Saving and Investing Money
Invest Money
Savings and Investments are very important aspect of your financial well being. This article describes how I manage to save and invest whilst still being able to afford to splash out once it a while
Pension Plan
The easiest way to save money is through a pension plan. My employer currently contributes 8% of my salary into the scheme, whilst I top up with a further 3%. AS I am (fairly) young most of the investments are in higher risk places such as the stock market, emerging stock markets and some in property. As I approach retirement age I will gradually start shifting towards more cash orientated funds such as bonds and gilts.
Drawbacks of a Pension
Pensions are not the only way to save for retirement, and although they offer good tax breaks, you should look at other ways of saving too. Under the present Pension rules you can only access 25% of your pension pot as a lump sum, the rest has to be used ot buy an annuity. This reduces the flexibility of this saving plan. And of course, you cant access ANY of the money until you retire. Hence I only pay 3% of my income into my Pension
Regular Saving Plans for Stocks and Shares
My main savings plan comes from a regular contribution to a stocks and shares ISA. Again I am investing in high risk shares as I hope that in the long run these will prove to be more lucrative. I place around 10% of my income into a variety of funds, but most of them are in emerging stock markets and into Natural Resources, things like Oil companies, Gold, Steel and other materials. They may not be the most ethical companies in the world, but given the dwindling resources that we have I suspect that the price of these commodities can only go upwards in the long run. I invest on a monthly basis for two reasons:
Invest in a Cash ISA
At the end of each financial year I have a quick review and see if I have any spare cash floating around. If I do then this gets swept into an instant access ISA cash savings account (currently with Nationwide. I try to ensure that I do not place ALL of the spare money into this account as the idea is not to withdraw it again unless for a special purpose.
Investing in Property
A few months ago I bit the bullet and bought my first home. To start off with I had a plan of cashing in all my stocks, shares and ISA's to pay for the deposit. But then I started looking at mortgage rates, and they are ridiculously low at the moment. My cash ISA pays around 5%, yet my mortgage rate is only 4.6%. Therefore I would actually be WORSE off if I took money out of the ISA and used it to reduce my mortgage.
Therefore I took out the largest mortgage I could get my hands on and thus sunk a lot of confidence into the property market. However if I am lucky enough to have any money left over after ensuring all my ISA's are topped up for the year then I will use it to pay off some of the mortgage. 4.6% may be lower than an ISA savings rate, but even with an online savings account any taxed savings will fall well below this 4.6% (typically 3-4% can be obtained - after tax). Therefore there is no point having money stuck in a normal (non tax free) savings account when it could be used to reduce the interest payments on my mortgage.
Investment Summary
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