Investing over the longer term
It's been a turbulent ride on the stock market of late. Share prices are depressed and some may argue that investing in the stock market is not a good idea at all. But canny investors might think otherwise, particularly if they're watching the rate on their savings account dwindle as the Bank of England keeps base rates at historic lows.
By investing in the stock market, you must accept that you're not guaranteed to make money, the value of your investment could go up as well as down. But if you invest for the medium to long term you may well find your returns are better than if you'd left your money in a standard savings account. 'Money held in a deposit account is generally more secure with easy access and steady growth.
If you're thinking about dipping a toe in the stock market waters, then it makes sense to invest in the most cost efficient way and avoid paying tax on our investments.
Stocks and shares ISAs
The government currently allows everyone an ISA allowance of up to £7,200 each year to invest in a stocks and shares of which a maximum of £3,600 can be put in to a cash ISA. You can choose from a whole array of different investment options - you just need to make sure the investments can be contained within an Individual Savings Account or (ISA). As long as they are, any gains you make from your investments and dividend received are free from any personal taxes such as income or capital gains tax. Whilst you can buy shares in specific companies - known as a 'self-select ISA' - many people opt to invest in a fund and let a fund manager choose the shares that the money is invested in. Funds tend to have particular focuses - for example UK small businesses, North American businesses, Japanese businesses. Different funds adopt different investment strategies with differing levels of risk and potential reward. Funds that track specific stock markets - known as trackers - have been particularly popular in recent years, whilst funds that invest in corporate bonds are gaining a bigger following of late because they are seen as low risk. Whatever you decide to do, it makes a lot of sense to talk to a financial advisor before investing. Consider drip-feeding your investment into your stocks and shares ISA over a period of months rather than investing one big chunk of cash. It could help iron out some of the ups and downs of the stock market.
Pensions
Pensions are the other key tax-free savings vehicle for long-term investment that people with some spare cash to invest should consider. There are two basic options when it comes to pensions for most people. If your employer already runs a pension plan - known as an occupational pension - they will usually be making contributions to the plan for you and it often makes sense for you to contribute to this too. Alternatively you can set-up a pension plan yourself. A personal pension plan allows you to invest up to £3600 a year if you are unemployed and up to the equivalent of your annual salary if you are employed. If you want to save for an income when you retire, or you have any spare cash that you won't be needing for the foreseeable future you should also consider a pension. Please note a pension may not be suitable for people who may need to get hold of their cash in the future. There's a whole array of different types of fund that you can invest in for a personal pension and again it makes good sense to seek professional advice before deciding. Stakeholder pensions have been around for a decade. These are a particular type of personal pension that are designed to be relatively straight forward and offer a low management charge.
So, if you have some money that you think you’d like to invest, now might not be such a bad to time to consider stocks and shares, but however you choose to invest your money, do remember that the value of stocks and shares can go down as well as up and you might not get back all the money you invest.
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