How to make your ISA do more in 2020
A Stocks & Shares ISA is a popular investment, offering a way to invest up to £20,000 tax-free in the current tax year.
If your Stocks & Shares ISA is invested in a True Potential Portfolio you’ll benefit from global diversification which aims to reduce risk and maximise returns. This means growth in your investment has the potential to outperform returns of Cash ISAs, which are linked to interest rates that are below the rate of inflation. In other words, money invested in Cash ISAs is often losing value, as the price of everyday goods are growing quicker than your savings.
Your Stocks & Shares ISA’s growth is linked to the performance of the Portfolio you are invested in. Here are some simple steps to make sure you get the most out of your investment in 2020.
How much can you invest?
The first step when thinking about your personal finances is to fully understand your current saving and spending habits. Look at your disposable income, the money left over after you’ve paid for needs such as bills and food. How much disposable income could you commit to investing? Could you budget and cut off some of the spending on wants, in turn investing that extra money into your Stocks & Shares ISA?
By investing as early as possible, and leaving your investment for as long as possible, you give yourself the opportunity to benefit from compound growth. This is growth on your original investment, followed by growth on growth and so on. Simply investing a little bit more could make a big difference. Start 2020 with a better understanding of your spending habits and identify any areas of unnecessary expenditure that you could consider investing in a Stocks and Shares ISA.
Change your perspective
Too often people fall into the trap of seeing an investment as a cost, a parting with their money at the start of the month. Change your perspective, look at investing from a different angle in 2020. In reality, you aren’t parting with your money, you are paying yourself in the future.
Set your goal
Successful investors start with a goal. What is it you are investing for, what is the sum of money you want to achieve, and when do you want to achieve it by?
The answers to these questions will determine how much you need to invest and how often. With True Potential’s award-winning technology, you’ll be able to plot out how much investment you’ll have to make and for how long to achieve your goal based on an assumed Portfolio growth rate. Log in now to review if you are on track with your goal.
Stay disciplined towards your goal
Once you’ve established your goal, it is key you don’t waiver from it.
Investing less, or missing a month, means your goal is going to be delayed. Decide a set sum of your disposable income and commit it to your investment at the start of each month, this is paying yourself first as you are in a way writing yourself a pay cheque which you’ll cash in for a greater amount in the future.
Staying disciplined to a set investment amount is easier than you think…
Automate your investment (Pound cost averaging)
Did you know that you can add a direct debit to your investment? This makes it easy to pay yourself first, as your investment goes out of your account at the start of each month in the same way your other essential transactions do.
This means you invest at regular intervals rather than the occasional lump sum. The benefit of this is you end up purchasing more units of a fund when prices are low and less when prices are high, reducing the average price you pay for those units over the long-term.
Invest the maximum (Tax relief)
You can invest up to £20,000 in the current tax year. If you are in a position to do so, try and invest as much of this amount as possible over the April to April period.
By using up your ISA allowance, you can achieve maximum tax efficiency for your investments. With an ISA, you do not pay any Capital Gains Tax or Income Tax on any income generated, apart from dividends on ISA investments.
Investments left in an ISA will continue to reap tax-free benefits. Investing as much as you can each tax year, and keeping this investment for the long term, could help you to grow your money towards your goals.
You can’t carry your ISA allowance over, so to do more with your money use your allowance up before April 5 and start with a clean slate in the new tax year beginning on April 6.
Make sure you are in the right Portfolio
You’ve established how much you can afford to invest in your Stocks & Shares ISA and are sticking to a disciplined plan to achieve your goal. Beyond this, the most important thing to consider is the type of Portfolio you are invested in.
A new year is a good time to consider how your circumstances have changed, and to review if your Portfolio choice is still the most appropriate choice for you.
It isn’t timing the markets, it is time in the markets. You can never guess when the markets are going to fall and rise, but by staying invested for a long period you have the opportunity benefit from any rises and the compound growth created. Past performance doesn’t count for anything, but facts are facts and history shows that markets are likely to rise over many years.
Investing in a Stocks & Shares ISA should always be for at least five years, as this gives you time to ride out fluctuations in the markets. Staying invested for even longer than that gives your money more time to benefit from compound growth.
Do more with your money invest in your Stocks & Shares ISA today