WITH THE world's stock markets in turmoil, now may not seem the best time to start building a portfolio. But if you have already invested in the markets, or have money that you need to put away, there are ways of protecting your investments.
The basic rule for a defensive portfolio is to ensure that it is well balanced, says Vivienne Starkey, senior consultant at the independent financial advisers Haddock Porter Williams. "You need to build up a series of layers. Some capital must be instantly accessible; some may be needed in the next few years; while the balance can be invested for the long term," she says.
The first step is to choose a deposit account that gives you instant access. Among the two best at present are the Egg account, paying 8 per cent gross, and Sainsbury's Bank, paying 7.35 per cent, both available on sums as low as pounds 1. Next, look at Tessas, which offer a safe home for your money, and all interest is tax-free providing you do not touch the capital for five years. The best deals at present include Norwich and Peterborough Building Society, paying pounds 8.25 on minimum deposits of pounds 100, and Principality Building Society, offering 8.2 per cent on a minimum deposit of pounds 2,500. Then consider National Savings Certificates, where your capital is safe and you earn tax-free interest. Next, look at low-risk investments such as gilts, corporate bond funds and investment trust zero-dividend preference shares. If you keep a gilt to its maturity date, you know exactly what the return will be and how much interest you will receive each year until then. Corporate bonds work in the same way, except that they are issued by companies wanting to raise money, rather than by the Government. A corporate bond fund such as the M&G Corporate Bond Fund, paying 8 per cent net, will invest your money in a range of corporate bonds, thereby spreading your risk, and you can reinvest the income if you want only capital growth. Investment trust zero-dividend preference shares do not pay out income, but offer a predetermined return on a set date. These shares are affected by the equity market, so choose a good fund. …