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Ethical investing: a short guide for 2022-23

By | Investment Planning

How can you grow your wealth whilst putting it towards good causes? Ethical investing – often now called ESG investing (environment, society and governance) – seeks to answer that question. In this guide, our team at WMM explains how ethical investing works, its main forms in 2022 and ways that it can integrate into an investment portfolio. 

 

How ethical investing works

Traditionally, companies were mainly selected for their potential to generate strong returns at acceptable risk. In recent years, however, investors have also sought to choose companies which fit with their personal moral code. This might involve focusing on areas such as workers’ rights and climate change, perhaps also avoiding areas like animal testing and arms. 

Here, an investor can choose individual company stocks to build a portfolio that meets their criteria. Yet ESG funds are now increasingly available – allowing investors to pool their money into multiple ethical companies. Most of these funds are actively managed, but demand for (typically) cheaper “passive” ESG funds is rapidly outpacing them.

 

Types of ethical investing

There are various terms used to describe ethical investing, many that are synonymous or describe a specific aspect. “Green investing”, for instance, tends to focus on environmental causes when investing (e.g. carbon emission reduction). Socially responsible investing, conversely, can refer more specifically to concentrating on positive impact within local communities – e.g. ensuring a healthy water supply in developing countries where a company supply chain operates. 

This highlights why it is important to not just include an “ESG investment” in your portfolio due to its labelling. Rather, investors should explore the methodologies, priorities and strategies of a fund (and its manager) before committing to it. A fund that merely excludes arms and tobacco from its holdings but describes itself as “sustainable”, for example, may not justify the label if it does not include any sustainable assets. 

 

Ways to adopt ethical investing in a portfolio

Investors will differ on which aspects of ethical investing they feel are most important, and how ESG investing should be brought into their portfolios. There can be a difficult balancing act, as you should not lose sight of the fact that you want to generate a return. ESG investing is not the same as giving to charity. 

Fortunately, investing ethically does not need to involve compromising on quality. Indeed, there is some evidence suggesting that ESG investing can generate higher returns. Some investors may want to “dip their toes” into including more ethical investments in their portfolio. Others may want to take a more “radical” approach and focus primarily on ESG investments. Here is an overview of some different ESG strategies to discuss with your financial planner:

  • Exclusionary screening. Here, a fund or company is left out of the portfolio if it does not align with the investor’s ESG criteria (e.g. regarding human rights).
  • Positive screening. Rather than omitting entire industries – such as fossil fuels – this approach rewards companies that are “leading their peers” on ESG principles.
  • ESG integration. A more “balanced” approach to ESG investing, where compromises on principles may be made to achieve higher returns.
  • Impact investing. Looks for companies that are focused on specific, measurable ESG “projects” (e.g. building local schools).
  • Ownership. Do you own shares in your own company? As a major shareholder, you can help raise ESG issues to the board and bring about some positive change.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

How to build an inflation-ready pension plan

By | Pensions

With UK inflation now standing at 10.1% (a 40-year high) and possibly set to rise to 18% early next year, pensioners (and those nearing retirement) are understandably looking to understand how to protect their nest egg. In this article our financial planning team at WMM offers some ideas on safeguarding your pension(s) against inflation, helping you to enjoy a sustainable and comfortable retirement. 

 

Invest in (but don’t rely on) your State Pension

The UK State Pension is one of the few sources of retirement income that offers a guaranteed annual increase of at least 2.5% (more, if CPI inflation or average wages are higher). In April 2023, it could rise as much as 10%. This would take it from the current £185.15 per week to around £203.67. Your State Pension lasts for the rest of your life and is not affected by stock market movements, due to its financing via National Insurance contributions.

However, the State Pension is not enough, alone, for most people to live a comfortable retirement. It is also coming under increasing scrutiny due to affordability. Liz Truss, the UK’s new Prime Minister is exploring whether the “triple lock” system can be kept due to its high cost. As such, it is wise to also build other non-State Pension income sources into a retirement plan.

 

Defined benefit pensions & annuities

Some employers – such as the NHS and Police – offer their workers a defined benefit pension which can greatly mitigate the impact of inflation on a retirement plan. These schemes offer a guaranteed, lifetime income in retirement (e.g. based on years of service and average career earnings) and often this will rise each year with inflation. 

Speak to a financial adviser, therefore, if you are considering transferring away from a defined benefit (or “final salary”) pension as the benefits are often attractive and difficult to replicate elsewhere. For those with defined contribution pension savings (involving a pension “pot”), buying an annuity can help to provide an indefinite, inflation-linked income in retirement. 

