Best way to invest my company money?
|Investment | Protected
Asked by Redwinebox20499, submitted
20 June 2011.
I currently have a fairly substantial amount of retained profit in my limited company which I am reluctant to take out and pay higher rate income tax.
I do not expect to need any of this cash for 2 to 5 years and at the moment this is effectively being devalued with the effect of inflation.
What savings / investments are open to me to put this cash to better use?
Answered by Justin on 24 June 2011
You can buy just about any investment via your company that you could buy personally, the only hassle being you can't obviously hold it within an ISA to escape tax.
Not all low cost stockbrokers allow companies to open an account, but SVS Securities does with a charge of £5.75 per trade. This route will allow you buy UK shares, investment trusts and exchange traded funds (ETFs).
If you'd prefer to buy funds like unit trusts then options are a more limited as most fund platforms/supermarkets don't allow companies to open an account. Skandia does, and purchasing via discount broker Club Finance should ensure you receive some commission rebates. Alternatively, TD Waterhouse allows companies to open a trading account, which allows you buy both funds and shares - although they're not the cheapest for funds. If readers know of other discount broker/fund platforms that allow companies to open an account please post below.
When it comes to savings accounts companies tend to get a raw deal versus individuals, as the best rates on offer tend to be less competitive. Nevertheless, reasonable deals can be found with some shopping around. You can view a list of current 'best buys' on theMoneyfacts website. The Investec Business High 5 account is also worth a look as it pays the average of the top 5 'best buy' accounts, reducing the risk that the rate will become uncompetitive in future. At the time of writing it pays 2.34% gross. If you don't mind tying the money up for 3 years The Principality Building Society pays a fixed rate of 3.24% gross.
As for how you should save/invest it really depends on how much risk you're comfortable taking and your views on markets etc. In these turbulent times I'd be nervous about investing in stock markets, commodities and property for less than 5-10 years. You might make money short term, but there's a fair chance you could lose it too given the economic outlook.
If you're happy taking a punt with some of the money I'd be inclined to focus on emerging markets and commodities - both pretty high risk but equally they probably have the most potential over the next 5 years. Or, for a (theoretically) less volatile ride perhaps consider high dividend shares (or equity income funds) where a decent income of around 4-6% (after basic rate tax) should help ease the pain of any stock market falls and boost profits if markets rise.
Protected capital plans (that typically protect your initial investment and link returns to a stock market index over about 5 years) are another option. I'm not a major fan, as the potential returns from such plans don't look great at present - because of the way they're constructed the current low interest rate/high market volatility climate makes these plans expensive to build, hence the terms aren't that generous. Nevertheless, they might appeal and some allow companeis to invest, discount broker Moneyworld provides a cheap way to buy (by rebating most of the initial sales commission).
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