With a new tax year having just begun, it’s a good time to start getting your finances back in shape.
Investment platform Saxo has offered up some handy tips to kick off your savings journey, and you don’t have to make drastic changes to reap the rewards.
Saxo advises that it’s worth starting small in your investments, and even just opening an account can be of huge benefit, as you can return once you’ve made a decision about where you want to do with your money.
They also remind savers it’s important to make ‘regular small contributions’ to grow your savings, rather than large lump sums as you will be ‘less aware’ of the money going out.
Other tips include ‘taking appropriate risks’ as well as keeping your investments ‘diverse’ by ‘holding assets such as corporate or government bonds’ across different countries and sectors.
Elsewhere, Saxo urges savers to check for any past accounts they may have forgotten about, as well as take advantage of any pay rises you may secure by ‘not getting used to the extra income immediately’.
Just open an account
You don’t need to decide your investments right now to secure your ISA allowance for the year – you can just place your money in cash and then come back at your convenience once you’ve decided how you want to invest.
The annual ISA allowance is a use it or lose it tax break, you cannot roll it over to other years like you can with the annual pension or capital gain tax allowance.
Contribute regularly
You don’t need a big lump sum to get started. Smaller contributions on a regular basis will still help your savings to grow, and you’ll be less aware of the money going out.
However, remember that if you don’t use your full ISA allowance each year, you can’t carry the unused balance forward. If you choose to invest in a Saxo stocks and shares ISA, putting in a set amount each month can also help take the stress out of natural stock market fluctuations.
The value of investments tends to move up and down in the short term, but by making monthly deposits you can avoid the risk of putting all your money in just before a big drop. Financial advisers call this process ‘smoothing’, as it delivers a smooth progression of investment growth and risk protection over time.
Take (appropriate) risks
History shows us that stock investments perform better than cash in the long run, so the additional risk of a Stocks and Shares ISA could lead to a healthy reward. Just make sure the amount you invest is suitable for your risk tolerance.
If your investment horizon is longer than five years you could consider taking a bit more risk but if you need your funds soon, then a high-risk option might not be the best choice.
Keep it diverse
If you choose a Stocks and Shares ISA, make sure you keep your eggs in a variety of baskets. Investing in shares across a range of countries and sectors, as well as holding assets such as corporate or government bonds, will help ensure that your portfolio can ride out a market downturn in a specific asset class, sector, or region of the world.
Don’t forget the past
The humble ISA is over 20 years old, so it is very much possible that many of us will have an old ISA or two knocking around that’s been forgotten about. Since the rates on many best-buy cash ISAs have dropped dramatically in recent years, and your old investment ISA might not be in the right funds for your current circumstances, it’s worth taking the time to evaluate your options.
The good news is that your ISAs can be rehabilitated, with most providers allowing for ‘transfers’. This means you can seamlessly transfer an old ISA into a newly opened account. Just don’t withdraw the money – or you’ll lose the ISA benefits – and make sure you go through the proper transfer procedures.
Re-invest dividends
Any dividends that you receive on your investments within an ISA account are free from any income tax, but if you don’t need the money, you can always reinvest them buying more assets, which will really help your pot of money to grow substantially over the long-term.
This is because when you buy more shares each time you receive a dividend, you then receive more dividends next time there is a payout, which can then be reinvested again and so on.
Ride your pay rises
If your wages rise or you finally pay off a long-standing debt, try not to get used to the extra income immediately. Instead, increase the contributions into your ISA. You’ll end up with more savings without feeling the pinch.
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