Annuities have been out of fashion for a while due to low interest rates, leading to relatively low annuity income offers. However, with rates now rising again, this may start to change.

 

Examine your strategy & withdrawal rate

If you see the value of your pension going down, be careful not to panic and impulsively sell your investments. Remember, not only does this potentially serve to crystallise your losses, but the cash you are left with is especially vulnerable to high inflation (due to poor interest rates on regular savings accounts). 

With that said, it often makes sense to re-examine your investment strategy as you near retirement. This may, or may not, involve moving from “riskier” assets to more “cautious” ones which provide lower volatility now, but with likely lower future returns. A lot will depend on your own unique plans for retirement, but just remember that if you plan to tick off a few ‘bucket list items’, or expect a long and healthy retirement, then you may need those higher returns!

It can also help to discuss your “safe withdrawal rate” with your financial adviser when the cost of living goes up (i.e. the amount you can regularly take from your pension savings without high risk of depleting them). Taking less each month, in the short term, may help your pension keep growing over the long-term as the remaining funds stay invested. Generally, a safe withdrawal rate of 4% from pension savings is sustainable in the UK. During high inflation periods, however, this may need to be temporarily lowered – e.g. to 3% or even less.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

Why holding too much cash can inhibit your goals

By | Financial Planning

During times of uncertainty, it can be tempting to move more of your wealth into cash. It seems “safer” due to its ability to shield from stock market volatility, and there is the security of knowing the Financial Services Compensation Scheme (FSCS) guarantees up to £85,000 of savings if your bank should fail. Yet, perhaps counter-intuitively, holding too much cash can be detrimental for your financial goals. Below, our team at WMM explain why cash should form a relatively small portion of most people’s longer-term wealth compared to their other assets.

 

Cash is not risk-free

On your bank statements, cash savings may seem to be earning you money. However, inflation is usually eroding their real value. In 2022, inflation currently stands at 10.1%, meaning it may now cost you £1.10 to buy an item that cost you £1 twelve months ago. If your cash savings offered you a 10.1% interest rate, then they would be closer in keeping up with this rising living cost. However, interest rates remain low, with the “best” deals currently offering 1.85% easy access and 3.61% fixed.

Cash, therefore, is not risk-free. In fact, you are certain to lose value over the long term due to inflation. This makes it a poor asset class for building long-term wealth. Cash can certainly help provide an easy-access emergency fund (e.g. 3-6 months’ worth of living costs) if you come across hard times, such as losing your job. It can also be useful when building towards a short-term financial goal (e.g. putting down a mortgage deposit within the next three years). However, if you want to build a retirement fund and stand a chance of beating inflation, other assets need to be considered for your portfolio.

 

Alternatives to cash for building long-term wealth

Non-cash assets such as bonds, equities and property can intimidate people. After all, they often involve more volatility. Stock prices can go dramatically up and down within a day, and the housing market is also subject to fluctuation. Yet it is worth pointing out that nobody can completely escape risk. Even the value of cash changes due to currency exchange movements. If the pound (GBP) devalues, then it can result in higher prices for UK consumers. A 20% fall, for instance, can lead to prices of imported goods rising by 25%.

One key aspect to building wealth, therefore, is to try to balance the risk associated with each asset class – helping you to also benefit from their opportunities. You can build a portfolio that reflects your unique “risk appetite” too, with the help of a financial planner. If you are a “cautious” investor, then leaning your portfolio towards investment-grade bonds may be appropriate. Those with a longer investment horizon and higher risk tolerance, conversely, are likely to do better by including a higher proportion of equities within their asset mix. The FTSE 100, for instance, has averaged a 7.75% annual return since its inception in 1984 – despite numerous economic crises and market falls along the way. Property has also historically shown itself to be a strong investment over the longterm. UK house prices in 2022 are 65 times higher than they were in 1970.

With this said, building an effective and diversified portfolio is no simple task. There are 1,000s of funds available in the UK market alone. Getting help from an experienced financial planner can help you narrow down on a shortlist of appropriate investment candidates in light of your goals, risk tolerance, investment horizon and sound principles (e.g. the fundamentals of a prospective investment). Over time, your planner can also help keep your portfolio on track and aligned with your chosen investment strategy. 

