someone on the point of retirement who has no significant savings but can look forward to a modest company pension and a nice lump sum from the pension scheme. Consider someone whose total assets consist of pounds 60,000 in building society accounts He could almost certainly achieve better long-term returns. So some diversification – perhaps into unit trusts or even individual shares – might seem to be worthwhile But the investor may be very cautious. Or that pounds 60,000 could be earmarked for some specific expenditure in the not too distant future.

The idea is to reduce the risks to your overall wealth from one poor performer. It should allow some investment in potentially high-return investments without causing sleepless nights. At the same time it should take account of the specific investment objectives set by the investor.A portfolio that is right for one investor may not be for another. But the person who wants to take a more careful approach to the management of his or her assets would do well to consider the buzzwords used by the professionals, such as “balanced portfolio” and “asset allocation”.A balanced portfolio of investments is one which aims to maximise the return while spreading the risk. And, of course, there’s the deposit in a Tessa account – it’s tax-free, so must be a good thing.Maybe these random forays into saving and investment will do no harm. It goes against all the rules of sensible investment.Yet many small shareholders ignore the rules. In the event, generally they have enjoyed excellent returns from investments in privatised companies.But along the way they could also have built up a haphazard collection of investments, a few shares here, a unit trust the bank hyped there.

Why do so many people hold small parcels of shares? And why have they failed to acquire a sensible spread of investments?No competent stockbrokerwould advise someone to invest a few hundred pounds in the shares of just one or two companies if their only assets were a couple of thousand. What, some commentators ask, about the effect of a windfall tax on the value of those shares? Won’t small shareholders be badly hit?
In fact, this raises important issues about the side-effects of privatisation. THE PROSPECT of a windfall tax on water and electricity companies has demonstrated that consumer dissatisfaction is not the only problem facing the privatised utilities

But many consumers are also small shareholders. You should also check that the pension plan is flexible – for example, what happens if you want to stop paying monthly premiums? – that the company is financially strong, and that the service is good; pension companies have an appalling record for administration and incomprehensible paperwork..

For people investing a lump sum it names AXA Equity & Law, National Mutual, Norwich Union, Sun Alliance and Professional Life.But these tips should only be a starting point; good past performance will not necessarily continue, and charges can rise once you have signed up And the named “best buys” assume certain levels of premium. For someone saving pounds 200 a month for 25 years the difference could translate – very roughly and assuming the same investment performance – into a pension of pounds 18,000 a year from Equitable and pounds 14,000 from Eurolife.Higher charges are fine, though, so long as that company invests your money significantly better than a cheaper rival.Money Management gives a number of companies “five stars” for being best buys. These have achieved good overall performance and have low charges. For people paying a monthly premium it names Equitable Life, Norwich Union, Prudential, Scottish Amicable, Rothschild Asset Management, Professional Life and Winterthur.