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Investment Considerations

With such a wide range of funds available, selecting the right funds within your investment bond requires careful research. Creating a suitable, well-diversified, balanced investment portfolio requires the investor to consider the following issues:

Attitude to investment risk

Some people are, by their nature, extremely cautious who have little risk tolerance. Risk averse people who cannot accept volatility inherent with investing, should consider carefully whether they would be better suited to keeping their funds in deposit accounts or very low risk investment vehicles, such as National Savings products. You need to carefully consider your tolerance to risk. Overly investing in just one asset class will increase the overall risk of a portfolio- so diversification is key.

Ethical Investment

Consider any ethical factors which you feel are important to you. Many investment bond providers offer ethical funds. We are able to offer advice on this area and you may find our ethical filtering module useful which you will find on our ethical investment site. Alternatively we can send you an ethical Fact Find which will help with the selection of investment funds which are commensurate with your convictions.

Do you require an income from your capital?

You need to consider what level of income is required, when you want it to begin and how often you want to be paid. If you are looking to generate an income from your investment bond, you need to decide on the level required, and when you want it to begin.

When an income is taken, there is the danger of eroding the value of the capital or having to reduce the level of income being taken if it is not sustainable. If an income is to be taken, do you want it to increase over time in an effort to combat inflation?  If so, the capital has to grow over time which may involve having to take an element of investment risk.

Alternatively you may be looking to build up capital for the future so have no immediate need for income.

Age and investment duration.

Age is critical in determining investment horizons. A key factor in the reduction of any risk associated with an investment is the length of time for which it is held. A younger investor may have a higher tolerance to investment risk, since they have sufficient time to recoup short term losses caused by volatility. Conversely, older investors may seek a more cautious approach to investment, since they may wish to preserve capital as they go into retirement. In most cases, the longer the term of the investment the lower the risk. If you are likely to need access to the funds at short notice, you may be better served by a deposit based account as opposed to an investment bond. An investment in a collective, equity based fund is generally considered as a medium term investment where your time horizons need to be for five years or more.


Affordability is implicit in determining investment decisions. Investors need to carefully consider whether they can afford to take risks. For example, someone with high levels of personal debt would be better off paying these debts off before embarking on investment portfolio construction.

Tax implications

You need to take into account the wider impact your investment bond will have on your income, capital gains and inheritance tax position. Taking income from your investments can impact on means tested benefits and so the consequences need to be considered diligently. Triggering chargeable events from investment bonds can have adverse consequences if they exceed your capital gains tax allowances. You also need to consider your future income tax threshold at the time when you surrender or part surrender your investment bond in the future – whether you will be a non, starting, basic, higher or additional rate taxpayer. If you have any doubts you should seek advice from us.

On-going monitoring and supervision

After you have decided on your asset allocation, it is important that you keep the investment bond under on-going monitoring and supervision. Financial markets are constantly changing, providing new opportunities, or “buying opportunities” and also risks, such as sectors which have become overvalued- indicating that it is appropriate to look to take profits and crystallise gains. Re-assessing and re-balancing a portfolio is critical in ensuring optimal performance.

The performance of a fund is often compared to a benchmark index and/ or with sector average performance. Sector averages denote the average performance of all funds within that particular sector. It is important to look for funds and fund managers that consistently out-perform the sector average over a sustained period of time. Switching between funds within an investment bond is a simple procedure and can be used to alter the asset allocation following a review.