Choosing the best investment ISA

When it comes to savings, an ISA has been the go-to choice since the turn of the millennium. After all, the interest rates are similar to routine savings accounts, and the fact that there is no tax payable makes it a natural choice.

What some people don’t realise, however, is that there are other sorts of ISA available too. An investment ISA follows exactly the same principles as a cash ISA, in as much as it acts in the same way as any other investment fund, with the added bonus that there is no tax to be paid on earnings and interest.

As with cash ISAs, there are plenty of investment ISAs to choose from, ranging from traditional products in your high street bank to online offers from specialist providers like the one here. Here are some tips for choosing the investment ISA that will best meet your personal needs.

What is your risk appetite?

Risk versus return – it is Investment 101 and is the first thing every would-be investor needs to contemplate. From the high-volatility world of cryptocurrency where fabulous fortunes can be made or entire life savings can be wiped out, to government bonds that are highly predictable but will never generate more than a modest return, investment decisions are all about trade offs. Be clear about what risk appetite means and where you stand on the spectrum.

The same applies in your choice of investment ISA. Consider how much money you can afford to tie up in your investments and keep in mind that prices can go down as well as up. If you take the approach of never investing more than you can afford to lose, you can’t go wrong.

What is your preferred platform?

Traditionalists who prefer to keep their finances offline can take a tour of the high street and visit a choice of financial service providers and banks. But in the internet age, a growing number are choosing the increased choice and flexibility that online platforms bring. These are also a good option for those who prefer not to keep their money locked away, with many offering investments that can be cashed in in a matter of days.

Watch your allowances

Anyone can invest up to £20,000 in an ISA. There are a couple of points to keep in mind here. The first is that it applies to individuals, so if you and your partner want to jointly invest, that effectively gives you an allowance of £40,000 between you.

The second is to remember that this applies across all ISA products. Many of us have some savings tucked away in a cash ISA. If this applies to you, there is nothing to stop you taking out an investment ISA too, but keep in mind that the £20,000 limit applies to your total holdings. In other words, if you have £5,000 in a cash ISA, that leaves you £15,000 to put in an investments ISA. Any investments above this will be subject to the usual taxation rules.

from Finance Girl http://www.financegirl.co.uk/choosing-the-best-investment-isa-2/

Four ways to plan for your financial future

When you are in the buzz of daily life planning for your financial future can seem like something that can be put off until another day. However, beginning to plan in this way is extremely important whatever age you are. In fact, the earlier you start the better as it gives time to build the saving and pension income streams needed for later life.

But why is this so critical? The positive choices made around your finances now will help to secure your future, both in the short and long term. It will not only give you money to enjoy life and follow your immediate dreams but also to enjoy your retirement when that time arrives.

Here are a few ways to begin planning your financial future.

1 Investment makes sense

Many UK investors still favour putting their money into stocks and shares. It is a relatively easy to understand and access investment vehicle that can bring handsome returns in the medium to long term. The key to successful stock market investment is getting the latest stock news and info so you can see how your stocks are faring and which others present attractive investment opportunities.

2 Start to save

While investing in areas like shares can give a better return than putting your money into a UK savings account, that does not mean you should not have cash deposits. It is always wise to keep building up your bank savings, so you have cash to use in an emergency or to fund major purchases.

3 Pay into a pension scheme

The current UK state pension is just over £160 per week. That is not going to be enough to live on for most people. That is why paying into a private pension scheme is now essential. Taking out a private pension plan allows you to invest money towards your retirement over many years, so that you can use the income it will provide to supplement the state provision when the time comes.

4 Protection cover

Planning for our financial future is not just about when we retire. Making provisions for what may happen in the shorter term is also a very good idea. Insurance income protection cover is something worth thinking about. It can include mortgage payment protection which covers you against income loss due to serious illness that prevents you from working. Many take this kind of insurance out to guard their financial future. This form of insurance has received a bad press in recent years due to misselling by the banks, however, it is still a useful financial safeguard for many people.

Start planning for your financial future today

Although the financial arrangements for when you finish work are very important, planning for your future can be about what happens in the next 10 or 20 years. All through your life you need to be planning what will happen in the next phase and how your finances can help you achieve the standard of living you aspire to. By taking on board some of the above tips, you could have financial security in place for things like moving to a new house or the kids going to university, along with sufficient funds for a comfortable retirement.

from Finance Girl http://www.financegirl.co.uk/four-ways-to-plan-for-your-financial-future/

Weekend reading: Feudal dues

What caught my eye this week.

Hey Millennials! Top tip time! One of the best ways to improve your chances of owning your own home is to make sure you’re born into a family where your parents do, too.

Take a look at this graph charting new data from the Resolution Foundation:

As reported in the FT [Search result]:

Those with the richest parents are the most likely to own a house by the age of 30. Roughly a third of people in this category were homeowners themselves by the time their 20s were over.

They are followed not far after by those in the second two quartiles who both had about a 28 per cent chance of owning a house in their 30s.

Then, much further behind [are] those whose parents did not have any property wealth at all, who had just a 13 per cent chance of becoming a homeowner.

So there you have it – be lucky babe!

I mean it’s sweet that you’re skipping your avocado toast and all.

But as any old Barry Blimp will tell you, he too once ate an avocado in 1977, but that didn’t stop him buying a terraced house in London in the early 1980s.¹

Of course he didn’t have to pay for an iPhone or any similar nonsense.

But he would happily have gone without such frippery and stayed in counting his bedrooms for fun instead if he’d had to.

Because that’s just how tough we were back then.

From Monevator

How to stick to your savings goals – Monevator

From the archive-ator: Thoughts on the new gold rush [From 2010] – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!²

Subsidence claims by households quadrupled during summer heatwave – ThisIsMoney

Sharp deterioration in service sector growth leaves the economy flat-lining – ThisIsMoney

UK house price growth slips to six-year low amid Brexit uncertainty – Guardian

New property tool shows what your salary would buy around the world – ThisIsMoney

No, it’s not just your lousy portfolio. Everything’s down 2018 – NDR/Cullen Roche via Twitter

Products and services

Aviva to break the ‘loyalty penalty’ for home and car insurance [Search result] – FT

Ratesetter will pay you £100 [and me a bonus] if you invest £1,000 for a year – Ratesetter

Cost of Christmas dinner rises: Aldi and Lidl remain cheapest [Search result] – FT

O2 to make goodwill gesture after millions hit with data outage – Guardian

Comment and opinion

The double whammy – Young FI Guy

Doing nothing about a market decline – Oblivious Investor

The case for long-term investing optimism – Retirement Field Guide

How a City fund manager quit work early and still paid for his children’s education – EFC

Three reasons to hold long bonds as short rates rise – Pragmatic Capitalism

When things stop working – Of Dollars and Data

First impressions – Humble Dollar

Patient capital: The key to long-term wealth creation – Financial Samurai

There’s some evidence index fund growth is curbing performance chasing – Morningstar

Markets are spooked by a flatter US yield curve. Is this a better guide? – Bloomberg

The hedonic treadmill of smartphones – Millennial Revolution [via Zude]

Crypto Winter is here and its enthusiasts have only themselves to blame – Coindesk

It’s easy to start a company nowadays, but harder to learn from critics – Chris Sacca

Brexit

David Lammy’s brilliant anti-Brexit speech to the Commons [Video] – via YouTube

This government: From “No deal is better than…” to “Six-month traffic jams” – BBC

Norwegian politicians reject UK’s Norway-plus Brexit plan [I mean ‘plan’] – Guardian

YouGov poll: Only two Parliamentary constituencies support May’s Deal [Scroll down for graphic] – New European

Does the EU really need the UK more?  [Video] – TLDR via YouTube

Brexit: Facts vs fiction with Stephen Fry – via YouTube

Leave’s ‘Verdict Of The People’ nonsense in a nutshell – Alex Andreou via Twitter

Kindle book bargains

The Barcelona Way: How to Create a High-performance Culture by Damian Hughes – £1.09 on Kindle

Introducing Body Language by Glenn D. Wilson – Free for Prime Members

The 100-Year Life: Living and Working in an Age of Longevity by Lynda Gratton and Andrew Scott – £2.99 on Kindle

James Acaster’s Classic Scrapes by James Acaster – £0.99 on Kindle

Off our beat

How to enjoy life – Raptitude

Dicing with death – Evidence-based Investor

US scooter startups Bird and Lime are growing faster than Uber – Future Engine

“I feel inadequate around my girlfriend’s wealthy, high-achieving family” – Guardian

Endangered swift parrots pushed into tragic love triangles by sugar gliders [A headline for our times] – ABC News

It’s nothing like a broken leg: Done with the mental health conversation – Guardian

And finally…

“On one estimate, the adult human brain stores about one billion bits – a couple of orders of magnitude less than a low-end smartphone.”
– Nick Bostrom, Superintelligence: Paths, Dangers, Strategies

Like these links? Subscribe to get them every Friday!

1. For barely four times his salary, compared to over 10-times today.
2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator https://monevator.com/weekend-reading-feudal-dues/

How to stick to your saving goals

Much is written about how to save: “You there, you reckless spendthrift, come here and read my secret formula that will turn you into a prudent accumulator of wealth.”

Far less time is devoted to the difficulties of staying the course.

What are the techniques that will enable you to stick to your savings goals through the long days ahead? The times when your entire being just screams out for a foam-plumed latte with an extra fancy shot? Or those new shoes? Or that shiny, new car? How do you deal with the urge to splurge?

You need a defense-mechanism, my friend (and I’m looking in the mirror here).

Two tactics make the difference for me:

1. The long-term goal
2. My monthly savings target

The long-term goal

Knowing where I’m going helps keep my eyes fixed on the distant horizon. When I can imagine how wonderful journey’s end will be, I don’t resent every heavy plod that carries me one step closer.

My initial goal was an emergency fund. Then it became paying off the mortgage double-quick.

Other popular goals include:

• A comfortable retirement
• Income supplement
• Property purchase
• The kids’ education

Without my goal I’d have nothing to fight for. No ultimate dream that makes today’s sacrifice worthwhile.

But it’s important that dream is defined. That it’s a concrete number I can hit. Vague notions of ‘financial security’ are too woolly and abstract to sustain a long-term commitment. If the goal isn’t defined then you can’t draw psychic sustenance from beating your numbers.

Many are the days that I go into work and steel myself with the thought that the trials ahead will bring me a step closer to my endgame, provided I stick to my saving goals.

Note: Choosing too many savings goals is as fatal as failing to define any. When the enormity of the task dwarves your resources, then defeatism and failure will surely follow.

Savings targets

Defining your goal means setting a target. My long-term goal – financial independence and early retirement – was initially a large and distant one. A big problem can only be beaten if you break it up into many smaller problems that can be picked off one-by-one.

Creating the opportunity to win a string of handsome victories is critical to building morale, momentum, and ultimate success.

Set yourself:

1. A yearly target
2. A monthly target

If I can save (and therefore invest) X every month and Y every year then I’ll hit my target in W years.

Targets may have a bad rap in the NHS, but I’d never stay the course without them.

Knowing I have to hit my monthly target electrifies every spending decision I make. Every decision now has a purpose:

• If I don’t splash out then I’ve made progress towards my goal.
• If I do, it’s because I really want or need the thing I’ve bought.

Crucially, the target makes me think things through. I no longer make thoughtless impulse purchases that amount to money down the pan. (Well, not often anyway).

Budget control

One tool that helps me stick to saving goals is my Budget_Control spreadsheet.

It’s very simple. The spreadsheet:

Adds up income, subtracts spending, and shows what’s left.

It also sets predefined monthly limits for spending in cash and on credit cards. Knowing what those limits are – and checking how I’m doing every week using online accounts – enables me to ease off the spending throttle when I’m having a bad month.

I use monthly direct debits to siphon off cash into savings accounts and to a regular investment scheme. The Budget Control sheet enables me to watch with pleasure as that amount grows in the ‘saved’ row.

As is often noted, you soon learn to live within your new means when cash is hived off automatically. Human inertia can work in your favour!

How to use the Budget Control spreadsheet: You can download the spreadsheet via the link above. The numbers already in the sheet refer to the spending targets set for credit cards and cash. Choose your own. The cash category covers ATM withdrawals, BACS transfers or debit card payments. Most of my spending is on cashback credit cards (paid off in full every month), so most outgoings are tracked by knowing these numbers. I’m not one for painstakingly totting up every till receipt. Regular bills are paid on direct debit.

Any spare money (the surplus category in the spreadsheet) also gets saved and ultimately invested. This is a movable feast that depends on how successfully I’ve fought spending on cash and credit cards that month.

The tension between trying to stay within the spending limits and the desire to generate a savings surplus creates the drive to stick to the plan.

Tracking my saving and spending also enables me to set realistic saving goals that are within my means. Progress relies on those handsome victories referred to earlier. Constant defeat would soon stall the project.

Don’t forget too that target-adjustment will probably be required along the way as the rising tide of inflation laps at all our saving sandcastles.

Take it steady,

The Accumulator

from Monevator https://monevator.com/how-to-stick-to-saving-goals/

Choosing the best investment ISA

When it comes to savings, an ISA has been the go-to choice since the turn of the millennium. After all, the interest rates are similar to routine savings accounts, and the fact that there is no tax payable makes it a natural choice.

What some people don’t realise, however, is that there are other sorts of ISA available too. An investment ISA follows exactly the same principles as a cash ISA, in as much as it acts in the same way as any other investment fund, with the added bonus that there is no tax to be paid on earnings and interest.

As with cash ISAs, there are plenty of investment ISAs to choose from, ranging from traditional products in your high street bank to online offers from specialist providers like the one here. Here are some tips for choosing the investment ISA that will best meet your personal needs.

