Welcome to Spring! It's that time of year when you might want to take stock of your finances and find out what you can do to make them grow. The following forms a strategy to add strength to your financial planning arrangements.
Plan.
If you know what your goals are, these can help you stay focused and on track. They will also help with the level of investment risk you run with. We believe that the best way to achieve your long-term investment goals is to have a fully diversified portfolio.
Tax Edges.
There are plenty of tax breaks to make use of (remember the tax year ends on 5 April), so it’s worth checking what annual allowances you can still potentially benefit from now. Then you get another set after 5 April.
One of the most popular tax breaks is the Individual Savings Account (ISA) allowance. This amounts to £20,000. You won’t pay income tax, dividend tax or Capital Gains Tax (CGT) on any investments you hold in an ISA.
Bed & ISA.
This is where you sell investments you hold outside an ISA and then buy those same investments back within your ISA. This is a good way to ensure you are making the most of your ISA allowance. It brings investments into a tax-efficient wrapper, avoids losing out from market movements and helps you to potentially save on tax.
Review.
Don`t forget to check how your investments are performing to see if your goals are on track.
Pension.
You could increase your potential wealth in retirement by paying more into your pension. Provided that you don`t exceed your pension allowance and don’t contribute more than your income, you enjoy tax relief at the basic rate of 20% on contributions made. So, for every £80 you pay in, the HMRC tops this up to £100. If you’re a higher rate or additional taxpayer, you can claim additional relief on top of the basic rate. You do this through your self-assessment tax return.
Persevere.
Building wealth doesn’t happen overnight. You should always set out to invest for a minimum of five years. This is to ensure your investments have time to ride out the highs and lows of the market, potentially smoothing out returns.
No-one can know exactly when markets might rise or fall, but staying invested can help avoid the risk of missing any of the best days because you’ve sold at the wrong time.
Diversify.
As a general rule, it’s a good idea to hold a spread of assets. These may include shares and bonds funds so that you have a balanced and diversified portfolio.
This can help even out returns over the long-term, as different assets may perform differently, depending on market conditions at the time. You can further diversify your portfolio by spreading your investments across several geographical areas.
Keep Your Cool.
Letting your emotions direct your investment decisions isn’t generally considered a great idea. Whilst it’s both normal and understandable to experience some jitters during periods of volatility, it’s important not to panic and sell at a loss. At the same time, if your investment has risen in value, you might be tempted to cash in and sell if you fear possible losses to come.
It’s key to think about the reasons why you chose your investments in the first place and remind yourself of these if you’re feeling nervous during a period of market volatility.
This article does not constitute financial advice, and you should always consider discussing your financial options with an independent financial adviser.