Whatever amount of money you have to invest, you want to see a good return on it. It could be £1,000, it could be
£1 million or something in between, which is where most of us find ourselves. This month we take a closer look at the main ways in which you can put money away and which ones may be right for you. As always, you can talk to our team of independent financial advisers at Plutus Wealth for advice specific to you and your goals. Find us on www.plutuswealth.com.
What are you saving for?
This is the first question to ask yourself when looking to get your savings going. The most frequent reasons we see our clients saving for include:
- A deposit on a new home
- A large purchase, such as a car or special holiday
- A wedding or honeymoon
- Education, either for you or your children
What are your timescales?
The next question is, how quickly do you need your money to grow? A longer-term investment, such as a pension or a fund for your children’s university tuition fees, will typically have a little more time to grow – depending of course on when you begin to save; the earlier the better when it comes to maximising your returns.
Your attitude to risk
Risk is about finding the right balance between being adventurous and cautious when it comes to investing your money. Find out more about what it is and how to find out where you sit on the risk spectrum in last month’s article on attitude to risk.
The main ways to invest
There are a number of ways in which you can invest your money. The key ones and the pros and cons of each are:
- Pension funds. Most of us will have at least one pension pot through an employer. Where you have more than one it may be worth seeking advice from an independent financial adviser to determine if it’s beneficial to consolidate them into one managed pot.Pensions are long-term investments which benefit from employer contributions as well as tax relief – money that you would not otherwise get if you were not putting it into a pension fund. On the downside, money invested into a pension scheme cannot be accessed before a certain age. However, relying on just a State Pension, even with an Additional State Pension where applicable, may not be sufficient to enable you to have the standard of living you want in the future.If you are self-employed you still benefit from tax relief even if you don’t get additional contributions from an employer. The government is looking at ways to encourage more sole traders to put money into their pension though – another issue we covered recently.
- ISAs. There are two types of individual savings accounts (ISA): Cash and Investment (also known as Stocks and Shares) ISAs. Both are a form of tax-free investment and require you to lock your money away for a fixed time period – anything between 1 and 5 years. The longer you can put your money away for, the better the interest rate and your return. Both are also a great way to build up a pot of money for a specific purpose, such as that new car or home deposit. There is a limit on the amount you can invest each year, and for 2019-2020 it is £20,000. You can mix and match how you invest that. For example, you could put half into a Cash ISA and the rest into an Investment ISA, split the amount any way you like between the two, or choose one or the other. There is also the Help to Buy ISA specifically designed for those saving for a down payment on a home.
Your money is more easily accessible with an ISA, although be aware that it is still locked for the length of time that you chose when opening your account.
- Investment funds. Investing your money in the stock market can be a good way to see a good return and there are plenty of available products to help you do that, such as shares (known as equities), bonds (which is investing in the government), or trusts (of which there are many types depending on your attitude to risk).
When it comes to investing in the stock market, though, you are more exposed to its vagaries and there is a risk that you could see your investment drop as well as rise. In a way it is similar to investing in a pension scheme but with greater access to your money. The same principle applies though: the longer you can leave you money untouched, the better the chances are that any fluctuations will be smoothed out over time.
- General savings. This is perhaps the easiest way to save, but the one with the lowest return. Putting your money into a savings account will allow you to access it immediately if you need it, but you won’t see a big return on your investment. Having said that, if you can put some money away each month so that you don’t spend it and build up a small fund for a holiday or a Christmas splurge, then this may be a good option for you.
Talk to your independent financial adviser
Before you make any decisions on how best to invest your money, why not talk to an independent financial adviser? Our Plutus Wealth team is well placed and experienced in taking each client’s needs and requirements into account to design the ideal investment plan for them. Get in touch with us by calling 020 7871 5200 or email us at email@example.com as your first step on saving for the future.