You need to have a pot for your savings, so let's explore the options.
Start an S&S ISA
But you may want to build some wealth than you can put to use before ‘later in life.’ You can’t access pensions before the age of 55, and that age restriction is going up, so you’ll want some money you can get at before you reach pension age.
It’s also good to have more than one string to your bow – we call this diversification – so the other main account you want to open is a stocks and shares ISA.
ISA stands for Individual Savings Account and is an account which is always tax-free. There is a limit to how much you can pay in, but it’s £20,000 per person per year, which is plenty of headroom for most of us.
There are a few different types of ISA which is unnecessarily confusing. The only one that is worth considering is the stocks and shares ISA and its closely related cousin the stocks and shares Lifetime ISA.
This latter account gets special treatment and is designed to help you save towards your first home, or if you don’t use it for that, you can use it to save towards retirement.
I did an Ultimate Guide to Investing last season – a two-parter, no less! You can find part one here and part two here. I dealt with the accounts you need and those you don’t need in those episodes.
Combined, one person can save up to £20,000 per year into an ISA and £40,000 per year into a pension. Most of us will never get anywhere near saving that amount of money, and so for most of us, those really are the only two accounts we’ll ever need.
Build a Portfolio
The account is only the start though. What really matters for your long-term financial success is what’s INSIDE those accounts, that is, the assets you buy to make your money grow.
For money to grow, we need to buy stuff which is going to go up in value. If you buy something for £10 and sell it for £20, you’ve made a profit. You have MADE money. If that something also span off an income while you owned it and you used that income to buy more of the asset, then that’s extra money you’ve made and you’re getting the value of compounding.
It's all about assets. My buddy Andy Hart of Maven Money puts it the most succinctly. The most time-honoured way to make money is to buy and hold businesses and bricks, that is, shares in companies and property. Both those have been proven over decades, centuries even, to rise in value over time.
Investing is not about quick wins. You might get lucky with those now and again, but they’re generally the exception. Recent gains in cryptocurrencies are an example of this.
Quick wins are like gambling wins, they really could go either way, and we don’t want to gamble with our financial future. So, we invest for the long term and if we want to, we can experiment a little bit with aiming for quick wins as we go along.
It’s tricky to know where to start, but I’ve done a whole load of content on this subject. Start with the Ultimate Guides I’ve been mentioning throughout these blogs to help increase your understanding.
Consider investing in property too. It’s a unique asset class with benefits and potential pitfalls. Learning more about how investing in property works is simply a case of checking out The Property Podcast with Rob Bence and Rob Dix and their amazing resource at propertyhub.net.
Investing doesn’t need to be complicated. In fact, it’s better if it isn’t. It’s about buying lots of different kinds of things, all across the world, and staying the course.
