INVESTING FOR A SUNNY DAY YOUR INVESTMENT OPTIONS

COLUMBIATHREADNEEDLE.CO.UK

CONTENTS 01 Choosing the roads to your sunny retirement days . . . . . . . . . . . . 4 02 Cash can be a good way to protect your money in the short term but.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 03 Commercial property can help spread your investments . . . . . . . . 5 04 When you buy bonds you’re lending money to a company or a government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 05 Equities generally provide the highest returns... and the highest risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 06 It’s not as hard as you may think to work out a mix of investments that’s right for you. . . . . . . . . . . . . . . . . . . . . . . . . 8 07 What type of investor are you?. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 08 Now check out all the funds that could lead to your sunny days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Investing for a sunny day.

SECTION 1 CHOOSING THE ROADS TO YOUR SUNNY RETIREMENT DAYS How you invest your pension money can make a major difference to how sunny your retirement days will be. A number of things will affect your choice – the lifestyle you want, the number of years you have until retirement and your attitude to taking risk. Fortunately, your money will be in funds that are managed by experts with specialist knowledge of their investment areas. Your pension scheme will offer a range of funds. Each fund will have its own investment objective and could invest in equities, property, bonds or cash – or in a combination of these. Fund managers make the final decisions, but they are supported by teams of analysts, who review the markets, research individual companies and identify investment opportunities. But you should still understand the basics before you decide how you want your money invested. You need to decide which road is most suitable for you.

This brochure doesn’t recommend one form of investment over another. And it doesn’t give you investment advice. But it does give you the main facts you need to make informed decisions, by giving you information about your choices. It helps you determine how much investment risk you’ll be comfortable with. It explains the main advantages and disadvantages of the four main types of investment: equities or company shares, bonds, both government bonds and company bonds, cash and property. Once you’ve read it, we hope you’ll feel confident that you’re in a position to choose the kinds of funds that are most likely to give you the future you want. If not, don’t worry, you can always get expert advice (see page 11).

SECTION 2 CASH CAN BE A GOOD WAY TO PROTECT YOUR MONEY IN THE SHORT TERM BUT... Let’s start with the savings option we all know best. When most people think of savings, they think of cash – a deposit account in a bank or a building society. But, over the long term, cash has rarely proved a good investment. In fact, over longer periods, it has usually given lower returns than equities, bonds or property. A lot of people will argue, “Yeah, okay, but it’s really safe.” But is it? When you invest in cash you do get interest. However, if your interest rate is less than the inflation rate, then the real value of your money is actually going down.

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Cash can also be invested in money market securities. These usually pay a slightly higher rate of interest which is fixed for a short time, normally a few weeks or months. You should also be aware that the value of cash on deposit – or invested in money securities – could be affected if the institutions it’s invested with become insolvent or have other financial difficulties. So why would you ever choose to invest in cash? The main reason is to shelter your investments in the short term. As you’re coming up for retirement you may want to protect your money from a fall in the stock market. At that point, cash can be very attractive.

Investing for a sunny day.

SECTION 3 COMMERCIAL PROPERTY CAN HELP SPREAD YOUR INVESTMENTS As you can see from the performance graph below, property has produced good long-term results over the last 20 years compared to cash.

from commercial property – such as offices and shopping centres and factories – come from regular rental income.

Even if you’ve already built up significant capital in your house or flat, there’s a case for investing in commercial property funds.

The graph shows how much £100 put into different investments would have grown over the last 20 years, with inflation taken into account, although past performance is not a guide to the future.

Returns from these funds can be very different from those of residential property. Most of the returns

Performance Comparison: Real Value of £100 over 20 Years to 31 October 2015 £450 Total Returns incl. gross income adjusted for movements in RPI £400

£386

£350 £300 £250 £224 £207

£200 £150

£122 £100 £50 £0 Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 UK Equities

UK Property

UK Gilts

Cash

Source: Thomson Financial Datastream. The chart shows performance from 31 December 1994 to 31 October 2015 of the FTSE All-Share Index, FT Actuaries All Stocks Index, Investment Property Databank Index and UK 1-month deposit rate. All data is on a total return basis and adjusted for movements in the Retail Prices Index (RPI).

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Investing for a sunny day.

SECTION 4 WHEN YOU BUY BONDS YOU’RE LENDING MONEY TO A COMPANY OR A GOVERNMENT In return for your loan, bonds pay you interest. The ones you’re probably most familiar with are UK government bonds, also known as gilts. They’re considered to be some of the safest around, even though, like all investments, their value can go down as well as up. Most often, the interest is at a fixed rate, for a fixed period of time. Unsurprisingly, they’re called fixed-income investments. There are also index-linked gilts where the capital repayment and interest are linked to the rate of inflation. There are bonds issued by overseas governments. And there are corporate bonds issued by companies.

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All the different types offer different returns and different levels of risk. You may assume that government bonds are safer than corporate bonds. But it’s not that simple. Would lending money to a giant oil company be riskier than lending it to an unstable foreign government? Bond fund managers invest in a mix of bonds to spread the risk. Although bonds haven’t always provided as good a return as equities over the long term, they are accepted as being less risky over the short term. And, in the long run, they’ve given investors a better return than cash. They are particularly useful when de-risking a portfolio as you approach retirement.

Investing for a sunny day.

SECTION 5 EQUITIES GENERALLY PROVIDE THE HIGHEST RETURNS... AND THE HIGHEST RISKS Investing in equities is buying shares in a company. You share in the profits of the company and, if the value of the company goes up, the value of your shares goes up. Win, win. But if the value of the company goes down, so does the value of your shares. Different fund managers create different portfolios. An equity fund can be broadly spread across a lot of countries and types of company. Or it can concentrate on one geographic area such as Asia or Japan, Europe or the US. Fund managers use in-depth research and analysis to make their decisions. But no one has a crystal ball and past performance is not a guide to future results. So how do you choose between the different funds? Investment style is a good place to start. Different fund managers have different approaches, or styles, of investing. Passive v active investing. Passive fund managers invest with the aim of achieving returns that are the same as those of a stock market index. They believe this reduces the chance of the returns being worse than the index. On the other hand, this may reduce the chance to perform better than the index. Active fund managers believe they can beat the index by picking stocks that will do particularly well and avoiding poor performers.

Growth v value investing. Growth fund managers look for companies they expect will substantially increase their earnings. Value fund managers look for bargains – stocks with low prices compared to the value of other companies’ shares. Many believe that looking for both growth and value can help manage risk while still giving long-term potential for growth. Small v large companies investing. Some fund managers use company size as a basis for investing. The argument is that smaller companies aren’t as closely analysed as larger ones, so there’s more scope to find shares that will do better than average. They also tend to have more volatility than large companies. And that means higher risk. To help control the risk, one thing that fund managers do is spread your money across a range of companies. The aim is, if one company doesn’t do well, it won’t necessarily have a major effect on the value of your pension plan. If you want a well-spread investment in equities, you can either choose a collection of regional funds for yourself, or go for a global fund. Whatever funds you choose, you should understand the risks and rewards they offer and whether they suit your personal circumstances.

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Investing for a sunny day.

SECTION 6 IT’S NOT AS HARD AS YOU MAY THINK TO WORK OUT A MIX OF INVESTMENTS THAT’S RIGHT FOR YOU Over the long term, say ten years or more, greater investment risk gives you potentially greater rewards. But, in the short term, those rewards can be erratic. Lower risk reduces long-term potential rewards. But it also reduces potential losses, particularly in the short term. The good news is you won’t be investing directly in companies or bonds or property. You’ll be investing in funds that are managed by specialists with an expert understanding of each stock market’s risks and of how to minimise any downside. We all have different hopes and expectations, and different attitudes to risk. So, before you choose the areas you want to invest in, you should look at some of the risks involved. Take the quiz on the next page to help you decide where you fit in on the risk/reward curve. Capital risk. Equities are expected to give you growth over the long term. But there’s a risk they can fall in value. The same applies to property and even, to a lesser degree, bonds and money markets.

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Inflation risk. Whatever your investment returns, if they’re lower than inflation then you’ll actually be worse off. This is because your savings won’t have grown as much as prices have increased. See the inflation definition on page 4. Currency risk. If a fund you choose invests in shares abroad, say in Europe, then there’s a risk their value will be reduced if the pound gets stronger against the euro. But, if the euro gets stronger, you profit. Conversion risk. As you get close to retirement there are two risks. One is that your total savings could take a short-term dip in value just as you need them to fund your sunny days. That’s usually countered by switching into ‘safer’ investments such as bonds and cash. The other risk is that the cost of annuities (retirement income you can buy) could rise, although no one can predict what market conditions will be when you retire. Overcautious risk. We all have to take some risks in life. If you don’t take enough investment risk when you can, particularly in your younger years, then you run the risk of finishing with a smaller pension pot.

