- Direct Investment

- Collective Investment

- Insurance Based Products

Both of the above can be done on either an Advisory or a Discretionary basis

Direct Investment describes investments in a particular, identifiable holding, usually a share or a gilt

Conversely, Collective - or indirect - Investments are investments made whereby the investor obtains ownership of a number of holdings, usually by way of a Unit or Investment Trust, or, becoming more increasingly popular, an Open Ended Investment Companies (OEIC)

In general, Direct Investments tend to be a riskier option than Collective Investments, due to the fact that Direct Investments do not benefit from the same levels of diversification that the Collective Investments offer.

Direct investing is where the investor buys specific investments, in this context, we mean either equities or fixed income securities.

For the investor, there are several advantages of this approach, including;

A greater degree of control over the investments made
A higher degree of “ownership”
Opportunity to make opportunistic investments to achieve enhanced levels of return
Historically higher levels of return than cash or cash based investments

However, it must also be borne in mind that there are several downsides to such an approach, including;

Generally - especially when investing into equities - a higher level of investment risk than other asset classes.
No guarantee to the funds invested. Prices can fall as well as rise
Lower levels of investment diversification than other forms of investment management

Investments can be made in number of ways, including

Advisory - where the investor enters into an ongoing dialogue with an Investment or Stock Broker concerning the investments that should be made. This can allow for a high level of involvement from the investor.
Discretionary - Again, using the services of an Investment or Stock Broker, but after the initial investment parameters have been set, almost 100% authority is given to the Broker to control the investment decisions. This tends to mean a limited amount of input from the investor.
Execution Only - Whereby the investor controls the whole investment buying and selling process, relying on the broker simply to execute the transaction to the investors instructions.

In terms of the amounts that can be invested, many brokers look for a minimum amount of £50,000 for either an Advisory or Discretionary approach.
For an Execution Only approach, there is no minimum. If an investor wishes to purchase as little as £100 worth of a particular share, any broker should be able to effect the transaction.

With regards to charges and costs, for all three of the above approaches, dealing charges will be levied on all purchases and sales. Dealing charges vary from broker to broker and indeed there are some very competitive deals offered by internet based firms.
In addition, Stamp Duty - currently 0.5% - will be levied on the majority of purchases, with the exception primarily of British Government securities (Gilts) and certain other fixed interest securities.
Should either an Advisory or Discretionary approach be taken it is most likely that an annual management fee, based on the value of funds being managed, will be levied. Whilst such management fees vary from broker to broker, a figure of 1% is generally regarded as a good rule of thumb.

If you are interested in further details about making Direct Investments, or indeed adding them to your portfolio, please click on the link below.


COLLECTIVE INVESTMENTS

Collective investing is in effect investing into investments, whereby the investor in essence pools their funds with other funds and, potentially, a broader range of investments are purchased with the pooled funds.

For the investor there are several advantages to this approach, including;

Higher levels of investment diversification than the direct investment approach.
More beneficial to investors with smaller amounts to invest because of the spread of underlying investments
Access to a broad range of investment markets and sectors through specialised funds
Opportunity to diversify into different funds to spread investment risk
Opportunity to invest in a tax efficient manner to incorporate Individual Savings Account allowances.

However, there are also downsides to this approach and these include;

Can be more expensive than direct investments
Little or no investor involvement in the investment process
There may be a detrimental effect if the fund manager changes or leaves the fund management house.
No guarantee to the funds invested, as investment values can both fall and rise.

Investments into collective investments can be made either by way of one off or a series of lump sum payments or by a series of regular - I.e. monthly - payments. With the regular payments it is possible to invest from as little as £ per month

With regard to charges and costs, there is usually an initial charge - known as the Bid/Offer Spread - which may be as high as 5% of the amount invested and there will then be an ongoing annual management charge, with 1% being a rule of thumb.

If your are interested in further details about Collective Investments, or indeed adding them to your portfolio, please click on the link below.