Now you know how much you’re going to save and what for, you need to decide where to put that money.
Choose Your Wrappers
For most of us, pensions and ISAs are all we need to build wealth. There’s so much flexibility in those two accounts now that you’re unlikely to need anything else. Of course, the Lifetime ISA is a subset of the ISA family and worth considering if your goal is to buy your first home or retire.
Simply put, it’s likely that ISAs are going to be for shower-and medium-term money, and pensions for retirement funding. As you get further along in your wealth-building journey, you may supplement pension savings with ISA contributions.
As far as the choice of which ISA you choose (stocks and shares ISA, not cash ISA), that’s a question about which platform is providing it. Costs are a factor here, such as things like dealing fees. If you’re like most people and don’t have great deal of interest in investing as such, and just want to get the money to work – then just choose a platform, as you can always shift later on if you feel the need.
My long-time podcast sponsors, 7IM, have launched a MeaningfulMoney branded investment platform, which is perfect for those who just want to get on with it. Choose your wrapper (ISA or GIA), divvy it up according to risk profile and press go.
If you’re looking elsewhere and you’re starting out, it’s likely that a platform which charges you a percentage of your money as a fee will work out cheaper than a flat-fee platform. But as the money grows this will change. Understand the charges you’re paying and factor them in.
You also need to choose a fund to match your timescale, but it’s a topic that’s too big to cover in a blog post. It’s important for you to understand though, so I’m going to point you to one of my most popular episodes ever – ‘How to Choose a Multi-Asset Fund’, which you can find here.
Obviously, you should review things regularly, at least once a year and maybe every six months, although it’s up to you. This is less about reviewing investment performance, and more about making sure that the timescales are still on track.
For example, after a year of investing, all your goals should be a year’s closer – does this mean you should adjust the risk profile, according to the risk-flex idea? If so, do you need to make some inter-account moves of money, or make some fund switches?
Make a point of setting down to do this. It needn’t take long, but it is far better to be intentional about this than find things completely out of whack because you’ve let things drift. You could find yourself in a higher-risk-than-you-should-be-taking situation, and a nasty dip in markets could mean a complete reassessment of your plans.
In the spirit of providing tools and resources for you, I have created a calculator to help you with some planning. It’s in Excel format – you should be able to open this in Google Docs for free if you don’t have Excel installed.