Investing for a sunny day.

SECTION 7 WHAT TYPE OF INVESTOR ARE YOU? SOME OF US PACK SUNHATS. OTHERS PACK UMBRELLAS. This quiz is designed to give you a rough guide to your approach to risk. It will help show you what kind of investor you are and what kinds of investment are most appropriate for your aims. Which of these is most important to you? A I want as fulfilling a lifestyle as possible when I retire and I’m willing to take a higher level of investment risk to get it. B I want my retirement days to be sunny but I’ll settle for a little less to spend if that means less investment risk. C I want to keep my investment risks as low as possible, even if that means a smaller pension. To increase your chances of improving your pension, would you: A Take a lot more risk with some of your money? B Take a little more risk with some of your money? C Avoid risk altogether? Are you happy to put your money in funds that invest in company shares? A Yes, for me the risks are worth it. B Yes, but I also want some less risky investments. C No, the risk makes me nervous. How long will it be before you retire? A More than 20 years. B 5 to 20 years. C Less than 5 years. How sunny are your earnings expectations? A My earnings should increase substantially over the years. B My earnings should increase in line with inflation but I’m not expecting any big increase. C I don’t think my earnings will increase. They might even go down if I go part time. Just two months after you put money into a long-term investment, it falls by 20%. You still think it’s a good investment. What do you do? A Buy more. It was always a good investment. Now it’s good and cheap. B Hold tight and wait for it to bounce back. C Sell it, so I don’t have to worry about it any more. Which would you choose? A A 20% chance of winning £50,000. B A 50% chance of winning £15,000. C £2,000 in cash.

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Investing for a sunny day.

YOUR INVESTOR PROFILE Mostly A answers Adventurous You aim for the highest possible returns and are willing to accept a high level of risk to get them. You know that, especially in the short term, investment values can go down as well as up, but you’re ready to take the rough with the smooth and ride out the bumps over the long term. Mostly B answers Balanced You’re fairly comfortable taking some risks to make your capital grow, but you don’t want to see your investments going up and down like a rollercoaster. So you’ll probably be happiest with investment options that don’t rise and fall too sharply. Mostly C answers Cautious Although you’d like your investments to grow, you’re not willing to take many risks to help this happen. Protecting the value of your investments is more important to you than hoping they will grow in the long term. If you’re still not sure where you stand, you can find out how to get independent financial advice on page 11.

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Investing for a sunny day.

SECTION 8 NOW CHECK OUT ALL THE FUNDS THAT COULD LEAD TO YOUR SUNNY DAYS For further information about the funds, their investment aims and strategies, please see the fund fact sheets at www.threadneedlepensions.co.uk/ Baxi Ask for independent financial advice if you are unsure. After all, your pension is probably the most important investment you’re ever going to make. And, in the end, you’re the one responsible for your investments.

Remember to review your investments regularly. Every year you will receive a statement, so you can keep up to date with how your pension is performing. That’s a good time to check that your investment choices are still the right ones for you – especially if your circumstances have changed or you’re coming up for retirement. For any queries related to your pension, please call 0330 123 9581, or email [email protected].

To ensure any advice you get is unbiased, you’ll need an Independent Financial Adviser (IFA). You can find local IFAs by visiting www.unbiased.co.uk Remember, IFAs may charge for advice, so first check how much you’ll have to pay.

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To find out more visit WWW.THREADNEEDLEPENSIONS.CO.UK/BAXI or call 0330 123 9581* *Please note. We record calls for your protection and to improve our standards

To help us maintain and improve our service, calls may be recorded or monitored. Any opinions expressed are made as at the date of publication but are subject to change without notice. Issued by Threadneedle Pensions Limited. Registered in England and Wales, No. 984167. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

Important information: For internal use and for Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Threadneedle Pensions Limited provides insurance policies that entitle to holder to the value determined with reference to the underlying investment in a pooled pension fund. The holder of a policy does not own the units in the selected fund. The Threadneedle Pooled Pension Funds Key Features Document (KFD) is available on the institutional site of www.columbiathreadneeedle.co.uk. The KFD gives a summary of information about Threadneedle Pension Limited's pooled pensions in order to help you decide if you want to invest in funds, as well as a full list of risk factors applying to the funds. Threadneedle Pensions Limited. Registered in England and Wales, No. 984167. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom.  Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com Issued 01.16 | J24608