‘Invest, invest, invest!’ Chancellor Rachel Reeves bellowed in her first budget statement on Wednesday. But while she laid out her ambitions for the country, such a mantra applies just as urgently to individuals.
That’s because investing is the secret to building the funds needed to achieve what you want in life and make your retirement dreams come true.
Prime Minister Sir Keir Starmer indicated before the budget that investors do not fit his definition of working people.
Let’s get this straight: investing is for working people; in fact, it is essential to get the most out of your hard-earned money. Don’t let anyone – not even the Prime Minister – tell you otherwise.
In this guide, we’ll show you how to invest £20,000 – the maximum amount you can save in a tax-free Isa each tax year – to build yourself a Super Isa
And now that we’re busting the investment myths, here are three more.
Investing isn’t hard, it’s not just for rich people, and it doesn’t take much time.
The hardest part is getting started. After that, it can be very simple if you follow these six golden rules.
In this guide, we’ll show you how to invest £20,000 – the maximum amount you can save in a tax-free Isa each tax year – to build yourself a Super Isa. But you can get started from just €25 per month and watch your nest egg grow.
Plus, every penny of your wealth is protected from whatever the Chancellor throws at savers in future budgets.
Rule 1: Bank first for emergencies
There is a good chance that you will build up a larger savings pot in the long term by investing your money than by putting it in a savings account.
But with investing, you will experience many more ups and downs along the way. Therefore, only invest money that you will not have to spend for a while, at least five or ten years. The last thing you want is to be forced to cash out of your investments when they are going through a rough patch and before they have had time to recover.
If you have unsecured debts, such as credit cards or overdrafts, you should pay them off before investing. Then put some money aside in a savings account for emergencies; three to six months of expenses is a good rule of thumb. This way you are covered if, for example, you have to replace the washing machine or if you are out of work for a while.
Isas are a great home for your savings because all interest, dividends and capital gains are earned tax-free.
You can pay into both cash Isas and a Stocks and Shares ISA within the same tax year, as long as you don’t exceed your £20,000 allowance.
So if you have €20,000 in savings, you can put in a reassuring portion of it
a cash Isa in case you need it in the short term, and the rest in a Stocks and Shares ISA for growth.
Rule 2: Start simple
You don’t need to understand the prospects of the UK economy to start investing. You don’t need to know which companies show potential, or even understand the ins and outs of bonds and government bonds.
Sure, investing can be a rewarding hobby or project, but you can still enjoy the huge returns it provides without having to dedicate hundreds of hours to it.
The key to success when starting out is to keep it simple.
There are a growing number of low-cost, so-called index funds available to ordinary investors that allow you to buy hundreds, thousands or even tens of thousands of companies in one fund. They do this by buying shares in every company within a stock market index. This way you don’t have to choose which companies you want to invest in, you can just buy everything.
For example, a FTSE 100 tracker fund would hold shares of each of the 100 largest companies listed on the London Stock Exchange. An MSCI World Index fund would hold shares of all the largest companies in the world.
The disadvantage of these funds is that by their nature they cannot beat the market. They allow you to buy the entire market, meaning you won’t do better or worse than the average. The benefit, however, is that you save yourself the trouble of figuring out which investments are likely to make you more money than the rest.
Furthermore, a simple, well-diversified portfolio of stocks from around the world tends to appreciate in value over the long term and provide a better return than the interest earned on a savings account.
The second advantage is that they are often very cheap. For example, Fidelity’s Index UK fund offers you an investment in companies listed on the London Stock Exchange – for an ongoing fee of 0.06pc.
To put that in perspective: actively managed funds, true
a portfolio of companies hand-picked by an expert fund manager can easily have annual fees in excess of 1pc. charge.
Most banks and High Street investment platforms offer a range of five or six standard funds, which require little or no investor expertise to hold.
They will help you choose which one suits you best, depending on how much risk you are willing to take. The more risk you take, the more likely you are to lose money, but also the higher returns you are likely to achieve in the long term.
