• A better financial 2012 in four easy steps
With the New Year already here and people trying to stick to their New Year’s resolutions, Fidelity Worldwide Investment is urging the nation to take control of their savings. Although there has been market volatility and a feeling of doom and gloom surrounding the economy savers need to remember that now more than ever it is important to make their money go further in the most tax efficient way.
Tom Stevenson, Investment Director at Fidelity Worldwide Investment comments: “There are many things that people tend to add to their list of New Year resolutions but I doubt a financial review would be one of them, however, in the current climate it is essential to move your financial well being up the priority list.
1. Set your financial goals
Tom Stevenson: “Everybody knows that they should be saving but when there are many pressures on budgets putting aside that extra £50 a month rather than buying that new dress or having that takeaway can seem like a chore. If however you can picture what you are saving for; your wedding, a new house, school fees, a car then it is much easier to find the motivation to put money aside and budget accordingly. Using budgeting tools can help and Fidelity Worldwide Investment offers a number of tools to assist investors. Do you dream of being mortgage free? Fidelity has a mortgage calculator which will give you a realistic picture of how long it could take you to pay off your mortgage by investing in an ISA*. Do you picture yourself retiring to Spain or being able to take early retirement? Fidelity has a tool which shows you the steps that you can take to try and make this possible **.”
2. Protect your savings from the tax man
When putting money away to achieve your goals it is important that you keep as much of it as you can and protect it from the tax man.
Tom Stevenson explains: “Investments may produce an income and increase in value. The profit you make from any capital growth is generally subject to capital gains tax if it exceeds your annual tax-free allowance (£10,600 for tax year 2011/12). If these investments are inside an ISA, a tax efficient wrapper, there is no tax on any of the income you receive and in addition, you pay no tax on capital gains arising from your ISA investments. An ISA allows you to save and invest your money without being taxed on the returns from your investment.
3. Don’t let the market volatility put you off investing – still do your ISA
Tom Stevenson comments: “In these austere times savers really should ensure that they do not miss out on the tax relief that is rightfully theirs and open an ISA. Although savers may think an ISA is a benefit they can afford to forgo, they should remember that often the best time to invest is when the outlook is unattractive and after a period in which investments have not fared well. The benefit of using your allowance, or as much of it as you can afford, each year is that you will increase your savings throughout the stock market cycle buying more when markets are cheap and allowing the magic of compounding to work on your savings for longer. The important thing is to ensure the allowance is used and investors’ savings are protected from the tax man. If you are unsure where to invest, place your money in a cash park to protect your ISA allowance until you know where you want it to invest it.”
4. Every little helps so don’t put it off!
The sooner you start investing, the sooner you will realise your financial goals. This is due to the magic of compounding.
Tom Stevenson comments: “Compounding is a remarkably powerful force and the foundation of investment success. An understanding of the magic of compounding should underpin everyone’s long term saving plans – and the younger people can grasp its phenomenal power the better.
“Compounding is a very simple concept. Increase a sum of money by the same percentage each year and the monetary value of each annual increase becomes progressively greater. If, for example, you start with £1,000 and grow your money by 10% a year, the first’s year’s increase will amount to £100. The following year, however, the same 10% rise will be worth £110 because the starting capital is greater. The most important aspect of compounding is, however, time. Continue these annual increases at 10% a year for 20 years and the 10% increase in the final year will amount to £600 – six times the first year’s increase***.”