Savings and Investments
Whether we are wanting to save to be able to put our children through university, or a home improvement or simply to build up a pot of money, its important that our money works as hard for us as we have worked to earn it.
ISA’s – Individual Savings Account
Principally as adults we have the option of Cash ISA’s and Stocks n Shares ISA’s. Yes, our children can have a Junior ISA and a young adult can take advantage of a government led incentive which is the Help to Buy ISA. As adults we have an annual ISA allowance of £20,000 each tax year. The big advantage of an ISA is we can access this money tax free. We don’t have to pay tax as the money does not count towards our income and we don’t have to pay capital gains tax on any profits. An individual can choose to save regularly on a monthly basis and/or invest a lump sum into an ISA. Cash ISA’s can be transferred into stocks n shares ISA’s without losing that all important tax wrapper.
Some people believe that Cash ISA's are the best way save money because of the tax-free wrapper. The problem with Cash ISA's begins when we add the effect of inflation to the equation. Most high street banks are offering a rate of 0.25% or maybe 0.5% interest growth on your money. Inflation is currently running at 2.4% - 2.5%. This means in real terms for those with Cash ISA’s their money is losing its value by 2% per annum. If someone needs access to this money in the short term then a Cash ISA is a good a place to keep this money than any other high street deposit account.
Stocks & Shares ISA
If, however someone is looking to save and build up a lump sum over a period of time say 5 years or more then there is an alternative option which should be seriously considered. This option is a Stocks n Shares ISA. Yes, there is more risk involved. Your money is being invested in the financial markets so an element of risk naturally runs alongside the potential for capital growth.
It's impossible to time the market in other words to know the best time to put your money into the markets. It's about the amount of time your money is in the market, that's the most important point to take away here. If you’re looking to invest for the longer term then in order to achieve capital growth you need some exposure to asset classes such as equities (company shares). It’s this asset class principally that achieves the growth within your portfolio. How do we know which equities to buy? Can the average man/women on the street dedicate hours and hours of time to research each company within the FTSE 100 or the S&P 500 in the US? The answer is NO they can’t. So, what about picking a fund to put our money into or even 4 or 5 different funds! The challenge here is there are about 5,000 different funds in the UK to pick from, globally I really wouldn’t like to say. Even if you pick a fund or funds, how do you then keep a track on how the fund is performing. Do you base your decisions on past performance! What if the fund manager who achieved that past performance leaves that fund? What if he/she is head hunted, they retire or they pass away? How are you going to keep track of all this information?
As a financial adviser for St. James’s Place, I don’t thankfully get involved in selecting the worlds best fund managers, we have an Investment Committee that does that complicated research on our behalf. Our Investment Committee have the responsibility of selecting the range of funds and fund managers. The committee is made up of a small group of executives and independent investment experts, and is advised by a number of external independent consultancies. Once the committee have selected who they believe are the best fund managers globally, the committee then puts together a range of model portfolios. The committee then meets on a regular basis to review performance and consider detailed reports from each fund manager. These portfolio’s offer differing degrees of potential growth and investment risk. My role is to meet with my clients face to face on a regular basis to make sure the investments are in line with what they are looking to achieve.