Chapter Thirteen

YOUR CHOICE OF INVESTMENTS

Whichever type of investor you are - a safe Sue, a prudent Polly or a reckless Rita - you must settle down to a little reading. Once you have waded through the blurb for a few investments, a lot of questions will spring to your mind. Here are just four.

WHY DO DIFFERENT ORGANIZATIONS OFFER DIFFERENT RATES OF INTEREST?

There are umpteen reasons for different interest rates, but here are the four main ones.

1. Risk. By this I mean the risk of losing the money you put in, your original capital. This is over and above the risk of never getting the interest you should have received.

The higher the risk you take, the higher the interest rate you will demand to make it worthwhile. Now you meet the big difference between male and female investors: a man thinks of the money he might gain; a woman thinks of the money she might lose.

Basically, women like to play safe*. So which are the safest investments? We will look at them in detail when we advise safe Sue.

2. The second thing that affects the rate of interest is the length of time your money is tied up. The longer you have to wait before you can get at your money, the more interest you demand to compensate. This delay could be one week, one month, six months, five or even ten years. If you need the money urgently you can often get it but you will forfeit some of the interest you have already earned. You sometimes have to pay a cancellation fee.

Jilly put £10,000 in  five-year investment on Monday. On Friday she changed her mind and asked for her money back. Although the investors had had her money for four days, she received back less than she had put in because of the cancellation fee.

Normally an organization releases all money free of all penalties if an investor dies. The rules on this will be stated on the investment.

3. Another factor that influences the interest rate is the size of the sum you invest. The more you can scrape together, the higher the interest you can squeeze out of borrowers.

Some organizations have founded their business on this fact. They take in little sums from many small investors and deposit them in large amounts with big safe banks at a higher rate of interest. Then they pass on this extra interest after deducting their management costs to the small investors. Such firms will not be household names. But it is a sound idea and long established.

4. A fourth factor is expectations. I will explain this below when I answer the third question which has probably occurred to you.

WHY DOES THE SAME ORGANISATION OFFER DIFFERENT ACCOUNTS WITH DIFFERENT RATES OF INTEREST?

If you look closely at the rules you will find that you earn more interest the more you deposit, the longer you are prepared to leave it and the more interest you are prepared to lose if you withdraw your money early. The organization - bank, building society or whatever it may be - wants to attract as many different investors as possible. It wants big and small, those who need their money on demand and those who can wait for it.

Look also at the intervals of payment. When comparing an account which pays yearly with one that pays every six months, add an extra half a per cent to the latter. Add a bit more if it pays out monthly. Why? If you are  paid early, this money can be reinvested and earn you more.**

The official rate to look at when investing, which must always be calculated in the same way, is called the AER (annual equivalent rate). You will find this on all advertisements, so you can compare them. It is there to help you as a lender, just as the APR helps borrowers.

WHY MIGHT THE SAME ORGANIZATION OFFER A ONE-YEAR FIXED DEPOSIT ACCOUNT AT 10 PER CENT AND A TWO-YEAR FIXED DEPOSIT ACCOUNT AT 9 PER CENT?

I thought you said the longer you left your money, the more you earned? True, but remember expectations. If the firm expects interest rates to fall, then it will offer a higher rate short-term than long-term. It needs to offer the going high rate now to attract new investors. But in a year's time, when it repays the 10 per cent people, it will expect the going rate to have fallen below 9 per cent. If so, this is all it will have to offer to replace the money it has just paid out.

Can it ever be worth anyone's while to accept 9 per cent for two years instead of 10 per cent for one year? Yes, if you think that interest rates are going to fall even lower; 9 per cent for two years is better than 10 per cent for one year and 5 per cent for the second year. It would give you £118.81 at the end of the period instead of £115.50 on every hundred invested.

This is the idea of 'locking in'. You are delighted with the high rate you are getting and you want to spin it out and make it last as long as possible.

If, on the other hand, you think interest rates will rise next year, you will take the 10 per cent for one year and look around for something even better next year.

How do you know whether interest rates will rise or fall? Any financial adviser who can answer this would not waste his time looking after other people's money - he would be too busy counting his own.

You may think I am flogging this subject of interest rates too much when they are so low. At time of writing (2005) they are exceptionally, artificially low, true. But  I personally have paid mortgage interest at 16 per cent in the past and, up to the 1980s, never less than 8 per cent. There is nothing to stop them returning to these rates. They remain vitally important considerations whenever you are investing or borrowing.

