Is investing right for me? How long should I invest for? What are the benefits? You’ve thought about investing as a way to grow your money and reach your long-term financial goals, but you’re yet to take the next step. Is it because you feel a little daunted, and don’t know where to begin? If so, then let us help!
…Or rather, let Alistair Wilson – Head of Retail Platform Strategy here at Zurich – help. We recently caught up with Alistair to pick his brains about the ins and outs of investing. Hopefully, he’ll answer any questions you have running through your mind, and help you to decide whether investing is the right option for you.
“What are the benefits of long-term financial planning?”
If you’re looking to buy a house, car or even a holiday, you’ll plan for it. Whatever future aspirations you have, a plan helps you to focus on your goal – and the earlier you can do this, the better.
When it comes to financial planning, many things can throw you off course and not all of them are of a financial nature – for example, your health and career can both have a big impact on your financial wellbeing. Putting plans in place, implementing them early and having a long-term view, will help to minimise the impact of unforeseen events, whether they’re personal, social or economic.
“So, I should start investing as soon as possible?”
Once you’ve had a good look at your finances and decided you can afford to invest, it’s important to understand how to maximise your savings and get them working as quickly as possible for you. This can involve investing into several types of savings vehicles and a variety of investment funds, over a number of different timeframes.
By planning your finances, you can aim to reduce the overall tax you pay; and the longer you save, the greater potential benefits you receive – essentially giving yourself the best chance of achieving your goals and beating rising prices, AKA inflation.
“Speaking of inflation – what impact can it have on savings?”
Inflation eats into the worth of your money – but saving over the longer term helps to combat its effects. If your savings grow by less than the rising costs of goods and services you buy today, you won’t be able to use the money saved to purchase the same items in the future, simply because of inflation. That’s the real challenge of keeping all your money in cash when interest rates are low and prices in the shops are increasing all the time.
“How do I know if I’m ready to invest?”
It’s slightly unfair to answer a question with a question, but it’s easy to put off something you’re unfamiliar with. Only you can say when you’re ready – so, there are two things you should be asking yourself:
- Do I have access to cash if I needed it quickly?
- Can I leave the money invested for a sufficient time to let it grow (at least 5 years)?
If you answered ‘no’ to either of these questions, then investing your money might not be right for you. But if you answered ‘yes,’ then just remember that the earlier you start investing, the better chance you have of your savings growing.
“Should I invest regularly or pay in a lump sum?”
Saving money regularly not only helps with your own monthly budgeting, but it can also help smooth out the natural highs and lows of investing. Overall though, the longer you can invest in the stock market, the better it is likely to be for you.
Timing your investment so that you buy when the market is low and sell when the market is high troubles even the very best of investment professionals! Investing regularly reduces the risk of buying high when investing a lump sum (expensive!). The technique of investing at regular intervals is known as ‘pound cost averaging.’
“What if I need to get my hands on the money quickly?”
Selecting the right type of savings vehicle is just as important as choosing where to invest – because not all savings vehicles allow you to access your savings at a time that’s convenient to you, or some might charge you if you need to access your savings earlier than expected.
Bear in mind that there are some cash accounts that will pay higher levels of interest provided the money is held for a minimum length of time, but accessing your cash early could swallow up that interest. Or, you might be denied access altogether until the term is up.
Savings vehicles like Stocks and Shares ISAs tend not to restrict access to your money, but the value of your investment may fluctuate, especially over a short period of time. So you need to be clear about the money you can save over the medium-term so as to avoid being forced to sell when the value of your investments could be low. Spreading your investments so you’re holding assets over different periods of time can help with this – just remember that the less time you’re invested, the less time your money has to grow.
“How long should I invest for?”
Having a range of goals over the medium and long term will help you focus on how long to remain invested. However, investing in the stock market shouldn’t be viewed as a short-term investment – you need to be thinking at least five years. Plus, you should always keep some money readily available for the household to cover unforeseen events.
“What are the tax advantages of investing?”
Savings vehicles have their own tax rules, with the likes of ISAs having different rules and savings limits from pensions and bank accounts.
Holding different saving vehicles could help you control the level of taxes you pay today and perhaps more importantly, the level you pay later in life. For example, when taking an income or withdrawal from a Cash ISA or a Stocks and Shares ISAs the amount taken isn’t seen as taxable income. You are therefore free to withdraw some or all of these savings without further liability to income or capital gains tax. (Note: there are some ISAs such as Save to Buy and the new Lifetime ISA that restrict the amount that can be saved and may place a charge on early access.)
“How do I know which is the best investment option for me?”
First let me say: doing nothing is not a good option!
If you’re unsure, spreading your savings across different vehicles (including ISAs) and funds will provide you with the flexibility you may need. Putting money away over the longer term is really important for your ability to enjoy the future, even if it’s just a small amount to begin with. And start as early as you can – even £20 or £30 a month will turn into a healthy pot of money in time, compared to if you leave it in a bank account or spend it now -don’t be fooled though into believing this level of saving will be sufficient to replace your salary when you retire.
Financial advisers across the country are authorised to help people decide between the many saving and investment options on offer – there’s a cost for this service, but it’ll be explained to you from the outset.