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

The energy crisis – how it could change everything

By | Financial Planning

The rising cost of gas and electricity is a worry for many UK households in 2022. In November 2021, the energy price cap (set by Ofgem) was £1,277. By April 2022, however, it had risen by 54% to £1,971. Now, projections suggest that the 12-month cap could reach £3,420 by October. By April next year, however, it could even rise to £4,200 (over 3x more than in 2020).

Understandably, such an outcome would leave households considerably worse off and will have a huge impact on the political and economic landscape. Below, we suggest how things could play out in the coming years and how this could affect your financial plan.  

 

Less spending power

In December 2021, there were 29.5m payrolled employees in the UK and the average person earned £31,772 p.a in salary. Net of tax, this is £27,972. A yearly energy bill of £4,200 would, therefore, take away 15% of this take-home pay. The 2021 cap of £1,277, by contrast, might have taken closer to 4.57% of average UK net income.

Of course, many people do not earn the UK average salary. Recent graduates and part-time workers (e.g. parents), for instance, might earn a salary closer to £24,000. The UK’s poorest 20% of UK households had an estimated £12,798 of disposable income in 2018, making them very sensitive to energy price shocks. 

By contrast, The UK’s richest 20% of households had £69,126 – putting them in a much better position to weather the storm. Other groups (by household income) had disposable income of between £21,000-£39,000. Naturally, a higher energy price cap will mean less money to spend in the wider UK economy. Most households in 2022-23 are likely going to need to make tough choices about where to cut back on luxury spending – such as overseas holidays, dining and digital subscriptions – as more income is devoted to covering essentials.

 

Implications for financial planning

Of course, no one has a crystal ball and anything could happen between now and April 2023. Maybe Russia pulls out of Ukraine and re-opens oil pipelines to the west, leading to a fall in global oil prices. Perhaps the UK government initiates a huge financial support package (like the furlough scheme during the Covid pandemic) to help households cope with their surging energy bills, although this would put considerable strain on the public finances.

Yet households cannot depend on such outcomes. Generally, it is wise to prepare for the worst whilst hoping for the best. Here are some ideas to get your wealth and finances in better shape before further potential rises in the energy price cap:

  • Optimise your mortgage (likely your biggest monthly expense). Those on a variable rate might benefit from moving to a fixed rate deal, which is typically cheaper.
  • Clear costly debts (e.g. personal loans and unpaid credit cards).
  • Review your tax plan to ensure you are getting the most out of your income. Our recent article on this topic offers 5 ideas to help you here.
  • Review your budget and eliminate needless spending – such as digital subscriptions or gym memberships that you hardly ever use.
  • Get your protection plan up to date. Policies such as life insurance, critical illness cover and income protection can provide much-needed financial stability and support to your loved ones should the “worst happen” to you.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

5 tax-planning strategies to improve your income

By | Money Tips

With rising energy prices putting pressure on households, many are looking at ways to tighten up their budgets to maintain financial stability. Yet have you considered how your tax plan might also aid your efforts? At WMM, our financial planning team in Oxfordshire offers five ideas to help you save on needless tax and free up more disposable income.

 

#1 Check your tax code

It is estimated that millions of people are on the wrong tax code – often leading HMRC to claim more in tax than is necessary. Some people have managed to claim back £1,000s after being on the wrong code for years. This can happen, for instance, when you change jobs and might be placed on “emergency tax” (which does not grant your Personal Allowance). Check your pay slip to be sure. The most common code for employees is 1257L.

 

#2 Claim all relevant expenses

For sole traders and those with self-employed income (e.g. a side business), make sure that you keep thorough records of your expenses. Claim everything you are entitled to, since your profits will likely be subject to Income Tax. Did you buy a new computer for your graphic design projects, for instance? What about software subscriptions that you use for work? You may also be entitled to claim travel expenses too.

 

#3 Raise children with tax-efficient income

New parents know how eye-watering childcare fees are today. The average price of an after school club, for instance, is £62.13 per week (£2,423 a year during term time; i.e. 49 weeks). Moreover, 50 hours of day nursery (for a child under 2) is £263.81 per week. 

Many households feel like they have no choice, therefore, but for one parent to stay at home whilst the other works full-time. However, depending on your circumstances, it may improve your overall household income for both parents to work part-time – with each person doing a day, or two, at home with the kids each week. 

This is partly because both parents can earn up to £12,570 per year, tax-free, under their Personal Allowance. It is more tax-efficient, for instance, if two parents both earn £40,000 between them than if only one person earns £40,000 (where £27,430 is subject to the 20% Basic Rate, leading to a £5,486 tax bill).

