It’s never too late to review your investments. If you want your money to work hard for you and have the potential for greater returns this year, here are some tips to help
Remind yourself of your financial targets
A year can be a long time when investing, most believe that you only reach a goal that really means something to you.
Perhaps you’ve experienced some changes during the year and it’s time your investment targets reflected them? Welcoming children or grandchildren to a family can change your perspective, so it’s well worth taking some time to think about what’s important to you now.
If your situation has changed, speak with your financial adviser about how you update your targets and progress towards them this year.
Build an emergency fund,
Investments are long-term, so it’s best not to touch them even if you need cash to cover an unforeseen emergency.
To cover such emergencies, you could consider a cash reserve. Try to have at least three months of your regular outgoings in cash, which should cover most problems.
By withdrawing from cash in times of need, you keep your investments tax-efficient. If you had no other option but to take money out of your ISA, you would not be able to put it back in again if you had already reached your annual allowance of £15,000 for the 2014/15 tax year.
Think of risk and return together
Everyone needs to appreciate the link between risk and return.
Low-risk investments usually provide lower returns, whereas higher-risk investments have the potential to produce much higher returns. Generally, the longer you have to reach your goal, the less risk you take.
Charges erode your returns every year, so it’s important that you know for how long and how much you are paying and that you’re getting good service for your money. Always ask your Financial Adviser to show all the charges before you agree to have them work for you.
The risk of high charges is especially severe for older investments, such as dormant pensions. It may be more cost effective for you to transfer your dormant pensions into one pot with lower overall fees.
Always take a long-term view
Investments should be thought of as long term goals that are at least five years away. With ever changing markets, it’s over the long-term that you’ll usually see investment growth. The longer you have to invest, the better.
Regularly add more to your investments, this avoids ‘lump sum shock’ where you might invest a lump sum the day before a big drop in the market. Over time you’ll make your money back, but by regular investing, you spread the risk. Investing the same amount each month means that you’ll buy less when the market is up and units cost more, and you’ll buy more when the market is down and units cost less. Over time, you should average out at a lower cost-per-unit than if you invested in one lump sum.
Be prepared to top-up your investments
If you find yourself behind your investment target, top up your investment to bridge the shortfall.
By topping up you can keep investments on course and even help you reach your goals early. You don’t have to wait until you’re behind to top-up, you can also add funds when you have extra cash.
Make the most of tax-efficient investing
Use your annual ISA allowance of £15,000. This is tax-free saving and should be one of the first places you invest your money. You have until 5th April to use up your allowance.
Remember the ISA allowance is personal, so a couple can shelter £30,000 from the taxman. The allowance starts again on April 6th and you can’t carry over any unused amount.
As well as an ISA, you can invest up to £40,000 in your pension this tax year. Use your allowance today to get your money invested for longer.
The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Please contact us for further information or if you are in any doubt as to the suitability of an investment.