How to Save for Life InvestmentsPublished: 28/06/2018
Are you looking at ways in which you can start saving for your retirement so you can live comfortably in your later years, perhaps for your child's education, or a wedding that you are in the middle of organising? As a rule of thumb, if you have enough money in a savings account that could easily cover you for five to six months alone, and you want to see your long-term growth in your savings, you should seriously consider looking at investing it.
There are a number of ways in which you can invest your money and receive the benefits of doing so. We explore some of the main ways in which you can do so.
Types of Life InvestmentsGenerally speaking there are four main categories of investment that people decide to put their money into in order to gain profitable returns at a later date. These are known as asset classes :
- You decide to invest in property, whether it be commercial or residential
- Choosing bonds (also known as fixed interest securities) in which you loan money to a government or company
- Buying a stake in a company through shares
- Putting cash into a bank or building society savings account
Investment Time PeriodsWhen it comes to deciding on investing, you need to spend time carefully considering what you want to gain out of doing so, the goals you have, as well as your appetite for risk and how long you are willing to invest for. When it comes to investments, you will need to consider if it is for a short, medium or long-term time period. This typically means:
Short-term - less than five years
Medium-term - between five and ten years
Long-term - more than ten years
Cash ISAs?Cash ISAs are simply savings accounts where the interest isn't taxed, meaning it's incredibly rare for a normal savings account to pay more interest. If you want to start with a low risk investment option, consider looking at getting a Cash ISA investment, putting in a regular monthly amount.
This may be a better option for you when it comes to investing if your goal is saving for something such as a house deposit and you intend to buy within the next few years, or you might need ready access to funds in case of an emergency.
Stocks and Shares ISASWith a stocks & shares ISA you can invest in funds (shares or bonds from various companies pooled into one investment), bonds (basically a loan to a company or a government), and shares in individual companies. This is a way of investing without paying tax on the profits of your investment.
As it stands, in the current tax year 2018/19 there is a limit of £20,000 any individual can invest in an ISA. It should be noted that the annual allowance is not the same as the value of your investment, which can go up or down depending on the performance of the investments held within the ISA.
If your stocks and shares ISA falls in value, it will not be possible to top it up within the same tax year. It can be a great option if you are looking for a long-term investment strategy and do not necessarily want or need immediate access to your money and are happy for this to be invested for a number of years.
In addition, Stocks and Shares ISAs are also aimed at those who are relatively comfortable with the element of risk involved, in the sense that the valuation of investment could increase or decrease, meaning that you end up potentially getting less than you had first invested.
Diversification of InvestmentsA popular way of investing is through spreading your funds over and between different asset classes, as well as in a number of different types of investment vehicle. This is likely to help reduce the overall volatility in your portfolio, especially if some sub-investments are losing money, or not performing as well as was anticipated. Also, because each type of asset class behaves differently, meaning that when fixed interest securities fall, stock prices may go up.
You have a number of opportunities to diversify your investments even down to a particular type of investment. Take for example investing in shares. These provide you with the option of spreading out investment between different sectors, large and small companies, in both the UK and overseas markets.
However, keep an eye out to make sure that your portfolio isn’t too heavily concentrated, such as in one single company's shares.
Investment FundsInvesting indirectly through an investment fund is particularly popular in the UK. There are a number of different categories to choose from, depending on your needs and goals, such as:
Investment trusts – These are companies who are quoted on the stock exchange and where their business model is to manage an investment fund or in shares. As an investor you put money into the fund through buying and selling shares directly.
Unit trusts and open-ended investment companies (OEICS) – These are a type of investment fund that is managed by a professional investment manager. With this option there is different strategies and levels of risk you can choose from, as well as the option to diversify your asset classes.
Tracker funds – These typically have lower charges than other kinds of investment fund. The funds value increase or decrease in line with the stock market.
Insurance company funds – This is when you invest in a fund through a pension product or through insurance, and you usually have the option of being able to choose exactly how your money is then invested. The choices that you have may be from the company's own investment funds.
Real Estate Investment Trust (REIT) – A real estate investment trust, or REIT, is a company that owns, operates or finances income-producing real estate. For a company to qualify as a REIT, it must meet certain regulatory guidelines. REITs often trade on major exchanges like other securities and provide investors with a liquid stake in real estate.
NOTES & DISCLAIMERS: This article was published 14 June 2018
Note 1: This article has been reviewed and signed off by the IMFP Compliance function for S21 Promotion purposes. The source references, fact checks and the compliance review process and material are available upon request.
Note 2: All published information is based on the regulation and/or market information available at the time of drafting, review and publication. Over time, elements of the article may become outdated, irrelevant or factually incorrect. Always ensure that before you implement any decisions or actions that you review with a qualified adviser and double check the latest information and regulations pertaining to your exact financial and factual circumstances.
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