 

#4 Review your dividend-salary balance

If you not only take a salary but also a significant dividend (e.g. company directors), then you might want to check that you are getting the best tax deal from the arrangement. You can earn up to £2,000 in dividends each year, tax-free. After that, the tax rates on dividends are lower compared to income tax bands (8.75% and 20% for the Basic Rate, respectively, and 33.75% and 40% on the Higher Rate, respectively). 

Increasing your dividends and lowering your salary might, therefore, help you save on overall tax and boost your household income. However, bear in mind that dividends are not guaranteed (e.g. if your business has a bad year) and mortgage lenders may not offer you as much if/when you approach them.

 

#5 Check your council tax

Council tax bills rose 3% on average for most English households earlier in 2022. Many were placed in bands that were too high, leading to claiming back £100s or even £1,000s. However, 100,000s have still not challenged potential banding errors. 

You can check the valuations of your neighbours (and properties like yours) using the government’s VOA website here. From there, you can use free house price websites to check what your home is likely worth. Take care, however, as this process does not only lead to your council tax going down. After a “reassessment”, it could go up! So, make sure you do a thorough check and are confident you have a strong case.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

How much should I have saved by 40?

By | Retirement Planning

By age 40, many people have already achieved key milestones in their life. Perhaps you are firmly on the housing ladder, married and with young children. However, many goals still lie ahead of you – such as retirement – and you need savings to help you move towards them. Yet how much should you have saved by age 40? Below, our Oxfordshire-based financial planning team at WMM outlines the UK savings landscape in 2022, some ideas for a healthy savings target and how to integrate this into a wider financial plan.

 

What is the average UK savings amount at age 40?

Let’s first distinguish between common savings and pension savings. The former includes cash held in an ISA or regular account and is often used for purchases like a house extension, a new car or a family holiday. It is also used as a “rainy day fund” (for emergencies). Pension savings, however, are locked away until age 55 (rising to 57 in 2028) and are commonly used to fund a retirement lifestyle. 

Around 1 in 8 UK adults (6.5m people) have no cash savings to their name whilst a third have less than £2,000 to their name, leaving many vulnerable to shocks such as sudden job losses. Those aged 35-44, however, typically have £16,000 in cash savings.

 

How much should I have saved by age 40?

As a general rule, it is wise to have 3-6 months’ worth of living costs ready in easy-access savings account for emergencies. This helps prevent you from turning to debt if, say, you need to suddenly take unpaid leave to help care for a terminally ill relative. Here in Oxfordshire, the average monthly living costs for a family of 4 (excluding rent) are £2,473. Therefore, saving £15,000 in emergency savings might cover 3-6 months’ worth of living costs in an emergency.

 

Building cash savings at 40 – some considerations

Of course, £15,000 is a lot of money and would take time for many people to build up. It also imposes a potential “opportunity cost” on your finances (i.e. money saved towards your cash buffer could be put to better use elsewhere, such as overpaying the mortgage). Bear in mind that your target may be higher or lower depending on your needs and circumstances. 

Consider speaking to a financial adviser about how to best build your emergency fund so that your other savings/investments are not neglected (e.g. pension contributions). Be careful, also, not to save too much in cash. Historically, cash has been a poor asset for keeping up with inflation. In 2022, interest rates on savings accounts have gone up, but are still far below the currently 9.4% rate of inflation. This means that cash will almost certainly lose value over time and so households should consider investing in other asset classes (which have the potential for higher returns) once their cash buffer is ready.

Another thing to be mindful of is your use of ISAs. In 2022-23, you can put up to £20,000 into your ISAs and receive interest, capital gains and dividends tax-free. However, committing cash to your ISAs is almost certainly going to be a waste of your ISA allowance. Remember, you can generate up to £1,000 in interest outside an ISA each tax year (£500 for those on the Higher or Additional Rate). Assuming you limit your cash savings to your target 3-6 month emergency fund, therefore, most people are unlikely to need to use an ISA to save on tax on interest. This then allows you to use more of your £20,000 ISA allowance towards other investments such as equities or bonds.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

 

Buy-to-Let versus stocks & shares

By | Retirement Planning

British people are renowned for their love of property. 65% of Britons have bought the property they live in, whilst in Germany, the figure is 43%. Bricks and mortar are not only seen as a viable route to shelter, but are also popular investments. Buy-to-Let, in particular, is often attractive – where you put down a deposit on a mortgage which is then covered by tenant rental income, also providing a nice profit (at least in theory!). However, how does Buy-to-Let compare against the stock market? Our Oxfordshire-based financial planning team offers some thoughts, here.

