Choosing how to invest, and then what to invest in, are decisions that every saver has to make. But have you thought about why you want to invest?
How to choose a product that is best for you
Although thinking about why you want to invest may seem obvious, it’s one of the most important factors to consider. Your reasons for investing could warrant different savings products and determine the best way for you to invest. And with many of us having more than one reason for investing, having more than one product might be a good investment strategy too.
No matter what’s inspired your need to invest, you may want to consider mapping how you invest to why you want to invest. This way you can have a much better chance of sticking to your guns and seeing your saving aspirations come to life.
One size doesn’t fit all, but there are a few key products that can provide the right foundation
While sticking to one investment product might be right for you or easier to manage at the stage you’re at in your saving journey, you aren’t limited to just one product – and this is an important consideration if you have more than one reason to save.
If you are going to pick more than one vehicle through which you invest, you will need to be mindful of things such as your ISA allowance – i.e. the amount you can spread across different ISAs – the annual and lifetime allowances for pension savings, and your individual tax circumstances. It’s also sensible to have access to emergency savings rather than putting all of your money into the market via an ISA or into a pension that you won’t be able to access until you choose to retire or reach state pension age. After you’ve thought through all of this, deciding what mix of products works for your needs is a good place to begin.
At Legal & General, we offer a stocks and shares ISA, junior ISA and personal pension. In combination or individually they all offer straightforward saving that can become an easy addition to your financial planning and the management of your money.
Stocks and shares ISA
Stocks and shares ISAs give you the opportunity to invest up to £20,000 (2018/2019 and 2019/20 tax years), tax-efficiently. Any returns on the investments you make through your stocks and shares ISA are not subject to UK Capital Gains Tax or Income tax. You can only pay into one stocks and shares ISA a year, but you can spread your £20,000 allowance across a number of other ISAs too, including a cash ISA. If you have children, you could also invest in a junior ISA on their behalf.
Investing is another way to save and if you’re investing for five years or more, you have a better chance of outperforming the rates paid on cash savings, although there is a risk the value of your investments could fall and investments are not as secure as cash.
With stocks and shares ISAs, a popular way of investing is buying investment funds. Investment funds pool your money with other investors and then invest your money for you. You can choose a fund based on your attitude to risk, where you want to invest your money and what you want your money to do. You can even buy funds that spread your money across different types of investments on your behalf.
The Legal & General Personal Pension aims to help you grow your savings so that you have a pot to live off in retirement and can be a viable alternative if you aren’t already in an eligible workplace pension scheme. However, if you are in a workplace scheme and want to top up your savings but it’s not possible to make further contributions to your workplace pension, a personal pension can act as an additional saving facility. You get to decide what your pension is invested in and we offer a number of Legal & General funds that have been selected especially for pension saving for you to choose from.
As with a workplace pension, if you choose to pay into a personal pension the Government offers you incentives to save. These incentives include tax relief on your personal pension contributions - we automatically claim basic rate tax relief from the government on your behalf and add it to your pension savings. Higher rate or additional rate tax relief may also be claimable through your self-assessment tax return, if applicable to you. A personal pension also provides freedom from Income Tax and Capital Gains Tax on any returns generated by the fund you’re invested in and the possibility of taking a lump sum tax-free when you reach retirement (normally you can take 25% of your pension pot as tax-free cash, the rest is subject to Income Tax).
Junior ISA (JISA)
A junior ISA is similar to a stocks and shares ISA but is designed to help you save for a child or children so that when they turn 18, they have a chunk of savings ready to put to good use or re-invest. A junior ISA gives you the chance to invest up to £4,260 (2018/2019 and £4,368 in 2019/2020) without incurring Capital Gains Tax or tax on the returns your investments may generate.
Parents or legal guardians can open a Junior ISA the moment their child is born and with the tax benefits available you have more of a possibility of growing the money you invest for your child meaningfully (basically providing savings on your savings). Other family members can also pay into the JISA for your child, but only parents or legal guardians can open a Junior ISA for a child.
If you’re a seasoned investor and want to learn more about the range of funds we have available or how to combine investment products, you can read our article on investing for experienced investors here or visit the blog.
Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest. The tax efficiency of ISAs and pensions is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances.