We’ve all been there, in the pub or at a dinner party, and had to listen to someone dominate the conversation with their latest great deal, how well their investments are doing and how they know best.
We thought we would put together some practical steps that you might consider taking to make sure you can hold your own in such conversations, but more importantly to help you get your money working as hard as possible for you.
Get the tax planning right
It goes without saying that paying less tax increases the net return to you. However, too many people focus on the gross return and do not consider the tax-efficiency of their investment.
If you are a tax payer use Cash ISAs for your deposit based savings. The headline rates are often not as good as other deposit accounts but when you consider the net, after tax return, they are generally better.
If you are a non taxpayer, the gross return is effectively the same as the net return and it is often the case that Cash ISAs do not offer the best interest rates. However, you must remember to complete the R85 form to make sure tax is not deducted from your interest.
Many couples have different levels of income and consequently pay different rates of income tax. Hold bank and building society accounts in the name of the lowest rate tax payer to ensure that the lowest possible rate of interest is paid on savings.
Consider the merits of making a pension contribution. This is not for everyone as there are rules that must be followed and your money will be locked away until at least age 55 but the tax relief is certainly attractive.
A note of caution thought, don’t let the tax tail wag the investment dog. VCT’s (Venture Capital Trusts) have very attractive tax benefits but they are volatile, often illiquid and not for the faint hearted, get the investment right, then consider the tax position.
This might sound obvious but you would be amazed by the number of people that don’t take this simplest of steps.
Take time to shop about for the best savings account. It rarely pays to simply stick with the same bank or building society you have always used.
We are here to help. Use our best buy tables, which can be found here, to search for the most competitive interest rates.
Switch Cash ISAs
You invested in the Cash ISA paying the best rate of interest a year ago? Check back and make sure that the rate is still competitive; there is a good chance it isn’t.
Many people don’t realise that Cash ISAs can be transferred between banks and building societies. The process can take a few weeks but is definitely worth the effort, click here to see the best rates that you can currently get should you decide to transfer your Cash ISA.
Patience and avoiding knee jerk reactions
If you are invested in more volatile assets, for example shares, either directly or via a fund, avoid the understandable reaction to sell when the market falls; it is rarely the right thing to do.
Those that hold investments through bear markets i.e. when returns are negative and periods of volatility will often do better than those that sell at the bottom of a market.
That’s not to say poor fund managers should not be ruthlessly rooted out and replaced, which is a different thing entirely, but avoid selling at the bottom of a market if you can possibly do so.
Reduce charges / Fair charges
It goes without saying that everyone needs to make a profit; this of course applies most of all to you.
Take time to consider how much the investment or fund manager is charging you.
Is this fair for the return you get?
How can it be reduced without detrimentally affecting performance?
However, remember that often you get what you pay for. Focusing on charges at the expense of performance is wrong, you need to keep an eye on both, but reducing the annual charge by say 0.5% could improve the return on a £100,000 by around £5,000 over a 10 year period.
Avoid poor performing fund managers
Many fund managers consistently underperform the stock market; therefore what are you paying for? You could simply invest in a lower charging tracker fund, which provides a return in line with a particular market, and get the same result at a lower cost.
Whilst this is true there are of course some managers that regularly outperform their own benchmarks and other stock markets, remember of course that past performance is not necessarily a guide to the future.
Look at your investments. Have your fund managers beaten the stock market and provided value for money? If not consider changing them.
Consider moving away from With Profits
Some with profits funds still offer an attractive return and indeed there are still a number offering a guaranteed return. However, the majority of With Profits investments are producing a return well below inflation and in many cases zero annual bonuses have been the norm for the past few years.
Spend time reviewing your With Profits investments; speak to an IFA or your investment provider. Quiz them on the returns you are making from your With Profit investment, it is often the case that you would be better in an alternative, even with interest rates so low, the return isn’t zero!
We strive to offer practical solutions here at Investment Sense, giving you ideas that really work.
We know that these simple steps will help you next time you get into a conversation about investments, but more importantly help your money work harder for you.