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Many of us set New Year’s resolutions for ourselves. And equally, many of us are too poor to keep those resolutions. Going to the gym, losing weight, boozing less, training for a half marathon, learning a foreign language – the spirit is willing, but the flesh is too much.
Fewer people set financial resolutions. And even fewer set investment resolutions. But many people should – especially the latter, the investment resolution.
Because over and over again, I come across people who openly tell me that they know they should do something with their investments, but never get around to it.
But ironically, many of these investment resolutions are much easier to achieve than the exciting dreams of losing weight, getting fit, learning a language or training for a half marathon.
And because they don’t require constant effort over a long period of time. You don’t have to get up at 5 in the morning to go to the gym, and you can eat and drink what you like.
Let’s have a look.
Pick up some quick diversification
Investment trusts are quoted equity vehicles – shares, in other words – which, simply put, invest in other quoted companies. Some aim for capital growth, some aim for fixed income, some aim to do both, and some aim to invest in specific overseas regions – Asia Pacific, say, or North America.
The honorable City of London Investment Trustfor example, as a trust that focuses on income, it holds the largest investment in ten shell, AstraZeneca, British American Tobacco, Unileverand HSBC. It dates back to 1891, and at current share prices it yields 4.7%.
In general, trusts’ investment fees are quite reasonable, and lower than those charged by open-end investment funds. I caught quite a few.
Spread your wings overseas
The UK’s share of the world’s total equity market is tiny – under 5%, last I looked. But many investors remain focused on UK stocks only. Of course, many of the FTSE 100 have high levels of overseas earnings – think Shell, HSBC, GSK, Rio Tinto for instance – but that’s not quite the same thing.
Not least because many industries are simply not represented on the London Stock Exchange, meaning that London-focused investors cannot find out. Well, you are can buy shares in companies such as Boeing, Mercedes-Benzand Nestlé directly – most UK brokers make it quite easy to buy foreign shares – but the tax situation can get a bit messy.
An easier option: buy a special investment trust in an offshore company. An overseas company anywhere, or an overseas company located in a certain region, or a certain industry. There are no tax complications, and in one section you will often get exposure to 50-100 companies.
Invest through SIPP
Finally, it is not a resolution of what to buy, but a resolution of where to invest.
Many investors invest through regular brokerage accounts, either from major UK stockbrokers, or from one of the crop of – often foreign-owned – ‘challenger’ brokers competing in the ultra-low commission fee segment of the market.
It’s great for beginner investors, but for investors who are tax residents in the UK, there are also ISA and SIPP options as a form of tax-brokered account.
With an ISA, you don’t pay income tax or capital gains tax on investments made through an ISA account, saving you not only money, but also time spent tracking your investments and calculating applicable taxes. And with a SIPP – which is a pension product – you get tax relief on the contributions you make (but no income withdrawals).
Today, ISAs are well-known, thanks to the ISA savings accounts offered by major UK banks and building societies. But SIPP is a route to invest and buy shares, less so. And in fact, not every broker even offers a SIPP: ‘challenger’ brokers often don’t.
But the tax advantages are very apparent: under current UK tax law, you get tax relief at the highest marginal rate. So, quite simply, every time you invest money in a SIPP, you’ll get ‘free cash’ – tax relief – into your account around six weeks later, available to invest. Put in £1,000, and you’ll get £250. (In other words, 20% of £1,250.)
Set up a direct debit, keep the money flowing – and when you’re ready, buy Shares for 25% more money than you’ve subscribed to, courtesy of HM Treasury. Of course, that’s retirement savings, and it doesn’t become available until close to retirement. But it’s still a fairly easy way to make a nest egg.
What’s not to like?
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