Take control of your investing
As time rolls gently by, more of us are taking responsibility for managing our pensions and investments. Hallelujah, I say.
Often, it's by choice but sometimes we're nudged into doing it – because our financial adviser has retired, we can't find anyone to look after our finances (an increasing problem) or our employer has asked us to determine where our company pensions are invested (highly likely if you're contributing into a so-called defined contribution).
Taking control of our investments can be empowering – and also (don't knock it) great fun. Managing your finances does not have to be a chore. Honestly.
It has also been made easier by the development of numerous internet-based trading platforms that now allow you to hold most of your investments under one umbrella – be they shares or funds. In turn, these holdings can be held on the platform within a tax-friendly Isa or self-invested personal pension (sipp).
AJ Bell, Alliance, Fidelity, Hargreaves Lansdown and Tilney Bestinvest are among the best, biggest and longest established platform providers although investors are spoilt for choice. New players come along every week.
Using a platform through which to hold your investments is enlightening.You can check how your portfolio is performing whenever you wish (provided you can remember the numerous passwords required) and, of course, you can change its constituents - and how much you are contributing – at the click of a button.
Scary? Yes. It's also addictive. I spend many an hour every month checking the progress of my modest Isa and Sipp, and contemplating whether I should spice things up by making a few changes.
Yet running your own investment portfolio does not come without its challenges.
Choosing the right platform in terms of cost and suitability is the first big hurdle. A lot will depend on how much you want to invest – and the funds you have available to transfer on to the platform - although you won't go far wrong with any of the big providers I've already mentioned.
Then, probably more crucially, there is the key issue of which investment funds to invest in. Most platforms now try to help out by providing lists of 'recommended' funds that tick all their boxes (in terms of strength of past performance record, quality of manager at the helm and value for money).
Many will also 'guide' you – if indeed you want guiding – towards ready-made fund portfolios, built for investors on the basis of their attitude towards risk. Useful, although it slightly defeats the object of the exercise – to self-manage your investments.
What is key is that if you go down the self-investment route, you keep a close eye on your investments. Hargreaves Lansdown recently said that as much as £400 billion is currently held in 'dinosaur' funds – investments no longer fit for purpose.
These dinosaurs (of Jurassic Park proportion) include with-profits funds, stakeholder pensions and a whole raft of poorly performing investment funds. Many investors, says Hargreaves, could do better by transferring out and seeking pastures new. Absolutely.
There is an argument – one that gains momentum every year – that those of us looking after our own money should now do no more than build a portfolio of trackers: funds that faithfully track a specific market or sector.
Such 'passive' vehicles, often bought in the form of an exchange traded fund, are low cost and cut out the risk of under- performance – a plague that affects many an actively managed investment fund.
Yet passives are only part of the solution to effective self-investment management. Provided you are prepared to do a little research, there are plenty of active funds around that have built formidable performance records.
Indeed, a good starting point would be to take a look at what Neil Woodford, one of Britain's most successful fund managers, has done in his first year at the helm of Woodford Equity Income.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.