Put a spring in your savings during 2020
Turn yourself into a thriving investor with these top tips
This is the time when we are all out shopping for the perfect present for our friends, families or even ourselves.
But the gift that keeps on giving is to turn yourself into a more successful investor in 2020. here are five ways to add shine to your savings:
SUPERMARKET SWEEP
Managing your isa or share portfolio via an online financial supermarket or platform is convenient, but can come at a cost that shrinks your return.
Consult the Compare Fund Platforms website, which ranks the rival names.
Let’s say you have £25,000 in an isa to which you contribute £500 a month and your money is divided into five funds which you switch twice a year.
Over 10 years, the charges at interactive investor would total £1,799, leaving you with £133,389.
at hargreaves Lansdown, you could face a £4,030 bill. Chelsea Financial services is the most expensive, with a £5,345 fee.
EARLY SPRING CLEANING
ChristMas is a time of wonder. But in the new Year, let the spirit of realism guide your thinking. While it’s important to focus on the long-term, you must accept that some funds and shares will never repay your loyalty.
For instance, thousands of investors have rightly deserted absolute return funds such as aberdeen standard’s global absolute return strategy (gars), disappointed that they are not fulfilling their promise of preserving wealth, whatever the state of the markets.
You may be hanging on, hoping for an upturn, while claiming to be a disciple of Warren Buffett, the Us investment guru who famously hardly ever sells.
But Buffett also never puts money into something he does not understand, which should be your motto.
READY-MADE INVESTMENT
YOU may lack the time or the inclination to manage your investments and monitor their performance yourself.
if so, it may be that you are better suited to a ready-made portfolio, designed for different levels of risk, such as those offered by the app-based businesses nutmeg or netwealth. adding to your account is easy. One of my friends used her nutmeg account to maximise the benefit of her postChristmas diet. Whenever she was tempted to order a takeaway, she cooked at home and put the pizza money into her isa.
SPREAD THE RISKS
investing your whole £20,000 isa allowance in the days before the deadline at the end of the tax year may not have worked out well for you in the past.
Why not opt for a regular savings scheme instead, and pay in a set amount each month instead of one big lump sum investment all at once?
One advantage of this is that you reduce the risk of bad timing, for instance, ploughing in a large sum just before a market dip.
another benefit is that your contributions buy more units in the fund or shares in the trust when markets dip, a process known as ‘pound-cost averaging’ or ‘getting a bit of a bargain’.
RESEARCH TIPS
When researching funds, remember that the best-buy lists put out by the financial supermarkets are a useful filter rather than a guarantee of great performance.
as part of your new approach, perhaps explore new areas. if, say, you have been struck by the high number of amazon parcels arriving in your street this Christmas, consider scottish Mortgage investment trust, which has a large stake in the online retailer.
the current pricing of UK shares reflects the possibility of more doom and gloom. But some, such as goldman sachs, forecast a rebound if the clouds begin to clear. Bestinvest’s best buy UK funds include tB evenlode income.
TAKE CHARGE
YOU may be a wage slave, but you can still be the boss of your company pension scheme.
More than 90pc of the members of defined contribution funds ( where payouts depend on returns) are in ‘default’ one-sizefits-all funds.
typically, 60-70pc of a default fund is invested in shares, the rest in cash and bonds. this is not adventurous enough for workers in their 20s and may not even be suitable for workers in their 50s. this is especially the case if their scheme automatically increases the portion of cash in their pot as their retirement nears, on the assumption they will switch into an annuity. nowadays most people opt for income drawdown on retirement, which means that they need the growth offered by shares.
Discuss the options with your scheme manager who may be really chuffed in the cold days of January that a colleague is taking an interest in the scheme.