Savings & Investments
sav-ings | say’VINGS | In-vest-ment | in’VESTment
Either saving on a regular basis to build up capital for the future or having acquired wealth and looking for competitive returns and tax efficiency
What are the risks?
The value of investments and the income they produce can go down as well as rise. You may get back less than you invested.
Having access to an ‘emergency fund’ – money set aside for those ‘rainy’ days should be another cornerstone for ‘risk free’ planning!
During the course of our working life we’ll earn a small fortune – how much of this will we have been able to save? Consider the current National Average Earnings figure of £26,208* – over a 40 year period, with no pay rises – well earn over one million pounds – £1,048,320! Hopefully we’ll have been able to enjoy a full & rewarding life but how much of this fortune will we be able to see in real cash terms..?
And having created such wealth and having capital to invest is certainly a rewarding place to be, but it also presents concerns such as…
- The risk of poor returns and losing real value…
- The risk of having too many eggs in the one basket…
- The risk of generating insufficient income…
- The risk of fluctuating values…
- Being over charged… paying unnecessary tax…
*Source the Office for National Statistics (ONS) – Average Weekly Wage (across economy) August 2016
The solution might include…
Creating a household budget that balances income & expenditure
Including a regular amount to save in a Cash ISA earmarked as an ‘emergency fund’
Having a plan to repay debts incurring high interest charges
Having plans & goals – visualising when capital could be required… a deposit for a house… a wedding… children’s education fund.
And with capital to invest – understanding what we’re looking to achieve… growth… income… tax efficiency… avoid risk?
Things to consider…
Are we taking full advantage of the tax allowances available?
Can we achieve our goals without taking ‘too much’ risk . . . how much is too much?
What is our ‘capacity for loss’..?
The future value of our savings & investments is combination of the performance returns AND charges – do we know how they’re doing?
What ‘bench marks’ are we using to keep an eye on our investments?
Our top tip...
The Rule of 72 . . . states that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72.
Example: If you would like to know how long it would take to double your money with a 3.6% return, divide 3.6 in to 72 and you get 20 years.