Investment Planning

Key Takeaways

• Investment planning involves utilising your ISA allowance and considering your risk tolerance to create a financial plan that helps your savings grow.
• Cash ISAs involve no investment risk and are offered by banks and building societies. Stocks & Shares ISAs allow you to invest in the stock market.
• Understand that you may get back less than what you initially invested. It's important to understand that Investments can go up and down in value.
• When starting investment planning, meet with a financial adviser to discuss your goals, risk tolerance, and financial situation. Expect recommendations tailored to your circumstances, and remember to regularly review and adjust your investment plan.

What is Investment Planning?

Investment Planning is an advised service geared towards making your money work hard for you. By utilising your ISA allowance and considering your attitude to risk, a Financial Adviser can put in place a financial plan to help your savings grow.

However, be aware that with all investments, your investment's value can fall and go up. You may end up returning less than you initially put in. A Financial adviser can guide you through all your options and you are under no obligation to take any risk you don't want to.

There is a difference between having savings for a rainy day and planning an investment. Opening a savings account will allow you to keep money aside until you need to use them, whereas an investment will be for the intention of growing your money. 

When reviewing options for your savings and where to put your money for the short-term, cash-based products will likely be the best starting place. If you are looking to save for a longer term. You can consider obtaining further information about investing for growth.

How Does Investment Planning Work?

Initially, meeting with a financial adviser is the place to start with your investment planning. You will be asked a series of questions to determine your goals, your mid-term to long-term savings as well as your appetite for risk. Following that, you can expect a recommendation based on your circumstances on how best to invest your money. 

Here is what you can expect from an investment planning meeting:

• Set your financial goals: Decide what you want to achieve with your money, like saving for retirement or buying a house.
• Determine your risk tolerance: Understand how comfortable you are with taking risks in your investments.
• Assess your current financial situation: Evaluate your income, expenses, assets, and debts to understand how much you can invest.
• Allocate your investments: Decide how to divide your money among different types of investments, like stocks, bonds, or real estate.
• Choose specific investments: Select the individual stocks, mutual funds, or other investment options based on your preferences and goals.
• Monitor and rebalance: Keep an eye on your investments and adjust them periodically to maintain your desired balance.
• Consider taxes: Understand the tax implications of your investments and make tax-efficient choices. This can include mitigating the 60% tax trap for people earning over £100k.
• Review and update: Regularly review your investment plan and make changes as needed to stay on track with your goals.

Investment Planning and Tax

The government has set a personal savings tax allowance. That means you can earn interest up to a certain limit, depending on your tax bracket, without paying tax.

Personal Savings Allowances

The current personal savings allowance allows interest earnings up to:

• £1,000 in interest for a basic rate taxpayer,
• £500 for a higher rate taxpayer.
• There is no allowance for an additional rate taxpayer.

This is subject to change. If you are on track to earn more than the personal savings allowance, you can look into options around ISAs. Interest earned from savings in an ISA is tax-free.

What's an ISA?

An ISA (Individual Savings Account) is a tax-free savings account approved by the government. You can contribute up to £20,000 each year into an ISA.

The term "ISA wrapper" refers to the tax-free allowance provided for savings. This wrapper can be applied to cash-based accounts or stocks & shares.

Cash ISA:

A cash ISA involves no investment risk and is typically offered by banks and building societies. It can be flexible or fixed, meaning you may face a penalty for early withdrawal before the maturity period.

Stocks & Shares ISA:

A stocks & shares ISA allows you to manage investments yourself through a trading account or have them managed by a wealth management firm. Financial advisers may offer services for managing stocks & shares ISAs. You can invest up to £20,000 annually in the stock market using a stocks & shares ISA.

The ISA allowance is renewed every tax year. However, if you withdraw funds from your ISA, you cannot replenish the amount if you have already utilised the annual allowance.

Flexible ISA:

Since 2016, some ISAs have become flexible ISAs. With a flexible ISA, you can withdraw funds without affecting your ISA allowance, as long as you replace the withdrawn amount by the end of the tax year.

The flexibility feature is typically specified in the terms of your ISA. Check with your provider to confirm if your ISA is a flexible ISA. This flexibility applies to both cash ISAs and stocks & shares ISAs.

Note that flexible ISAs are not available for Help to Buy ISAs, lifetime ISAs, or Junior ISAs.

Other types of Savings Accounts

ISAs aren't the only way to save but they are a tax-efficient way of saving.

If you are looking for other options for savings and understand the tax implications, there are some other types of savings accounts to familiarise yourself with:

Fixed Rate Bonds/Term Deposits

Fixed-rate bonds or Term deposits usually offer the best rate for cash savings.

You can lock your money away for a fixed period in return for a higher interest rate.

With a fixed-rate bond savings account, you get the peace of mind that your interest rate won't change throughout the fixed period. This is ideal if you are looking for longer-term savings from 1-year fixed bond accounts to 5-year fixed bond accounts.

Notice Accounts

Variable interest with access to your funds after a notice period. Keep your account open for as long as you want. Choose a notice period that works best for you.

Easy instant Access

Variable interest. Instant access. Flexibility over when you top up and withdraw funds.

The FSCS (Financial Services Compensation Scheme)

When searching for a new savings account provider, it's important to prioritise their Financial Services Compensation Scheme (FSCS) protection.

The FSCS is a system in the UK that serves as deposit insurance and investor compensation for customers of authorised financial services firms.

Why is this important? Well, the FSCS can provide compensation if a provider is unable, or likely to be unable, to pay claims against them. This means that if you have an account with an FSCS-protected provider and they go bankrupt or cannot return your funds, the FSCS can step in to protect your money.

The coverage limit offered by the FSCS is up to £85,000 per provider. This means that if you have less than or equal to £85,000 with a particular provider, your money is safeguarded by the FSCS.

To ensure the safety of your funds, always look for providers that are FSCS protected when considering a savings account. You can find more detailed information about how the FSCS operates on their official website.

By being aware of the FSCS protection and choosing an FSCS-protected provider, you can have peace of mind knowing that your savings would be covered in the event of the account provider's financial troubles.

Getting Started With Investment Planning

To get started with investment planning, begin by setting clear financial goals and understanding your risk tolerance. Assess your current financial situation and research different investment options. Seek guidance from a financial adviser who can provide personalised advice. Create a diversified investment portfolio and regularly monitor its performance. Review and update your investment plan periodically to ensure it aligns with your goals. Starting early and gradually increasing your investments can help you work towards long-term financial success.

If you're looking to manage your own investments without advice, consider DIY Investing.