 

The pros & cons of Buy-to-Let

Buy-to-Let is compelling because property is tangible. You can see and feel bricks and mortar, whilst stocks and shares are numbers on graphs and spreadsheets. Buy-to-Let also offers two main routes to a profit. Firstly, the property value can grow over time – allowing you to potentially sell it for a capital gain later. Secondly, the rent from tenants can (with careful planning) cover your taxes and expenses – leaving the remaining profit as a nice “passive” income.

However, Buy-to-Let does have its downsides. There is the hassle factor since tenants may be difficult to manage and you may have to deal with various repairs. The more properties you have, the more this workload increases. Also, Buy-to-Let carries a lot of hidden costs which can possibly lead to you losing money rather than making a profit. For instance, estate agent fees, storage costs, accountant fees and insurance (e.g. landlord insurance) all eat into your returns. There is also the possibility that your property may be empty for long periods if you cannot find tenants, meaning you would need to cover the mortgage yourself.

 

Stocks & shares, compared

When you invest in an equity fund (collection of shares) or a specific company stock, you can generate a return in similar ways to Buy-to-Let. You hope that the shares will increase in value – allowing you to sell for a profit later – or they can provide an income (via dividend payments). With shares, however, you have far less work than managing a property. You may need to rebalance your portfolio once a year, but otherwise, you can leave your investments to run. You can also generate strong returns over a long period (e.g. 10+ years) with a good strategy, diversification and investor discipline. The S&P 500, for instance, has produced an average of 10.5% between 1957 and 2021.

Shares also generally have the benefit of high liquidity. If you need to sell them quickly to get to your money, you can. A Buy-to-Let investor, by comparison, might struggle to dispose of their property in a difficult market. However, shares can be challenging for investors to stomach. It is difficult to watch your portfolio rise and fall in value in short spaces of time. This can often lead to poor investment decisions that lose money (e.g. panic-selling when shares fall suddenly, only to see them rise again shortly after). Here, it can help to limit how often you check your portfolio. Also, working with a financial planner can help you maintain investor discipline and commit to your goals.

Be mindful that investing in shares can also carry fees and taxes which eat into your returns, although tax treatment at this time is far more favourable than with a Buy-to-Let property. Again, consider getting professional advice to find out how to mitigate these and put more back into your own pockets.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.

You can call us on 01869 331469

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

Bonus sacrifice and saving on tax: a short guide

By | Financial Planning

Are you a Higher Rate taxpayer? One way to lower your tax bill is via bonus sacrifice. Yet how does it work, exactly – and what are the benefits? In this guide, our team at WMM explains how the rules work regarding bonus sacrifice, how bonuses are taxed and some common pitfalls to look out for in 2022-23. We hope this is helpful and get in touch if you want to learn more.

 

How does bonus sacrifice work?

When you receive a bonus from your employer, it comes via your PAYE salary. This means that the amount is subject to income tax and National Insurance. In some cases, this can push you into a higher tax bracket. For instance, if you earn £48,000 per year then everything over £12,570 is taxed at the 20% Basic Rate. Should you receive a £5,000 bonus, then most of this will be subject to the Higher Rate at 40%. By contrast, bonus sacrifice would put this amount straight into your pension.

 

Why would I engage in bonus sacrifice?

The benefit of putting a bonus straight into your pension, as an employer pension contribution, is that the bonus will not be taxed. The full amount goes into your retirement fund. In some cases, this can help a taxpayer avoid the 40% or 45% income tax rates. You can also side-step needing to pay child benefit tax charges, student loan repayments and National Insurance on the bonus.

Employers are not obligated to offer bonus (or salary) sacrifice, though most will allow it, and some even pass on the employer National Insurance saving into your pension too.

 

Drawbacks of bonus sacrifice

So far, so good. However, putting your bonus into a pension needs to be considered carefully. Bear in mind that you will be unable to access the money until age 55 (or, 57 in 2028; when the Normal Minimum Pension Age is expected to rise). So, make sure you do not need the money for a while. Higher earners also need to take care with the Tapered Annual Allowance, which lowers the amount you can contribute to your pension each tax year – depending on earnings. Here, your annual allowance is reduced by £1 for every £2 of “adjusted income” over £240,000. You can exceed this in certain scenarios (e.g. using “carry forward” to access unused annual allowance from the past three tax years), and everyone always retains an annual allowance of at least £4,000 per year. However, you need to ensure that bonus sacrifice does not put you over your limit for how much you can put into your pension. Otherwise, you risk a tax penalty.