WHY DO SOME INVESTMENTS TELL YOU EXACTLY HOW MUCH YOU WILL EARN AND OTHERS NOT?

With a fixed-interest investment, you agree to lend and they to borrow, and the terms are fixed. Generally you agree to receive less in return for more security. You trade off (swap) some of your interest for a guaranteed payment.

If you buy shares in a limited company, you become part of their venture. If it prospers, you will receive handsome dividends. If it falters, you may receive nothing for one year, then benefit from a large pay-out the next year. No one can predict this in advance.

INVESTMENT CHOICE: SAFETY, PRUDENCE OR RECKLESSNESS?

INVESTING FOR SAFETY

Meet safe Sue, our first type of investor. She wants her capital to remain absolutely safe. She wants to know in advance how much interest she will earn.

This does not mean that Sue is a coward.  If her capital is small or she is investing for something really vital, like her retirement, she dare not take risks. Even the ultra-rich, who can afford to gamble, usually shelter part of their fortune in rock-solid investments.

Sue still faces a wide choice of fixed-interest safe investments. These are investments with the safest organizations. Some even carry a guarantee - like the banks.

The last British bank crashed over a hundred years ago. American banks, by contrast, are local and much smaller, and a few crash every decade. Foreign banks with branches based in the UK also have to meet high standards here before they are allowed to trade. (It will be scant comfort to those of you who lost money in the BCCI collapse that it was the British authorities who first blew the whistle. This bank continued trading in some other countries.)

Most British banks now run subsidiary banks based offshore, for instance in the Channel Islands, the Isle of Man, Gibraltar or Malta. These only have to follow the local laws, which may not be so strict, so they are slightly more doubtful. In practice, the British parent company is unlikely to let its 'children' fail and will bail them out if need arises.

Other offshore banks are more doubtful still. Think hard and long before investing in the Transglobal International Universal Worldwide Bank based in Panama (if there is such an organization). Governments in places like Panama exercise no supervision of banks or any other businesses. I could set one up myself tomorrow for £100, over the telephone, persuade a few mugs to invest and disappear the day after with their money. No one would raise an eyebrow in Panama and I would never have been nearer than Land's End.

Building Societies offer safe investments. Most are members of their association. This guarantees that, if one fails, the rest of the members will club together and reimburse investors and borrowers, so that no one will lose their money or their home. The only society to fail in modern times - Grays - was not even an association member, but the other societies still bailed it out.

The umpteen societies each offer a range of accounts. As already outlined, the interest varies with the minimum amount you must invest, how often you must invest, how long your money is tied up and how frequently you receive your interest. Some offer chequebooks or will send you an interest cheque each month. Some of the most profitable are small societies with few branches which operate by post. If you are lucky, you can also benefit from extra cash share-outs when they are taken over. The Daily Telegraph publishes a 'league table' on Saturdays.

The household-name British insurance companies still rank among the best, therefore the safest, in the word. For safety, invest in their onshore branches. Before now, they have sat back with eyes averted while their offshore subsidiaries in Gibraltar, Malta etc. went smash and British people, among others, lost money.

Onshore means based in England, Wales, Scotland, Northern Ireland or any of the British islands except the Channel Islands of the Isle of Man. All onshore organizations are ruled by British laws. These are much stricter and better policed than those of most of the world, so the investor is better protected.

Offshore means based anywhere else. You can tell where a company is based by the address of its registered office. This must appear on its stationery and advertisements. (Be especially careful to find this out if you are using the internet. Website addresses often give no hint of country of origin. Not to mention rogue websites, set up by criminals, using the names of famous organizations - like Barclays.)

Investments linked with the government - like gilt-edged securities (also called 'gilts') - are all safe. So are those with local authorities, like bonds with Manchester council. The same applies to investments with official bodies, like accounts with the Post Office (National Savings). You are highly unlikely to lose your money, although governments have been known, especially in wartime, to put off dates of repayment.

On the other hand, once an organization is privatised - like British Telecom and the water companies - it ceases to have government support. Investment in it is just as risky as any other share.

Don't imagine that other governments offer equally safe investments, especially in countries where the national sport is staging revolutions. The new president may decide overnight to keep all your money.

