At the start of a new year, it’s an ideal time to review your investments for 2015. Investing isn’t as complicated as you may think, or may have been lead to believe in the past. If you want your money to work hard and have the potential for better returns this year, here are nine easy tips that will help:
1. Remind yourself of your goals
You set your goals with the best of intentions, but it’s vital that you keep them updated with what’s important to you. A great deal can change in a year and we think that you’re only likely to reach a goal that really means something to you.
Perhaps you’ve experienced some changes this year and it’s time your goals reflected them? Welcoming children or grandchildren to a family can change your perspective, so it’s well worth taking some time to think about what’s important to you today.
If your situation has changed, speak with your financial adviser about how you update your goals and progress towards them this year.
2. Build your emergency fund
Investments are for the long-term, so it’s best not to touch them if you need cash to cover an unforeseen emergency. Any number of things can happen which need money to put right: an expensive repair bill, a broken appliance or even losing your job.
To cover these emergencies, we suggest you build a cash reserve. We believe that saving up to three months of your regular outgoings in cash should cover most problems. By withdrawing from cash in times of need, you keep your investments tax-efficient. If you were forced to take money out of your ISA, you would not be able to put it back in again if you had already reached your annual allowance of £15,000 for the 2014/15 tax year.
3. Keep it simple
At True Potential, we value simplicity. We believe that the more you learn and understand about your investments, the more empowered you are to make sound financial decisions.
The best Financial Advisers don’t try to baffle you with complicated plans, products or financial jargon. Instead, they should provide you with straightforward and transparent advice in a simple and convenient way.
Read our ‘Art of Investing’ guide to find out more about our investment philosophy.
4. Think of risk and return together
We believe it’s important that you understand the link between risk and return.
Low-risk investments usual provide lower returns, whereas higher-risk investments have the potential to produce much higher returns. Generally, the longer you have to reach your goal, the more risk you can tolerate. As the saying goes, you have to speculate to accumulate.
5. Consider charges
Charges eat away at your returns every year, so it’s important that you know exactly how much you are paying and that you’re getting good service for your money. At True Potential Investments, our charges are clear, but always make sure your Financial Adviser discusses all charges before you agree to have them start any work for you.
The risk of high charges is especially severe for older investments, such as dormant pensions. It may be more cost effective for you to transfer your dormant pensions into one pot with lower overall fees. Being careful with the charges you pay can have a big impact on your long-term returns.
6. Take a long-term view
Investments should be for goals that are at least five years away. That’s because the market changes every day and it’s over the long-term that you’ll usually see investment growth. The longer you have to invest, the better.
Through our unique client sites, you can keep a close eye on your investments, but don’t panic if the market goes down. You’re investing for the long-term, not for just today. Understanding what you’re worth is vital, but so is keeping a cool head and looking at the bigger picture.
If you do fall behind your goal, you can easily top-up your investments with our unique impulseSave® feature.
7. Invest every month
Another tip for making the most of long-term investing is to add to your investments on a regular basis. Firstly, this avoids ‘lump sum shock’ where you might invest a lump sum the day before a big drop in the market. Over time you’ll make your money back, but it’s a demoralising hit to your plans.
More importantly, regular investing helps spread the risk. Investing the same amount each month means that you’ll buy less when the market is up and units cost more, and you’ll buy more when the market is down and units cost less. Over time, you’ll average out at a lower cost-per-unit than if you invested in one lump sum.
8. Top-up your investments
Even the best-laid plans can fall off track, that’s why it’s important you monitor your investments and their performance. If you find yourself behind your target, take action by topping up your investment to bridge the gap.
We believe that top-ups can keep investments on course and even help you reach your goals early. You don’t have to wait until you’re behind to top-up, you can also add funds when you have extra cash.
With our first-of-its-kind impulseSave® technology, available on our unique client sites and via our mobile apps, you can add as little as £1 at a time to keep your investments on the right path.
9. Make the most of tax-efficient investing
Last year, your annual ISA allowance was dramatically increased to £15,000. This is tax-free saving and should be one of the first places you invest your money if you haven’t already. You have until 5th April to use up your allowance, but there’s no need to delay. Saving the money now gives it longer to generate a return for you and gets your investments working harder.
Remember the allowance is personal, so a couple can shelter £30,000 from the taxman. The allowance starts again on April 6th and you can’t carry over any unused amount, so it’s use it or lose it.
As well as an ISA, you can invest up to £40,000 in your pension this tax year. With the new freedoms coming into force from April, you’ll have much more choice and control over how you spend your pension in retirement. But there’s no need to wait, any money invested before April will still fall under the new rules. Use you allowance today to get your money invested for longer.
If you’re already a True Potential client and ready to make the most of your investments this year, log in to your client site to speak with your financial adviser.
Alternatively, if you’re looking for financial advice, you can search our directory to find your local adviser.
Your capital at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performances is not a guide to future performance. Tax rules can change at any time.
impulseSave® is a registered trademark of True Potential Investments LLP.