The information provided in this article was accurate at the time of publishing and should be read in the context of the date it was published. Views in this article are those of the author alone and do not necessarily represent the view of Scottish Friendly.
Investing for your family’s future
When it comes to investing, there’s no time like the present. Whether you want to put some money away for your retirement, a round-the-world trip, or to help with your child’s university fees, the sooner you start, the better.
So where to begin? In this article, we look at some investment basics you should consider before deciding what to do with your money.
First things first – how’s your financial position
Can you afford your mortgage payments? Do you have a pension in place? Do you have a little cash tucked away for a rainy day? Thinking about these things will help you understand if you’re ready to invest —and how much you can afford.
Risk versus return – weigh it up carefully
Heard the one about the man who made millions on the stock market? Or the horror story about the guy who lost his life savings overnight?
These are obviously extreme cases and it’s impossible to tell you the exact return you may get in the future, whatever funds you select. But generally speaking, higher returns are only ever a reward for taking on more risk.
Want to play it safe? Government bonds offer lower risk but are unlikely to make you rich quickly. They are linked to an index of bonds issued by the UK Government. However, as with all investments, your cash in value can rise and fall on a daily basis and you could get back less than you have paid in. You should also be aware that trying to ‘play it safe’ with a lower risk fund can actually be risky in itself. The fund may not perform well enough to negate the effects of charges and there is always the possibility that you could be left with a paltry return if any.
Got time to invest?
Investing can be time-consuming, particularly if you decide to trade on the stock market yourself. For a start, there’s the research — checking the financial position of the companies you want to invest in. Then there’s the actual buying, monitoring and selling of shares.
Investing in the stock market can offer greater growth potential. But as we all know, with stocks and shares, the value of your money can go down as well as up.
If trading yourself sounds like a step too far, you may want to consider a ready-made fund linked to the stock market, but managed by experts on your behalf.
With the UK Active Fund, you can give your money the long term growth potential of the UK stock market. Stocks and shares in this fund are selected by an expert fund manager with the aim of outperforming the market. In the case of this fund, it’s performance will largely depend on the movement in the UK stock market along with the ability of the fund manager to select stocks and shares that grow.
UK Active Fund is a higher risk and reward fund which is linked to an actively managed investment in UK stocks and shares. But remember, your cash in value can rise and fall on a daily basis and you could get back less than you have paid in.
My Choice (ISA) and My Plans
Scottish Friendly’s My Choice (ISA), currently offers a range of 4 funds, including both a Government Bond Fund (lower risk and reward) and the UK Active Fund (actively managed / higher risk and reward). With My Choice (ISA) you can choose the proportion of your investment which you wish to allocate to different funds with different levels of risk. So, although you’re not trading directly, you still have a certain level of control over your investment.
If investing for the family, and using My Plans, you will also have the option to tag different life policies within your Scottish Friendly ISA with different family members names. That way everyone can be sure they get their fair share!
How soon will you need your money back?
Most investment products recommend that you invest for a minimum term – the idea is that the longer you invest, the more potential that your money may grow. So before deciding on a product, think about when you’ll need your money back.
Beat the taxman
The bad news: Taxation can take huge chunks out of any returns you make on investments. The good news: there’s a whole range of tax-efficient ‘wrappers’ out there that shield your returns from the taxman. These include pension plans, workplace share schemes and individual savings accounts (ISAs).
Scottish Friendly’s My Choice (ISA) and Junior ISA (for children) are both stocks and shares (investment) ISAs. Either way, you won’t pay any income tax or capital gains tax on any profits you make (other than tax on dividends from UK shares). Remember tax treatment depends on your individual circumstances and tax law may change in future.
So now you know the basics, why not get your family investment plan in place? Even £10 a month can soon add up when you choose an investment type that fits your needs.
No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand.