Getting RICHER is easier than you think!
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BUILDING investment wealth for when work is no more, or partrather than full-time, is not easy. It requires discipline, sacrifice and being prepared to take risks with your money – difficult if the only financial product you have ever trusted in your life is the security of a savings account with a local building society. Good old Nationwide, dependable Yorkshire, cuddly Bath.
Maybe, but I promise you they will not enrich you. A little bit of interest here and there, but no more. Pennies from heaven, not crisp £20 notes. Frightened about accumulating wealth? Intimidated by jargon that makes finance as appealing as a Christmas Day swim in the English Channel?
Please don’t be. Establishing a financial fortress for later life is not an insurmountable task. Take it from me. Over the years, I have accumulated – and on occasion de-accumulated when tax bills have had to be paid or leaky roofs repaired. It has been a 30-year investment voyage of discovery.
Yes, I have made mistakes – some calamitous – and am still learning new tricks all the time. But along the way, I have picked up some simple rules I now adhere to, almost religiously. It is not rocket science, but those rules could help put you on the road to financial independence in later life.
SET UP AN ONLINE INVESTMENT ACCOUNT
ALTHOUGH the internet is destroying the high street – thank you Amazon – it has revolutionised the way we control our finances. Online banking and shopping around for insurance via a comparison website are now de rigueur, even though the occasional IT meltdown (a la TSB) makes us jittery.
But by far the most empowering internetbased development in the Personal Finance world has been the online investment account. A tool allowing you to control investments under one roof – and in real time.
Wake up in the middle of the night and provided your internet is working, you can switch on the computer and see the latest state of play on your investments. If you are so minded, you can even buy and sell shares, or increase the amount of money you are diverting from your bank account every month to purchase new investments.
Welcome to the world of the online investment account, or the investment platform, as industry bods like to call it. One investment home, open 24 hours a day, seven days a week.
If you are remotely internetsavvy, open one. It will kick-start an interest in investments and prompt you to learn more. A spark will be lit. I have friends who used to talk football over a pint. Now it is how their investments are perform- ing. For this financial revolution we must thank Peter Hargreaves and Stephen Lansdown.
It was this duo that, at Hargreaves Lansdown, led the way in devising an online umbrella under which investors could hold all their investments. It still leads to this day, although Hargreaves and Lansdown have long gone off to spend their billions. Yet other umbrellas have shot up. Those from AJ Bell, Fidelity, Halifax, Interactive Investor, The Share Centre. All with quirks, ranging in cost and scope, and with varying degrees of customer service.
MAKE SURE YOU USE YOUR ISA ALLOWANCE
WHILE governments are ever keen to seek new ways of raising revenue – a hike in insurance premium tax here, a freezing of an allowance there – they are acutely aware of their responsibility to encourage us to save and invest. After all, if we put money aside for later life, it means they are less likely to have to step in to support us with benefits.
So they give us the opportunity to invest up to £20,000 every tax year – starting on April 6 – in a tax-free wrapper called the Individual Savings Account. You can hold shares in
it, investment funds, bonds – even cash, although I would advise against that given pitiful savings rates.
You can invest regularly, make additional contributions if you come into some extra money (a bonus at work, for example) and turn off the contribution tap when there are pressures on the family budget.
It is a pot you can access (taxfree) if you need to, although the best strategy is to hold – and hold. From acorns come mighty oaks.
And the best thing – back to rule one – is that you can use an online investment account to run an Isa from. Exclusively or alongside a separate investment portfolio. Two accounts under one umbrella.
UTILISE YOUR TAX RELIEF ON A PENSION
WHILE most of the news on pensions is grim – company pension schemes in deficit, employers reneging on pension promises – the fact remains that this tax-friendly vehicle should be at the heart of any long-term investment portfolio. So, if your employer provides one, join it. Do not be tempted to opt out.
Why? Because your contributions will benefit from tax relief. For a basic-rate taxpayer, this means a £100 contribution only costs £80 – for a higher-rate taxpayer, £60. Also, nearly all employers are now obliged under so-called auto-enrolment rules to contribute into your pension pot. A compelling mix – tax relief and an employer top-up. Irresistible.
These days, unless you are in public service, your employer is likely to offer you a pension where your ultimate retirement fund will be determined by how much has been put in and the subsequent performance of the investments you or the pension manager have selected. So deficits are not an issue.
Also, if your scheme is halfdecent, it will allow you to see online how your pot is building – and enable contributions to be increased and investments (usually funds) changed.
If you are self-employed or just fancy building your own pension pot, you can now set up a pension online – as part of your investment account. So, under that online umbrella, you could run a pension, an Isa and a standalone portfolio.
INVEST A LITTLE A LOT – AND WATCH IT GROW
BUILDING investment wealth is a long- term endeavour. With a pension, you have no choice but to think about it as a retirement tool because withdrawals cannot be made until at least age 55. But with Isas and investment portfolios, the onus is on you to use them to accumulate wealth. The best approach is to invest regularly, preferably monthly, even if it is just £30 or £50. By setting up a direct debit to pay into your investment account, you will get into the habit of not missing the money. You will be surprised how rewarding regular investing can be. If you had invested £50 a month 15 years ago via a fund tracking the performance of the UK stock market, you would have squirreled away £9,000. But in the process you woul d h a v e b u i l t a n i nvest ment worth j us t short of £16,700. Not a bad return for regular prudence.
DON’T BE GREEDY – LOOK FOR SOLID PERFORMERS
WHEN I first started investing, my approach was driven more by testosterone than common sense. I wanted investment returns equivalent to those from some of the privatisations that took place under t he Government of Margaret Thatcher. How foolish I was.
Now, I am more conservative. I invest in a range of stock marketlisted investment trusts that have assets either invested in the UK or globally. Trusts with records going back 100 years or more. Seen it, done it, overcome it. Any dividends are automatically reinvested.
BE WELL READ... IT CAN BE SO REWARDING
FINALLY, there has never been a time when information on investing has been more accessible. Try to absorb some of it. Our Personal Finance pages are crammed full of useful investment material while Midas columnist Joanne Hart runs the slide rule on what shares to buy every week. Website This is Money is also a mine of useful investment information.
No matter what financial experts tell you, investing is straightforward – and if you are patient, rewarding. Embrace it.