This guide is designed to help you get an idea of how regulated financial advice works. It is not a recommendation on whether you should get professional advice or not.
This guide is designed to help you understand the different factors that may affect your investments. Your capital is at risk. Your investments are not guaranteed – they can decrease in value as well as increase, and you may not get back the full amount you put in. You should never invest more than you can afford to lose.
While the pandemic has put virtually everybody’s plans on hold, there are still some things you can do to bolster your finances for the future.
If you’ve been fortunate to be able to work from home over the last year, you may find that you’ve saved more than you would have in ‘normal’ times.
So now could be a great time to think about what to do with these savings. Interest rates are rock bottom at the moment, which means that the return you’re likely to get simply by putting your cash in a savings account is going to be very low.
However, if you’re confident that you will not need to access some of that money in the short term, it’s worth thinking about investing.
When we discuss investing, we’re primarily talking about putting your money into assets such as stocks and shares, bonds and investment funds. There is also a huge range of other potential investment opportunities, including property, currency and commodities (such as gold).
It’s vital to understand that investing can be a high-risk activity, where the value of your investments is not guaranteed to increase.
Whether you’re looking to invest during times of record-high stock market performance or volatile periods like now, there are a few simple principles to have at the back of your mind.
Perhaps the most crucial thing to understand about investing your money in assets like shares, bonds or funds is that you need to think about them as long-term investments.
You’ll need to be comfortable with the idea of not being able to access cash tied up in those investments for at least a few years.
Investment experts typically say that the shortest amount of time you should be willing to keep your money invested for is about five years. The longer you leave your money invested, the longer you give it to grow.
By doing this, you’re also giving your investments time to ride out any short-term market shocks.
Stock markets across the United States and Europe saw big dips last spring, as the impact of the coronavirus on leading economies were felt. This meant that the value of many people’s investments dipped significantly overnight.
When this happened, many people rushed to sell their investments. However, for those who had the time to ride it out, many subsequently saw share prices recover within a relatively short period.
While this uncertainty can cause worry, remember that the longer your money is invested, the more opportunity there will be for it to grow.
How you answer this question depends on your aims for your money and your personal circumstances.
While the idea of investing your money into the stock market during such an uncertain time may be daunting, the measly returns you’ll get from a savings account while interest rates are so low will be eaten up by inflation.
Arguably, the best way to approach this question is to ask yourself another: do you think that we’ll be in a better financial position by the time you want to access the money you have tied up in any investments?
By investing your money over the long term, you increase the chances that your money will grow at a rate that beats inflation.
If you’re new to investing, rather than investing all of your cash as a lump sum, it can be a good idea to ‘drip feed’ your money each month into a range of investments. If the markets go down, you’re buying more units at a cheaper price, while if the markets do well, your money buys you fewer units. This can help your returns smooth out over time.
One key way you can make sure you give your investments the best chance to grow is by using an Individual Savings Account (ISA). These come in different forms, but from an investment point of view a stocks and shares ISA will at least ensure that you can invest tax free.
A Stocks and Shares ISA is a wrapper inside which you can invest in stocks, shares, bonds, or funds. But the best bit is, you will pay no dividend, capital gains or income tax on any gains your investments make within this ISA wrapper. You don’t even need to declare your ISAs on your tax return.
It’s important to note that the maximum you can deposit in your ISA accounts each tax year is £20,000 in 2020/21. That’s £20,000 in total across all ISAs you may hold.
So, if you have both a Cash ISA and Stocks and Shares ISA and you’ve paid £5,000 into the Cash ISA during one tax year, you can only put a maximum of £15,000 in the Stocks and Shares ISA.
If you’re prepared to wait - or are saving for a first home - then Lifetime ISAs not only lets you shelter your investment gains from tax, you also get a cash boost as the government will add 25% to any amount you deposit into the account up to £4,000.
If you would like to better understand how investing can help you meet your financial goals, it may be beneficial to get help from an independent financial adviser (IFA).
An IFA can advise you on all the financial products and investments that they think meet your needs.
For full details on how to find the right advisor for your circumstances, read our ‘Five steps to finding an IFA you can trust’ guide.