Safe Sue may also consider debentures. A debenture is a loan to a public limited company, say Marks & Spencer or Boots. She can buy or sell her debentures quickly and easily on the stock market. A debenture entitles her to a fixed amount of interest which must be paid. Unlike shareholders, debenture holders have no say in the running of the company. They cannot vote at meetings and don't share in the profits. Debentures are safer than shares, but both rely at the end of the day on the strength of the limited company which issued them.

Gilts are the same sort of thing, but Sue would be lending to the government. Many local authorities issue fixed-interest bonds along the same lines.

Gilts can be bought and sold on the stock market. Sometimes they are called consols or consolidated stock. Details of prices appear in the quality newspapers.

Sue may notice a gilt or consol called 2010 2% and wonder how anyone could invest for such a low return, even if it is safe - especially when they could buy a gilt called 2010 10%. I give a full explanation in the glossary, Chapter 21, under 'consols'. Overall, Sue will find that one gilt yields (gives her) just the same return as another. The difference between them is whether she wants her money as income or as capital gain and when she wants what. But all are safe.

Whatever reliable investments she chooses, Sue must make sure the knows precisely what income she will be entitled to. Some salesmen dress up projected future rates - that is, guesses - as though they were fact.

INVESTING FOR PRUDENCE

Prudent Polly now appears as our second type of investor. She has more capital available to invest, relative to her needs, than Sue. So she can afford to take more chances. Polly owns enough capital to be able to split it into two and treat each part differently.

The first part of her capital - it may be a quarter, a half or even three-quarters of the total - she wants to keep absolutely safe, but she is willing to take a gamble on the amount of income she earns.

Polly considers the sorts of organization Sue looked at, knowing that many of them also offer accounts where the interest payable is not fixed in advance. Polly knows that with fixed-interest investments the borrower is committed to pay out whatever happens. So, to be safe, borrowers usually promise a bit less.

Polly is prepared to risk the remainder of her capital, but she still wants to keep the risks as low as possible.

She may be able to invest profitably through a solicitor - not necessarily her own solicitor - who has some clients with spare funds and others who need to borrow. Perhaps one of these people needs a top-up mortgage. This may appear slightly more risky to Polly than putting her money into the building society, but she should earn a higher return.

In practice, because solicitors control clients' money (the money from every property sale actually passes through their hands) they are in a position to protect their lenders too. Their professional association protects the public against fraudulent solicitors.

Polly can also consider investing in stocks and shares. In Chapter 6 I explained what a share is. The shareholder, as Polly will become if she buys some, owns part of the limited company, has a say in running it and receives her share of the profit as dividends. 'Stock' is simply an out-of-date name for a lot of shares. Sometimes stocks and shares are referred to as equities.

Prudent Polly remembers, if she buys shares, the risks she is running. The amount of income she receives (from dividends) is uncertain and she may not receive any.   Her capital is at risk, because if the company goes bankrupt she loses that too. On the other hand,   she has seen many people earn high income from their shares for years. Besides, they can sell them easily on the stock market through a broker. If they make a profit, they have increased their capital too.

The safest shares are sometimes called 'blue-chip' shares.Examples are shares in oil companies like BP, in banks, in ICI and in well-known shops like Marks & Spencer. Foreign 'blue-chip' giants include Nestle of Switzerland, Shell (part British, part Dutch) American ESSO and Honda, Sony and Mitsubishi of Japan. Polly should not lose much sleep if she has money invested in any of these.

She might also expect to be relatively secure buying shares in the sorts of organizations called 'utilities'. These provide everyday things that people need, such as a water company or British Gas. Unfortunately, in recent years, many have been taken over by foreign groups of companies, or managed so aggressively that they have lost their ultra-safe reputation. Vivendi was a water company in France. The new boss fancied investing in Hollywood. He borrowed so heavily to do this that the shares soon plummeted to 20% of their value. So much for a safe utility.

If she wants to protect herself a bit more, she can buy preference shares. If a limited company is in trouble, it must pay its debenture holders first. Next come the preference shareholders and finally the ordinary shareholders. So, if the money has run out by then, the ordinary shareholders will not be repaid. Polly can buy herself a better place in the queue. Some preference shares entitle her to a regular fixed dividend as well.

Some investors choose huge well-known giant companies because they are established. Being big they should be safer and able to ride out storms which destroy smaller companies. Others choose small unknown companies. Why? When they do well, small companies grow faster than big ones, so the shares are likely to increase in value faster.

