The world of investing is exciting, dynamic and could even make you wealthy. Becoming an investor means that you are opening your money up to new possibilities. Your money can even support companies which are doing good for the world – for example with an Ethical Investment Plan. It could also be used in a Junior ISA, transforming your child’s savings so they can spend more time focusing on their studies and less time worrying about finances. The potential returns that you make from investing could go towards fulfilling your bucket-list of personal dreams. From owning a property in the sun to taking that once-in-a-lifetime retirement trip, the world could be your oyster.
So how do you get started? It’s a good question and one which more and more people are considering. Luckily there are many avenues available to you, including taking advantage of tax relief to help boost your potential returns, such as the Stocks and Shares ISA.
How to start saving
Before you can begin your journey into the world of investing, you should consider having a savings pot put aside, ready for any unexpected situations that life throws your way! For many would-be investors this can often be the first stumbling block. Saving money can feel like a chore. Like going for a jog or visiting the dentist, sometimes the thought of it feels like more of an ordeal than the process actually is. This is why figuring out a realistic saving plan is the first step to investing. After all, even if you decided to put aside just £10 a week, this adds up to more than £500 saved at the end of a year. After five years, you would have £2,500. Some people, such as students or apprentices, may prefer to commit to just £2.50 a week, and that could also be a great start, meaning they have £120 at the end of the year, or £360 after a three year degree. Saving something is better than saving nothing.
If you keep going, you could start seeing the results after just a few months. Saving can even be surprisingly fun. Feeling financially healthier and happier is another bonus to putting money aside. You may even notice that you no longer go for costly stress-busters like spa treatments, luxury hot chocolate or retail therapy as a result. Some people enjoy the feeling of saving money with homemade gifts and food, charity shop treasures or switching to own-brand products. Big spending events such as Christmas can become more charming and family-orientated with homemade decorations, days inside the house baking cost-effective festive treats and creating your own traditions. Saving money can be a win-win, which helps you to feel richer and healthier in your life as well as your bank account.
Where to start investing
If you want to start investing, and you have some money set aside to begin, it’s good to look at your different options. While you could invest in things such as property, art or gold, in this article we will look at investing in shares and bonds.
There are many different ways to begin investing, for example, you could buy shares in just one company via a banking or finance app. It’s easy to buy shares here and there on different platforms. There can be a lot of excitement, rumours or “noise” in the industry, which can drive new investors into rushed decisions. For example, several years ago, many first-time investors developed a feverish appetite for a crypto-currency called Bitcoin. The prices were fuelled by excited investors, leading to a crash where many people then lost money.
While it can be tempting to dive in and jump on the most exciting investment, it might be wise to develop an investment strategy. As you can see from the example of Bitcoin, you may wish to include a good mix of different investments so that they are not all hit if there is a dip in one sector. It's a good idea to consider the length of time you want to invest for, how much risk you are willing to accept and where you want to invest your money.
What is a Stocks and Shares ISA?
You are entitled to some tax relief from the government when you invest with certain accounts. In the United Kingdom, this is known as a Stocks and Shares ISA (Individual Savings Account). If you are not sure where to begin your investment journey, paying into a Stocks and Shares ISA could be a good place to start as you will get tax relief on up to £20,000 each financial year.
A Stocks and Shares ISA is different from a General Investment Account because it gives holders tax exemptions. They were first introduced in the UK on the 6th April 1999, making them 20 years old. Replacing the Personal Equity Plan (or PEP), their aim was to provide more incentives to encourage people to save. You need to be a UK resident to benefit from this investment account. The Stocks and Shares ISA has an allowance of £20,000. With a Stocks and Shares ISA you do not pay tax on dividends (profits from stocks and shares), interest (profits from bonds or debt) or capital gains (the money you make when you sell your investments). You can also sell your investments and withdraw your money at any time, which gives you more flexibility. Over the twenty years that ISAs have been running, some investors have even been using the tax-efficient status to help them become “ISA Millionaires”.
There are a few different kinds of Stocks and Shares ISAs available online, managed by different kinds of service providers.
What is DIY investing?
DIY investing is a popular route where you make your own investment plan and do your own trades. It’s the investing equivalent of installing a water system in your house yourself, rather than calling a plumber. Or building an extension yourself instead of hiring an architect and builders. It can be incredibly fulfilling and save you fees, but it will also take a lot of research and you may lack the skills and experience of a professional investment manager.
We do not offer this type of investment service at Wealthify, but you can find plenty of providers online who offer DIY Stocks and Shares ISAs. If you would like to do your own trades, here's a great guide on investing without the help of a manager to help you learn more.
What is advice investing?
There is also another type of Stocks and Shares ISA on the market known as “Advice” Investing. This is a kind of middle ground between Managed Investing and DIY Investing. It may be well suited to people who want to do their own trades but need support and help when it comes to researching investments to buy. The disadvantages of this are that investors may be limited by the number of funds offered by the advising platform. Investors will also end up paying higher fees for the advice. If we go back to the analogy of building a house, this is like a little like hiring an architect and being restricted to one store only for building materials, but laying down all the bricks and cement yourself.
What is a robo-advisor?
When you think of a robo-advisor what do you imagine? A complex algorithm which codes its way across a matrix of investment opportunities? Star Wars’ C3PO with a tie and investment plan tucked under his arm?
It sounds incredibly futuristic and high-tech. However, here at Wealthify although we are considered a “robo-advisor”, the truth is that the investing research and managing is done entirely by our human team of investment experts. As our CEO Richard Theo says “don’t call us robo!”, this is because behind our clients’ money is a highly qualified group of experts.
With over 25 years’ of combined experience in professional investing, our highly qualified team does the hard work for you. This is known as a “managed account”. The advantage of a having a managed account is that you have all of the benefits of being an experienced investor, without having to do any of the work yourself. The team will create your investment plan and invest it for you. Because we know that investing is not “one size fits all”, we have a range of different plans available, and you can start with as much or as little money as you feel comfortable with. You have a lot of independence in the type of investments you would like to select (such as with our ethical investment products) and the level of risk you feel comfortable taking. Once you have made these personal decisions, our experienced team take it from there and manage your money for you. Our fees are kept low so that you can keep as much of your returns as possible.
If you are interested in learning more about how a fully managed Stocks and Shares ISA could help you to realise your dreams, you can learn more here. You can also chat with our friendly customer service team, who are on hand to help.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.