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Money Hacks: Invest smart

EQ’s risk expert, Richard Pearson shares his top tips for getting into investing.

With interest rates on savings still at an all-time low, a venture into investing is looking more and more appealing for many. But if stock and shares sound daunting, where’s best to start? In the first of our Money Hacks series, we’re sharing a few of our top ways to start your investment journey.

LISA LISA Baby

LISA LISA Baby

If you’re aged 18-39 and saving for your first home or towards retirement, you could consider a Lifetime ISA. The Government will top up your contributions by 25%, up to a maximum of £1,000 each year. Like an ISA, you can just save cash or invest your money and any gains your investments make will be tax-free. You can save a maximum of £4,000 each year into a LISA, which forms part of your overall ISA annual allowance.

Ditch Never-Never Land

Before you start investing, remember to clear any high interest debts first. If you’ve a number of store cards and credit cards, now is a good time to consolidate. Interest rates are low and plenty of companies are offering interest-free periods on balance transfers.

Also, overpaying your mortgage (up to the penalty free level) could save you thousands in the long run – so it’s worth weighing this up against the benefits of any investment.

Just A SIP

Just a SIP

Check whether the company you work for offers a SIP scheme (share incentive plan). If they do, you could choose to buy shares in your employer out of your pre-tax salary, which is equivalent to a 32% discount for basic rate taxpayers. You may also be gifted some free matching shares each month too. You’ll need to own your shares for a minimum term to qualify for the tax discounts and any gifted shares.

A Less taxing option

The ISA or individual savings account has been around since 1999. You pay into the account from your post-tax income (currently up to £20,000 each tax year) and any gains you make are free from income tax or capital gains tax. Choose to save cash, or invest your money into stocks and shares.

An easy way to start investing is by choosing a fund which invests for you (based on how much risk you’re willing to accept). Or you might like to choose an ethical fund based on its ESG (environmental social governance) rating.

Remember that the value of shares can go up and down so you could end up with less than you started with. If you do decide to invest, five years is said to be a good minimum timeframe so that you ride out bumps in the market along the way.​

SAYE What

SAYE what?

Keep an eye out for save as you earn (SAYE) schemes offered by your employer – 25% of us don’t know whether we’re eligible for one*. They are viewed by many as being risk free as the worst that can happen is you get your cash back, and average maturity returns in 2019 hit 63%**. You pay in a fixed amount monthly and at the end of the term (three or five years) choose whether to take your savings in company shares (at a discounted purchase price agreed at the start) or take back your cash.

Pension power vs micro mortgage

People don’t always think of their pension as an investment, but it definitely is as contributions get invested on your behalf into various funds. There’s a debate over whether paying more into your pension could give a better long-term return on investment than making overpayments on your mortgage.

Pension contributions qualify for tax relief, which gives a big immediate boost to your savings (this could outweigh the interest saving on paying off a mortgage). Plus, up your contributions early and you’ve more chance of benefiting from compound interest. On the flip side the value of investments can go up as well as down so before making any decision, do your homework.​

Give Yourself A Payrise

Give yourself a payrise

Check if your employer offers matching pension contributions (some employers will match what you pay in monthly up to an agreed percentage). You could effectively give yourself a pay rise this year without any awkward negotiations with your boss. Plus, pension contributions qualify for tax relief, which gives an immediate boost to your savings.

 

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