OK, let's get practical. You are going to need to choose which kind of account you open. For almost everyone reading this, there are only two options. Well, two and a half options really – I’ll explain.
Choose Your Account
The two main options are a pension and an ISA. Both are very tax efficient, and for most of us, we will never need anything else. Let’s deal with the pension first. Before you get to retirement, a pension is merely a savings pot.
The idea is to invest as much in there as you can so that when you get to retirement and start drawing from it, you have enough to last you for the rest of your life. The government doesn't want you to be dependent on benefits in your old age, so the incentivise you to pay into a pension by giving you tax relief.
Essentially this means they give you free money to pay into a pension. If you pay in £80, HMRC will make it up to £100. And if you’re paying higher rate tax, you’ll get some money off your tax bill too. Sounds good right?
The flip side to this is that you can't access your pension until you are at least 55, and this age is going to rise in the future. You’ll also pay some tax on most of the money you take out in later life.
So obviously you shouldn't invest any money in a pension that you are going to need before that time. I have done other podcasts on pensions including a whole season called the pensions masterclass.
The other account you might choose is an ISA. Here, you get no incentive to pay in, but the account is always tax-free and usually there are no limits to what you can take out or when, or any penalties for doing so.
I said there were two and a half options. The half option is a subset of the ISA called a Lifetime ISA, or LISA (which is spelled like the name Lisa, but not pronounced that way – don’t let me catch you saying it that way!)
With a LISA, you do get an incentive to pay in – you get 25% added to your investment up to £4000 per year. But you have to pay a penalty if you use the money in your LISA for anything OTHER than buying your first home OR retirement after age 60.
You can’t open a LISA if you’re older than 40, and you can’t pay into one if you’re older than 50. If you’re employed, you’ll have a pension at work most likely, so most beginner investors should start with an ISA and, depending on your age and plans for the money, maybe a LISA.
Choose Your Platform
A platform is merely an online administration system which you use to view and organise your investment account. There are plenty of platforms available and some have more bells and whistles than others.
If you are starting out with a small investment amount, the costs don't matter too much. Once you amass more than say £25,000, you should pay more attention to the charges levied by your platform.
When you are starting out however, you want a system which is easy to use. Unfortunately, I am not permitted to make recommendations here. There are some good places to go for help. Boring Money is a really useful site for this kind of info. Also, you could ask a question in the MeaningfulMoney Facebook group.
Remember, you can always change your platform down the line, it isn’t a once-for-all-time decision, so don’t sweat it too much. The Boring Money site will point you in the right direction, and once you get established and have a greater understanding of how this all works, you can always review things later.