Incidentally, some shares offer 'freebies' to shareholders over and above the usual dividends. A shipping line may give reduced fares for cross-Channel ferries, for instance. Others send Christmas hampers of the products they manufacture. Lists of companies and the perks they offer shareholders are published at :-

www.hargreaveslansdown.co.uk/siteredesign/online_guides/shareholder_perks/howtobuy.asp

These benefits could make it worthwhile to buy a few shares if Polly knew she would use the service often. Otherwise, she looks on the freebies as a gimmick, although a nice one because they come tax-free. Alone they would not sway her to buy shares.

Really, all investment reflects your personality, like the clothes you wear. You choose between the practical and the glamorous. Polly is famed for her prudence, so instead of buying stocks and shares she may prefer unit trusts.

A unit trust is an organization which allows a lot of small investors to invest in a wide range of shares at the same time. It takes in their money and gives them a number of 'units' in return. The trust employs experts to use this money to buy shares in different companies. These shares will yield dividends and also capital profits when the different shares are sold. This income is handed on to the investors, less the management expenses of the trust.

There are hundreds of different unit trusts. Some arrange things so that investors receive a regular income from them. Others don't pay investors any income but hand on the profits by giving investors additional units, which they can sell when they want to. Others again give neither income nor extra units; instead they increase the value of existing units, so that when Polly sells one, she gets more for it.

The quality newspapers publish unit trust details every week. They give two prices. The lower one is the price at which the trust managers will buy back your units on request. The higher one is the price at which they will sell you new units. So Polly can easily check what her investment is worth.

Some unit trusts only invest in British companies, or only in Japanese; others cover a broad spread. Some even invest only in companies with a good record on protecting the environment.

This so-called 'ethical investment' is relatively new and small-scale. One would expect that, as with all principles, you must pay for them. If you deliberately limit the profit-making opportunities of the firms with which you invest, you should expect them to make less profit and your unit trust to receive lower dividends.

The unit trust may invest in a company which makes a wonderful new device for purifying filth from factory chimneys - something in great demand and so potentially a profit-earner. Or it may decide not to because that factory itself produces vast pollution locally. Ethical investment is extremely difficult  to monitor. Even the Vatican found it had shares in a contraceptive company after a take-over.

The idea behind unit trusts is that they should be safer for the small investor because they 'spread the risk'. In other words, Polly does not put so many eggs in one basket. If she buys £10,000 worth of shares in the Doesn't-Stand-A-Hope  Company and it goes bankrupt, she has lost £10,000. If she buys £10,000 worth of unit trusts, this money will be invested by experts in dozens of companies. It is wildly unlikely they will all go bad and lose all Polly's money.

Does it work? Well, Polly must remember that there are management fees to be taken out of her profit before she sees it. She would not pay these if she invested for herself. Management fees  also account for the difference between the two prices quoted in the papers.

Experts can be wrong - how many foresaw the 1987 crash? - and because the investment is based on shares, they can make losses as well as profits. Also, if the whole economy is declining (as happened after the 1973 oil crisis), all shares drop in value. Unit trusts cannot protect Polly from that.

On average, unit trusts will claim they earn more for you than if you put the same money into the building society. This does not mean every unit trust does better, just the average (see Chapter 20 for averages). Even then, they usually compare a five-year period, not just year by year.

There is another alternative   which professionals always recommend: an investment trust. This is a limited company set up to invest in the shares of other companies. Members receive shares. The law was changed ten years ago to allow them to advertise.***

Polly may not fancy shares but prefer to put her money in bricks and mortar. She might try a property trust. This works like a unit trust but it uses investor's money to buy property, often office blocks or factory premises. Income comes from rents received  and profits from the sale of premises.  Again, Polly will find umpteen different property trusts to choose from

She might also be tempted to buy a house to rent out. (Remember, back in Chapter 11, we considered the advantages of leasehold property for the landlord?)  This would offer her income from the rent and capital growth when she sells the house for a profit. It will also give her many headaches and expenses, depending on the condition of the property, how careful her tenants are and whether she can get them out of the house if need be.

Despite all the work Polly may put in, the Inland Revenue will never let her treat renting out a house as a business. (This is the law; any accountant or tax office will confirm it.) Polly must remember too, unlike with shares or units in a trust, she cannot sell a house in a hurry if she needs cash. The Conservative government changed many rules in favour of the landlord to encourage people to rent out. Different government policies could tilt the balance in favour of the tenant again.