A number of investment firms also offer separate funds designed to contain everything you need for a balanced portfolio. You can purchase this within your
Isa to grow your wealth with minimal effort.
For example, if you’re saving for retirement, asset manager Vanguard offers a range of Target Retirement funds, where you simply need to indicate when you hope to stop working to determine which suits you best.
The funds contain shares and bonds in a combination that suits someone in your stage of life. As you get older, Vanguard changes the mix of stocks and bonds so that the fund changes with you – instead of you having to switch funds as you get older.
The idea is that the investments become less risky – and more stable – as you get closer to retirement. They cost only 0.24 pc. in ongoing costs.
The LifeStrategy range offers a similar level of simplicity. These are five funds, with a mix of shares and bonds, and you answer questions to determine how much risk you want to take. In general, the greater the risk, the better the likely return. Vanguard then suggests the right fund. These cost 0.22 pc. per year.
Asset manager BlackRock has a similar range called MyMap, which offers eight funds with different risk levels. These have respective running costs of 0.17 pc. – or 0.28 pc. for the income version.
Unlike Vanguard funds, these have more built-in flexibility to adjust portfolio composition based on market conditions. But you don’t have to worry because it’s all done for you.
BMO’s Sustainable Universal MAP range consists of a set of five funds, each with a different risk profile. These are designed with sustainability in mind and are overseen by a team of managers. They have a running charge of 0.35pc.
If you’re looking for a place to grow your £20,000 Isa, one of the above all-in-one funds could be a good starting point.
Rule 3: Make sure you can sleep
The results of investing should be exciting: the life ambitions it helps you achieve and the security it provides. But
the journey itself should not be.
If you nervously check your investments all day, or if the fluctuating balance of your portfolio keeps you awake at night, you’re taking on too much risk.
Investing should be for the long term. That means you should have a portfolio of stocks and shares that you can comfortably invest in for months or years – through the ups and downs.
Rule 4: Improve your portfolio at the perfect time
A portfolio of stocks, bonds and index funds from all different sectors and companies around the world is a good starting point. This way you are not too dependent on one company or type of investment if things go wrong.
But once you’ve built that solid foundation, you can start adding stocks, funds, or mutual funds that you think have the potential to perform above average.
This is where investing can require more time, expertise and attention. The Mail on Sunday’s Wealth & Personal Finance section is always packed with great ideas to consider for your portfolio.
In tomorrow’s column, a Midas Special examines the companies and sectors that stand to benefit after this week’s Budget. Your investment platform may also have interesting ideas and information that you can learn from, such as model portfolios or lists of recommended funds. However, remember that balance is always key.
A popular investment strategy is called ‘core and satellite’. You buy a core of low-cost funds with a huge range of investments from all over the world. Then you buy small amounts of more targeted funds or companies that you think will do particularly well in the future. Funds that are actively managed by an expert fund manager can play a role in this.
Also keep in mind that sticking to the core is often just as effective as adding satellites, so don’t feel like you have to make big investments if you’re not confident (or simply don’t have the time).
Rule 5: Don’t pay too much
To build a Super Isa you need to keep as much of your money as you can safely grow it.
Make sure you don’t hand over a cent more than necessary in fees.
When you start investing, you will usually have to pay a fee to the company that provides your Isa, and to another company to buy the funds or companies you put into it.
Spending more doesn’t mean you’ll get a better result.
To find an investment platform with all the tools you need – but at a fair price – check out our overview at thisismoney.co.uk/platform.
Rule 6: Don’t procrastinate
Maybe you’re watching the news – the budget fallout, the looming US election, the seemingly endless global instability and more – and wondering: Is now really a good time to invest? And that is understandable.
However, if you invest for the long term, you should be able to weather the ups and downs of what lies ahead.
One option to allay any fears about investing at the wrong time is to drip-feed your money into the market.
That means you won’t put all your money in just before the markets jump up – but you won’t put all your money in just before the markets plummet, either.
You can put £1,666.66 into an Isa every month and by the end of the year your Super Isa will be filled with your full £20,000.
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