What are the fundamentals for successful investing during the time of a general election?
Utilise tax-efficient allowances
Since 6 April, savers and investors have had a more flexible approach to using their Individual Savings account (ISA) allowance. For the first time, individuals can now open multiple accounts of the same type of ISA within a single tax year, from 6 April one year to 5 April the next, provided they do not exceed the annual ISA allowance limit. This marks a departure from previous rules, which annually restricted savers to one account per ISA type.
Your ISA allowance resets annually on 6 April. For the current 2024/25 tax year, this limit is £20,000 for each adult. Investments within an ISA grow tax-efficiently, allowing more of your money to contribute towards your future goals.
Cash ISAs are a cornerstone for risk-averse savers, providing a straightforward, tax-efficient haven for cash savings. Cash ISA products can be easy-access accounts that allow immediate withdrawals or fixed- rate accounts that reward savers for committing their funds for a predefined period. Although these accounts can offer both higher and lower interest rates, they typically offer lower interest rates than standard savings accounts. Therefore, they present a valuable tax shield, especially for those who have maximised their savings allowance or anticipate doing so.
Stocks & Shares ISAs, sometimes referred to as ‘investment ISAs’, present an opportunity for individuals to diversify their investment portfolio across a broad spectrum, including collective investment funds, Exchange Traded Funds (ETFs), investment trusts, gilts, bonds, and stocks and shares. This form of investment carries an inherent risk since the value can fluctuate significantly; however, historically, the stock market has offered returns that surpass those of traditional savings accounts over extended periods.
Lifetime ISAs present a unique opportunity for individuals aged between 18 and 40, potentially benefiting your children or grandchildren. For each pound deposited into the account, the government offers an additional 25p, tax- free. With an annual contribution limit of £4,000, savers can receive a maximum bonus of £1,000 annually. This fund can be used to purchase a first home worth
up to £450,000 or for retirement savings, functioning similarly to a pension scheme. It is important to note that funds can be freely accessed after the age of 60 to supplement retirement income. However, early withdrawals for other purposes incur a 25% penalty.
Junior ISAs are designed for individuals under the age of 18. This financial year allows for an investment of up to £9,000 in either cash or stocks and shares. Fund access is restricted until the beneficiary turns 18, at this point, full control over the account is granted. From the age of 16, they can manage the account, making it an ideal option for those looking to foster financial independence in their youth. From the start of this 2024/25 tax year, the minimum age to open a Cash ISA increased to 18.
Embrace discipline over emotion
Investing can stir emotions, making discipline paramount. Don’t allow fear to dictate your investment decisions. Instead, keep your eyes on your goals and adhere to your plan. The potential power of compounded returns over decades is immense if you consistently save and invest in financial markets. You may start small, but the key is to start.
In the world of investing, cashing in your investments is known as ‘being out of the market’. When you’re out of the market, you can potentially miss out on the best days for investment gains and performance.
Brace for potential hurdles
The journey of investment is seldom a smooth ride. As evidenced in recent years and with the general election looming, there will be instances when markets may take a downturn or your investments don’t perform as expected. Foreseeing these obstacles and having a contingency plan to manage them effectively is crucial. Even if you’re a novice investor, you’re likely aware of the market’s volatility. Where there’s a chance for profit, there’s also a risk of loss. High-risk investments may yield higher returns, but if you’re susceptible to worry or feel inclined to pull out your investment following a loss, a lower- risk investment might suit you better.
Investment strategies aren’t one-size-fits-all, so don’t be discouraged if your method differs from others. Always tailor your goals and investment amounts to what makes you feel at ease.
Establish a time horizon
A crucial component of investment strategy is setting a defined time horizon for your investments. For example, if your goal is to build a retirement nest egg, your investment period will likely be more extended than that of someone investing in their child’s higher education.
Although it’s generally possible to liquidate your investments whenever you want, maintaining a presence in the market often enhances your prospects for greater returns.
It also allows for compound growth when you reinvest dividends or interest. Investments should last at least five years, but ten years or longer is preferable. The determination of this period will hinge on how much you can afford to invest on a monthly or yearly basis to meet your financial objectives. Also, evaluating whether there’s sufficient time for your investment to mature and withstand potential market volatility is important.
Obtain professional guidance
Professional financial advice is essential to construct a diversified portfolio. We are dedicated to assisting you in creating, managing and growing your investment portfolio while maintaining an acceptable level of investment risk.
We take a holistic approach, considering every facet of your life. This includes your personal goals and dreams, as well as the aspirations of your extended family. We also think about the legacy you wish to leave behind. Our comprehensive approach ensures that your portfolio is not just about numbers but reflects your life’s journey and future ambitions.
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