Investing is a great way to build a nest egg for the future but, getting started can often feel daunting. Here are some tips to help you take the plunge and make the most of your investing journey.
If you invest and make money from your investments, you might need to pay tax. Typically, in the UK, there are two types of tax you may be subject to: Income Tax when you receive income on your investments (interest or dividends) and Capital Gains Tax - taken on the profit you make when you sell investments that have increased in value. However, it’s possible to invest tax-efficiently. With a Stocks and Shares ISA (also known as an investment ISA), you get invested in financial markets, like the FTSE 100 and S&P 500, and you don’t need to pay UK tax on earnings or gains you make from your investments, meaning you get to keep more of your returns.
But before you invest in an ISA, it’s important to be aware of the different rules. The amount you can put in a Stocks and Shares ISA each tax year is limited to £20,000 – this is your annual allowance. You can either invest it all in a Stocks and Shares ISA, or you can split it between your Stocks and Shares ISA and another ISA type, like a Cash ISA. You have until the 5th April every year to use your ISA allowance, or you’ll lose it forever, so make sure you take advantage of it before the deadline passes.
Invest with a robo
When it comes to investing, there are many different routes you can take. One popular route is DIY investing where investors go on online trading platforms (also called investment supermarkets), pick their own investments, and manage their portfolio. However, this route is very time consuming and requires some financial knowledge and experience since you have to monitor what markets are doing on your own. If you’re too busy to do the investing by yourself or if DIY investing doesn’t sound like your cup of tea, no worries, there are other options.
A good alternative for those who are new to investing or people who don’t have time to make investment decisions is robo-investing. Also referred to as robo-advisors, robo-investing platforms, like Wealthify, are digital services that are breaking barriers in the investment world by making investing accessible to everybody. Not only do they let you invest with as little as you like, they’ll also do the hard work for you as their team of experts will build your Investment Plan and make adjustments to keep it on track. All you’ll need to do is answer a short list of questions, choose how much to invest, and select the risk level that suits you. Once your Plan is created, you’ll get access to your dashboard where you’ll be able check how your investments are doing.
Investing isn’t just about making a profit; it can also serve to drive positive change in society. By investing ethically, not only are you giving your money a chance to grow, you’re also supporting companies committed to doing their part for the environment and society.
At Wealthify, we offer Ethical Plans (including Ethical Stocks and Shares ISAs) that get you invested in ethical investment funds – think of them as hampers full of sustainable investments, including shares and bonds. Most funds will perform negative screenings which remove what we call “sin stocks” (tobacco, gambling, adult entertainment, and weapons). Some funds will take the negative screening process even further and exclude a wider range of activities that are at odds with ethical and socially responsible values, such as alcohol and deforestation. Ethical funds apply different ethical thresholds, with some completely removing companies and others investing in organisations involved with harmful activities, provided they earn no more than 10% of their overall profits from these kinds of activities. There are also ethical funds that will perform positive screenings and proactively look for companies operating in a sustainable way. To ensure companies within the fund maintain their high ethical standards, funds will keep a close eye on their practices, and if the companies being assessed let their standards slip, they’ll be removed.
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.