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Continues from page 1 KEEPING TRACK OF TRACKERS The idea of buying a "tracker" fund, (which cuts out the cost of investment management by simply investing in the companies which make up one of the main stock exchange indices) worked well while the market was in a strong growth phase, led by the "blue chips". In 1999, however, the story has been different. The UK market has made little progress, and actively managed funds have regained the initiative, demonstrating the value of investment expertise in picking the shares which are most likely to prosper on their individual merits. Those who favour trackers argue that, because of management charges, many actively managed funds fail to beat the indices. There are, however, a number of counter-arguments:
The fact that active fund managers are judged against the indices causes some to adopt a self-defensive approach by shadowing favoured index holdings and becoming "closet trackers". The most successful managers, however, have always been those who are willing to back their own judgment. Selecting these is a key role of the financial adviser. ZEROES ARE HEROES One of the consequences of high share prices and low interest rates is that share dividend yields have declined markedly; and the Government has added to investors' discomfiture by reducing the level of tax credit. One response to this situation is to invest purely for capital growth. If an income is required, the capital can be drawn down by instalments, and if the gains realised in this way are less than the annual Capital Gains Tax exemption of (currently) £7,100 a year, no tax will be payable. An investment which fulfils this purpose admirably is a Unit Trust investing in Investment Trust Zero dividend shares. These produce a relatively high return but their risk rating is between Government Securities and Corporate Bonds. In the words of the Financial Times they suit the more "affluent investors who do not like risk". CHEAPER LIFE COVER There has rarely been a better time to buy life insurance. The main reason is that people are living longer. Official figures show that for men aged 45 to 59, mortality rates have been falling at a rate of 3% a year for the past 12 years, due largely to a decline among this age group in levels of heart disease, improvements in diet and lifestyle, and a reduction in smoking. Death rates have also fallen for women in the same age group. But significantly, there has been no such improvement among the 20 to 39 age group, where health improvements have been offset by an increase in deaths due to drugs and other social evils. Reflecting this experience, premium rates on life insurance policies have reduced considerably over recent years. At the same time, products have improved, and policies are now available which permit the level of cover to be increased without further medical checks. Others offer a menu of possible benefits, including cover for death, critical illness, permanent health insurance and total permanent disability benefit. Most benefits take the form of a lump sum, from which an income will need to be purchased, so with interest rates likely to remain low there is a strong argument for taking advantage of lower premiums by opting for higher levels of cover. Personal pension holders have the advantage that the premiums they pay for life cover are eligible for tax relief. This is a situation in which it pays to review and possibly replace existing uncompetitive policies.
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No responsibility can be accepted for the accuracy of the information in this newsletter and no action should be taken in reliance on it without advice. The value of units and the income from them may fluctuate and past performance is not necessarily a guide to future performance. |