Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Having had our lives dominated by uncertainty over the past year because of the pandemic - and indeed you could argue, over the past few years because of Brexit - we know it pays to do what you can to prepare for every eventuality you can think of.
Here’s how to get ahead of the financial curve in 2021.
1. Prioritise your savings
With the pandemic having cost so many people their livelihoods, either temporarily because they have been furloughed or work in one of the sectors worst-hit by lockdown closures, or because their business has been forced to cease trading for good, the importance of having a financial buffer; a rainy day savings pot, has never been more evident.
At the start of 2020 life looked very different to how it looks as we head into 2021. And perhaps the lesson we have all learned is that when the worst does happen, it comes without any notice at all. That is why always being as prepared as you can be is essential when it comes to your financial planning.
You cannot always prevent a shock to the system, but what’s important is not to let these shocks throw your savings and investments entirely off course.
Make sure you use your annual ISA allowance. We can each save up to £20,000 in an ISA in the current tax year. As well as enabling you to build a substantial pot of money, which will grow over time, you also shelter all the gains from the tax man. The current tax year ends on 5 April, so take advantage of your ISA allowance before then.
The easiest way to work savings and investments into your household finances is to set up a small but regular monthly sum into your ISA. You can save as little as £50 a month and invest in any of the preferred funds in our Select 50. You choose where in the world you invest and what you invest in.
2. Put your new relationship with risk to good use
The coronavirus situation has thrown an entirely new spotlight on risk in the past few months. It has made us all become far more risk-aware, forcing us to re-think many things we used to take for granted, and made us learn to re-assess many of the risks around us.
Never before have day-to-day things like going to the supermarket, eating out, or meeting up with friends and family required the risk assessment skills we’ve all had to develop since the start of the year.
Without even realising it, we are all now probably getting much better at analysing risk and deciding how to deal with it. And that’s something that could come in handy in other areas of life.
When it comes to investing, “risk” is a word that tends to loom large. How many times have you heard someone say “Oh, investing’s too risky for me” or “I don’t like to take any risks with my money”? Even when the word itself isn’t used, there are a number of other words - like “volatility” or “uncertainty” that send equally large shivers up the spines of the self-proclaimed ‘risk-averse’.
We cannot eliminate risk altogether, in investing or in life, we all know that. And of course, there are no guarantees of success: the value of investments can go down as well as up, so you may get back less than you invest. But learning to assess the level of risk you need to take and balancing those risks against the potential rewards available to you, will stand you in good stead to reach your financial goals.
3. Keep an eye on the future
Don’t neglect your even-longer term savings. While it can be tempting to hit the pause button and wait for the current situation to pass; this could cost you in the long run. By staying invested, you make sure you keep your future plans on track. Losing out on six months, or a year or two, of investing could have a detrimental impact on your longer-term financial security.
The key is to remain focused on your longer-term plans and try not to let the current pandemic disrupt your future financial goals.
Our Investment Finder tool gives you an easy way to review our full range of over 4,000 investment options. This includes one of the widest fund ranges in the market, which can give you ways to invest in everything from shares and bonds to property and commodities. You can also invest directly in shares, plus investment trusts and ETFs. This could help you build a balanced portfolio that meets your needs.
Or if you’d like some help deciding where to invest, you could take a look at Select 50 – a list of funds chosen by our experts. Diversification and balance are key principles of Select 50, which covers everything from UK small caps and FTSE 100 ‘household names’ to gold and emerging markets. Alternatively, if you are focused on keeping the costs of investing down, you might want to consider our Select ETF list. This covers the same categories as the Select 50, but features lower-cost exchange-traded funds.
Then again, you could take a ‘one-stop shop’ approach with an investment such as the Fidelity Select 50 Balanced Fund. This holds a range of funds – predominantly chosen from Select 50 – in a single investment, so it works a bit like an ‘instant portfolio’. Everything is selected and monitored by the fund manager Ayesha Akbar, who targets relatively stable long-term growth with a medium level of risk, though, of course, there are no guarantees.
Our investment director Tom Stevenson has also just released his fund picks for 2021, which offer up five fund suggestions for where to invest in the coming year.
4. Make looking after No. 1 your priority
Having adequate pensions savings is essential as we’re living longer in retirement. And that’s especially the case for women who tend to live longer, on average, and yet so often let regular pension savings slide when they take a break to have a baby or find the onus is on them to care for an elderly relative.
Putting your hard-earned money to work and keeping it working hard is essential for your retirement success. If you already save the maximum you want to through your employer’s workplace pension scheme, or you’re self-employed, then in addition, you could consider saving into a SIPP.
With a Fidelity SIPP you can invest from as little as £20 each month. Any contributions you make the government boosts by 25%, so for every £80 you invest the HMRC adds £20 - and more if you’re a higher or additional rate taxpayer.
And if you are self-employed and have a limited company, consider making contributions from your limited company. These will then be considered employer contributions and these can usually be offset as a business expense which will reduce your potential corporation tax liability. However, unlike personal contributions, employer contributions do not attract tax relief.
5. Keep it simple
Keeping track of a number of different ISAs, savings pots and pensions can make keeping track of how your investments are doing and whether or not you’re on track with your goals, difficult. It might be better to consolidate your savings and investments, where it’s appropriate.
For instance, if you have a number of small pension pots from a number of previous employers it may be an idea to consolidate these into a SIPP. That way you can keep track of them more easily, you may also find that consolidating helps cut costs, plus you gain the ability to choose what your SIPP invests in.
6. Stay informed
And lastly, make sure you stay up to speed in 2021. If 2020 is anything to go by, there is likely to be a lot going on and plenty of questions that are likely to crop up.
You can start out on the right foot by putting your questions you have right now directly to our investment director Tom Stevenson in his first Investment Outlook webcast of the year. The video will be available from Thursday 7 January and you will be able to hear Tom’s latest Outlook for the year and get answers to the questions you have put to him. That week’s podcast with Ed Monk, will continue to answer questions we don’t get round to in the webcast.
Submit your questions here by Tuesday 5 January. I’ll be hosting the webcast and I will put as many of your questions as I can to Tom.
We will be back after a short break on Tuesday 29 December and in the meantime, Tom, Ed, Jonathan, Toby and I would like to wish you all a Happy Christmas.
Important Information: The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. The Select 50 is not advice or a recommendation to buy funds. Equally, if a fund you own is not on the Select 50, we’re not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. Eligibility to invest into an ISA or a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. Withdrawals from a pension product will not normally be possible until you reach age 55. Before making a decision to transfer investments, please read our transfer guide, Moving your investments to Fidelity, which explains the options available and gives you the information you need to know. It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our pension transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from an authorised financial adviser. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.
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