On the plus side, Polly always owns the house. This makes it a relatively safe investment - 'as safe as houses'. Over the years, it is likely to mount in value. It is not her family home, so there would be capital gains tax to consider on the profits from a sale. The detailed rules allow many generous concessions to reduce the tax where a property has been rented out.

Sometimes people can buy a property cheaply because there is a sitting tenant. The tenant (often an elderly couple) enjoys the right to occupy the house, sometimes at the current ridiculously low rent, for the rest of their life.

In this case, Polly would basically be gambling how long her tenants would live. If they soon pass on, or go into care, she has just bought a bargain.    If they flourish for another twenty years, her investment only produces the tiny income from the rent. Is she wants to sell the house again, she cannot ask as much for it  as if it were vacant.  Of course, she can offer her tenants a lump sum to give up their tenancy rights. If they have any sense, they will refuse.

Already overwhelmed with choice, Polly may go on to consider investments linked with life assurance. These have always been very popular but don't necessarily provide good value. They are popular because most people realize the advantages of life insurance. So the insurance salesman already has a foot in the door.

With a typical policy, Polly would pay regularly over a number of years. Only a small part of what she pays is set aside to buy her insurance cover. The rest is invested by the insurance company in various things like equities, gilts and unit trusts.

Polly must not forget the agent's commissions, which may continue year after year, or the management fees the company charges to buy, sell and monitor the investments.

Some firms stress as a selling point that when she has invested enough and her nest-egg has grown, they would give Polly a loan, using the policy as security. Of course, they charge her interest for the loan, even though it is her own money she is borrowing.

If later Polly decides to stop payments and cash in what she has ('surrender her policy'), what she will receive is not fixed in advance. It may not be as much as she could have earned if she had put the same amount every year in a building society or bank.

It is a well-kept secret that, instead of surrendering some policies, you can auction them. Someone else steps into your shoes, continues with the payments and receives the lump sum. If you can auction your policy - one firm specializing in this is Foster & Cranfield**** - you should receive far more than the insurance company will pay you.

As an investor, Polly may consider buying someone else's insurance policy. She steps into the shoes of the original investor, continues the regular payments and receives the proceeds when that person dies. She must not forget to check regularly that the person is still alive!

One further possibility for Polly is an Individual Savings Account (I mentioned them in chapter 10 as the latest of the government's schemes for encouraging regular savings). Various sorts of investments can qualify as ISAs and so benefit from being tax-free. You can buy a plan and take advice on what to put in it, or you can have a 'self-select' ISA and make your own decisions.

With so many alternatives available, Polly may think it wise to seek and pay for professional advice from a broker. However, if she decides to invest for herself, she must still remember not to put all her eggs in one basket - unless it is a very strong basket ( a really reliable organization) and the sums concerned are small. It is better to fill several baskets, even if they are different accounts with the same organization. Some can be short-term investments (say, up to a year) others long-term. This way Polly keeps cash available to take advantage of special offers. She can change her investments at will.

Prudent Polly is famed for her cool head. She needs it. She must watch out for and avoid the latest scare. Sales agents stampede thousands every year into 'beat-the-Budget, 'last chance', 'now-or-never' investments. Panic buying reaches its peak before Budget Day.

Most of the time, nobody knows what the Chancellor is going to announce, so the 'last chances' are just a sales ploy. If  Polly is considering this type of investment anyway, fine; but she must not let herself be herded into it.

RECKLESSNESS

Reckless Rita, our last type of investor, has one thought in her head. 'I want to be rich - as soon as possible.' She cares nothing about her present means or future needs, enjoys taking risks and maintains total faith in herself and her judgment. She wakes each morning certain that today is her lucky day.

Rita knows that the most profitable investments are usually those that carry the greatest risk, so she scornfully rejects any chosen by safe Sue. As for Polly's selection, Rita is only interested in those based on equities - the smaller, more obscure and adventurous the limited company, the better.

Reckless Rita has her own range of investments, all of which have made a fortunate few people very wealthy in the past. They are very risky indeed, and sometimes very profitable. Personally I would need to be a millionaire already before I touched them, and then only for the fun of it. Rita's choice:

1.  Become an 'angel' and lend your money to back a theatre show. For every Lloyd Webber, there are hundreds that flop.

2. Invest in an existing limited company to run a business (see Chapters 5 and 6).

3. Invest in a venture to find deep-sea treasure from sunken Spanish galleons, the lost city of Eldorado, a Nazi hoard stashed in the cellars of Berlin or at the bottom of a lake in Switzerland, or to publish a hitherto unknown play by Shakespeare, etc.: wonderful, romantic ways to wave goodbye to your money.

4. Invest in any scheme that promises to double your money in a year (or two or three).

5. Invest in paintings, coins, medals, postage stamps, Eastern carpets, uncut gems. If you are an expert, fine. Remember, this sort of investment never gives you a penny of income. On the contrary, you will pay heavily for insurance and security systems. You may enjoy enormous pleasure and prestige but, for a profit, you rely solely on capital appreciation.

The possibility (probability) of losing both income and capital may not be adventurous enough for Rita. Lured by big-time quick money, she might consider investments which entail high running costs as well.

6. Buy a racehorse and pay to train and run it. Read Dick Francis's marvellous thrillers. Discover all the things that can stop it winning and turn your potential Derby-winner into expensive dog meat.

7. Buy and sell foreign currencies for profit. This is based on the wildest guesswork, or a crystal ball. The same goes for the foreign currency unit trusts you can buy units in.

When these schemes grow tame, Rita might be attracted to the sort of investment where, having forgone any income and lost all her capital, she can find herself - double or quits - incurring vast losses and forking out more capital still:

8. Invest in the futures market or in any unit trust based on the futures market.

Many crops like coffee and cocoa and metals like copper are bought and sold in huge quantities in markets in London. People can buy or sell before the crop has even been harvested or the metal mined. There is not a coffee bean in sight, these are simply paper transactions. The markets are called the commodity markets.

Investors can buy or sell for some future date without actually spending a penny at the time. Anything can change the price of a commodity: a bad harvest, a war, a change of government.

If things go wrong, not only can you lose all your capital - forget about income, there is none with this sort of buying and selling - but, far worse, you may have to spend more on top to cover your debts.  This makes betting on horses look safe.

Suppose Rita thinks the coffee crop will be poor, so beans will be scarce and their price will rise.

On 1 January the price of beans stands at £3 per sack. Rita signs a forward contract. She agrees to sell 1,000 sacks of beans for £5 each to be delivered on 1 April. Rita does not actually own any coffee beans at all. She plans to buy them just before she has to, at the end of March. She expects that each sack will cost about £3.50 then.

By 1 March everyone knows the harvest has been catastrophic. The price of scarce beans has rocketed to £7 a sack. Rita knows she will have to pay this to buy the beans she must provide on 1 April. But prices change every day. Perhaps something will happen to lower them again, like a government releasing vast stocks of stored beans for sale. Rita, the optimist, waits and worries.

On 31 March she can wait no longer. Beans cost £8 a sack. She must buy them, even at this price, to sell them the day after for £5 as she agreed.

What went wrong? Rita was right that the price of coffee beans would rise. What she did not know was how much or when. If she had actually bought them on 1 January, she would have made a profit. But she would have had to pay for them then and find somewhere to store them.

Rita thought she was investing £3,500 and would get back £5,000, a profit of £1,500. Instead, she had to pay out £8,000 and only got back £5,000, a loss of £3,000. If she had to borrow to find the £8,000, her loss would have been even greater.

If risks of this magnitude set you hair bristling out of your scalp, you are not alone. Perhaps you are even wondering what the difference is between investment and gambling. It is difficult to answer.

All one can say is, a gamble can never be an investment, even if a bookmaker does try to style himself a turf accountant. On the other hand, an investment may have a hint of a gamble in it. The hint mushrooms in size as the risk increases, until eventually there is little to choose between a punter studying form in the Racing World and an investor reading the latest prices on world markets.Ultra-rich individuals and organizations can and do manipulate entire world markets in their favour. Even then, they sometimes lose. What hope for Rita?

People like reckless Rita are never satisfied. What she gains today, she will happily put at risk again tomorrow.   What she enjoys in the excitement of the risk. There is only one thing wrong - women like Rita don't exist.

I have met dozens of safe Sues, plenty of prudent Pollys, umpteen reckless Richards, but never a reckless Rita. Why not?  Women with the means and craving to take risks do it in a more glamorous, more public way.

You will admire Rita's boldness at the casino, Royal Ascot, even the bingo hall, but you will never spy her shuffling bits of paper with her broker. She will publicly cash in her winning chips with pride. Privately swapping contract notes or share certificates, even though they represent just as much wealth, strikes our Rita as downright dull. She must be seen to win.