What is your risk appetite?

Risk versus return – it is Investment 101 and is the first thing every would-be investor needs to contemplate. From the high-volatility world of cryptocurrency where fabulous fortunes can be made or entire life savings can be wiped out, to government bonds that are highly predictable but will never generate more than a modest return, investment decisions are all about trade offs. Be clear about what risk appetite means and where you stand on the spectrum.

The same applies in your choice of investment ISA. Consider how much money you can afford to tie up in your investments and keep in mind that prices can go down as well as up. If you take the approach of never investing more than you can afford to lose, you can’t go wrong.

What is your preferred platform?

Traditionalists who prefer to keep their finances offline can take a tour of the high street and visit a choice of financial service providers and banks. But in the internet age, a growing number are choosing the increased choice and flexibility that online platforms bring. These are also a good option for those who prefer not to keep their money locked away, with many offering investments that can be cashed in in a matter of days.

Watch your allowances

Anyone can invest up to £20,000 in an ISA. There are a couple of points to keep in mind here. The first is that it applies to individuals, so if you and your partner want to jointly invest, that effectively gives you an allowance of £40,000 between you.

The second is to remember that this applies across all ISA products. Many of us have some savings tucked away in a cash ISA. If this applies to you, there is nothing to stop you taking out an investment ISA too, but keep in mind that the £20,000 limit applies to your total holdings. In other words, if you have £5,000 in a cash ISA, that leaves you £15,000 to put in an investments ISA. Any investments above this will be subject to the usual taxation rules.

from Finance Girl http://www.financegirl.co.uk/choosing-the-best-investment-isa/

Martin Lewis: How to go Christmas cold turkey

If there was a big red CANCEL CHRISTMAS button, would you press it? While the festive season is usually portrayed as unerringly joyous, not everyone feels that way. It can put stress on you and on your pockets. So, forgive me, but to relieve that pressure, and possibly increase happiness, it is worth considering going cold turkey.

from Martin Lewis' Blog https://blog.moneysavingexpert.com/2018/12/martin-lewis--how-to-go-christmas-cold-turkey/

What is a Challenger Bank?

The UK banking industry is changing. Consumers have more choice than ever before, in terms of both financial products and institutions. Technology is also contributing to the shift in the way we bank, allowing us to be more connected more of the time. Online banking, contactless payments, and app-only banks mean we’re thinking about money differently way. So what exactly is a challenger bank?

With start-ups and smaller companies attempting to disrupt the big high-street banks, the term challenger bank is ever more relevant. We take a look at what exactly they are, and why you might consider one.

Challenger Bank – A Definition
The UK banking sector has long been dominated by the ‘big four’ banks; Barclays, HSBC, Lloyds Banking Group (including Halifax, Lloyds Bank and Bank of Scotland) and RBS (including NatWest and Ulster Bank). But advances in technology, along with a relax in regulations, means that smaller banks and financial institutions are able to challenge the established order.

Many of these challenger banks are branchless and based around mobile apps. They’re appealing to those looking for convenience and real-time updates on their finances. Many offer current accounts, while others also provide savings, loans, and even mortgages.

The Benefits of Challenger Banks
In a recent survey by Which?, challenger banks rated among the top institutions in the country, proving their appeal to consumers. There is a multitude of reasons for this, from their ease of use to their range of features. Below, we’ve highlighted some of the main benefits of choosing a challenger bank:

Convenience. Challenger banks such as Monzo and Starling are incredibly easy to use. To qualify for an account and get a card, all you need to do is download the app and complete the quick registration process. From there, you can manage your finances on the go, make contactless payments, and see how much you’ve spent.

Real-time updates. Every time you spend with your account, you will get a notification through the mobile app. Not only does this mean you can keep tabs on your daily and monthly spending, but it also means that you’ll immediately be aware of any fraudulent activity on your account.

Customer service. Although there are no bricks and mortar branches, many challenger banks will put an emphasis on customer service. 24/7 phone lines and in-app support are common, allowing you to address any issues as soon as they arise.

Of course, there are also downsides to this kind of banking. You lose the personal touch, may not get any bonuses for switching or signing up, and potentially won’t get rates as good as those from established banks.

Choosing the Right Challenger Bank
There is an increasing number of challenger banks coming to the market, making a it a difficult task to compile a definitive list of the ‘best’ ones. Firms such as Monzo, Starling, and Atom often top lists of satisfaction surveys, but it really depends on what you’re looking for. Compare Banks has an in-depth article comparing some of the best mobile-only banks, which is an excellent place to start.

from Finance Girl http://www.financegirl.co.uk/what-is-a-challenger-bank/