What is an Absolute Return Strategy?

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Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Tax Wrapper”
There are two main types of tax-incentivized investment: individual savings accounts and pensions, including self-invested personal pensions called Sipps. Between ISAS and pensions alone, investors can tuck away over £50,000 a year, or £100,000 for a couple. If they have children, a further £3,720 for each child can be added through junior ISAS, and another £3,600 a child through children’s pensions. Those willing to take on the higher risk of investment into new venture capital trust issues can add another £200,000 to that total. In other words, investors can shelter significant amounts of their savings from tax without straying into any celebrity-style tax planning.
Each of these tax wrappers has different characteristics. From an investment perspective, the treatment of income and the accessibility of the assets within each wrapper are important.
The most obvious reason investors might come into this category is that they have a high income, or assets that they need to invest. These are people who can comfortably invest the full allowance in their ISAs each year and are now having to contend with reductions in the amount they can save in a pension. They’re not necessarily wealthy (or ‘high-net-worth’ as we say nowadays). Head teachers, doctors, senior executives are all in danger of exceeding the reduced lifetime allowance. Even their standard work pension scheme could exceed the new £1.25 million limit after 30 or 40 years’ growth. And they have to face a significant risk of the allowance coming down even further in years to come. For these people having all their eggs in the pension basket could be a mistake.

By Barry Norman, Investors Trading Academy – ITA

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