So why waste your time describing a woman who does not exist? Because the investments do exist, and women buy them - the safe Sues and prudent Pollys who have no idea, until too late, just what risks they have been running. They never saw themselves as reckless Ritas.

Whatever sort of investor you are, you need to ask yourself about the future. Once you are satisfied your money is well invested, leave it alone.  Don't make the mistake of rushing after every new scheme. It costs you money  to change. (Remember what we said in Chapter 9?) Arrangement fees, brokers' fees, lost interest while your money switches from one investment to another: all bite into your profit.

Review your investments every year. The sensible time to do it is when you complete your tax return. Why? Because you need to collect much of the information anyway.

DEALING WITH PROFITS AND LOSSES

WHAT SHOULD I DO WHEN I HAVE MADE A PROFIT?

The shares you bought at £5 each now stand at £10. Should you sell? Some people will say stay with the same investment, keep your shares and don't realize your profit. Others will insist you should sell at once and turn your paper profit into cash as soon as you can.

One famous multi-millionaire explained how he achieved his riches by saying, 'I sold too soon.' He satisfied himself with a quick small profit rather than waiting for a bigger one which never came. At the saying goes: small profits, quick returns.

It all depends on your feelings, luck and what other opportunities   for investment you can find on offer at the time. After all, you have to find somewhere new and tempting to invest if you do sell.

Just remember, until you have turned your profit into cash, you have not made a profit at all. Perhaps you bought shares at £3 and the stock market price today is £6. Unless you sell today, you have not made a profit. Perhaps tomorrow the stock market price will tumble to £2.50. Again, unless you sell, you have not made a loss.

WHAT DO I DO IF A LOSS LOOMS?

Perhaps you risked buying some shares at £4 and week after week groan as the stock market price falls to £3.50, £3, £2.75. Or you run a business and the profits drop year after year. Should you sell? Anyone who knows the answer to this one must peer into a crystal ball.

Some people say sell. Don't throw good money after bad. Others say stick with it. Make the best of a bad bargain.  It all depends what you think will happen in the future, and what other people (the market) think.

But remember, nobody ever made a fortune by doing the same as every other investor. Speculators (the genuine reckless Richards) are people who buy when everyone else is selling and sell when others want to buy.

The blow falls when you have to sell, regardless of price, because you need the money - desperately. If this is your situation, and you have already insured against the normal risks which turn people suddenly desperate for money, you should not be investing in anything risky at all. Only venture money over and above what you need for everyday living. Aim for a guaranteed income first.

INVEST IN YOURSELF

There is one last investment area you may not have considered. It should appeal equally to safe Sue, prudent Polly or reckless Rita: invest in yourself.

Perhaps your money would be best spent on training. Some organizations, like universities and training colleges, will take students who don't have the necessary entrance qualifications, if they pay for their tuition, regardless of their age.

Better still, get someone else to pay for your training. Many organizations will sponsor you at university and pay you a good wage while you are learning (the Civil Service, the army and many large employers do this). Or they will give you valuable on-the-job training or day release training while you earn.

Women still need to be better qualified on paper than men to be considered for the same jobs. Besides, with the rate at which the world is changing, you cannot carry too many strings to your bow.

Investments in your health (regular check-ups, a convalescent home or a preventive operation) may also be money well spent. On the contrary, investment in your looks (plastic surgery, cosmetic dentistry, implants, health farms, etc.), unless you are already so near-perfect that you can earn your living with them, are, let's be honest, not really an investment at all - just one of the many luxurious ways to spend the fruits of your investments.

This chapter probably led you into much unfamiliar territory. The next will be easier. We look at the turning points of many women's lives - marriage and divorce or separation.

*Not always. Queen Isabella of Castille (Spain) changed the history of the world when she invested in Christopher Columbus's wild venture. Her husband Ferdinand laughed. Luckily, she kept her treasure separate.

**Remember when we said that borrowing at 2 per cent a quarter was not 8 per cent a year but 8.25 per cent (Chapter 11)? Now you see the same thing from the lender's point of view.

*** the Association of Investment Trusts

The AITC 9th Floor 24 Chiswell Street London EC1Y 4YY

Tel: 020 7282 5555

http://www.aitc.co.uk/

****  www.foster-and-cranfield.co.uk/

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