 

Considerations for financial planning

If you have already received your bonus, don’t worry. You can still pay it into your pension to reduce your tax bill. The bonus sacrifice process is usually straightforward. Your boss notifies you about an upcoming bonus; you decide how much you want to put into your pension and let them know; the amount is put into your scheme.

We have already mentioned your annual allowance. However, also be mindful of your Lifetime Allowance when putting bonuses into a pension. This limits how much you can hold in total across your pensions, tax-free (£1,073,100). Also, your employer may require that you put any bonus sacrifice into your workplace pension – not another scheme such as a personal pension, where the fees and investment choices may be better.

Finally, remember that bonus sacrifice reduces your income, in effect. This could impact other areas of your finances such as how much you can borrow for a mortgage. It may also lower certain employee benefits. Life cover and sick pay are often calculated based on your income, for example. Seek financial advice to ensure you balance these various considerations.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

How can I allocate my assets effectively?

By | Investment Planning

How can you best put your money to work? Choosing assets to invest in is crucial when crafting an effective portfolio which moves you towards your financial goals. Yet discerning the unique traits of different assets (e.g. equities and bonds) can be challenging, and the precise mixture you should adopt may not be clear. Below, our financial planning team at WMM outlines some of the key principles to consider when putting the building blocks of your portfolio together.

 

What is asset allocation?

Asset allocation is the process of choosing various assets for your portfolio – in accordance with your risk tolerance, investment strategy and financial goals. The two primary assets in most portfolios are fixed-income (bonds) and equities (i.e. stocks and shares). However, some people might also invest in commodities like gold, or real estate such as Buy To Lets.

 

What are some example asset allocations?

Broadly speaking, asset allocation involves identifying what portion of your portfolio will be set apart for different asset types. Your risk tolerance will play a big role here. For instance, a more “cautious” investor may opt for an asset allocation of 80% fixed-income and 20% equities. This prioritises the preservation of capital overgrowth, typically involving less risk. However, a more “adventurous” investor may choose the opposite: 80% equities and 20% fixed-income, or even 100% equities. This opens up more growth potential but involves greater investment risk.

 

What is internal asset allocation?

Allocating assets is not simply about equity-bond ratios within a portfolio. You also need to find out how to choose assets within these various classes. Investing in equities, for instance, may involve spreading out across a range of companies, sectors, industries, countries and regions. For instance, if you want a portfolio of 80% equities, how should this 80% be apportioned? The greater your diversification across countries and sectors, the less your portfolio will be affected if one market ‘crashes’.

 

How do I choose assets in line with my values?

Increasingly, investors want to choose assets which also align with their values. Perhaps you want to prioritise businesses in your portfolio if they are engaged in environmental protection, also avoiding those engaged in unethical activities (e.g. sweatshop labour). Here, your financial adviser can help you apply ESG (Environmental, Social and Governance) criteria to your list of possible assets. This helps you identify companies which facilitate good causes such as gender boardroom equality, fair pay, safe working conditions for workers, carbon neutrality and/or conservation efforts.

 

How do I build an effective asset allocation?

Your investment horizon is important when building a portfolio. How long until you will need the money? Generally speaking, the shorter your investment horizon, the more cautious your asset allocation should be. Your goals and values also should be taken into account. However, it is also wise to consider cost efficiency and performance.

Various fees are involved when investing in most asset classes – such as investment platform fees, trading fees, spread fees, exit fees and account inactivity fees. Regardless of your asset allocation, make sure you find a platform that keeps your costs low (without compromising on performance). Also, make sure your assets are contained within a tax-efficient portfolio. Your ISA, for instance, allows you to generate capital gains and dividends without tax. Investments within a pension are also tax-free until you retire.

 

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Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

How do I start saving and investing?

By | Investment Planning

You may hear a lot of talk in the media about where you should and shouldn’t be investing your money. But what if you haven’t established any kind of savings or investment pot yet? Where do you start?

Some useful points to remember when judging options is that any ‘investment’ should have an expected positive outcome, and anything less is ‘speculation’. Successful investing relies on taking a longer-term view, as markets change quickly and often with magnitude, so short-term ‘offers’ when analysed are ‘little more than gambling’.

In this article, we explore tips and strategies for helping you get started on your financial planning journey. 

 

Step 1 – Working out how much you can afford to save each month

Unless you’ve been fortunate to be gifted a lump sum, it’s likely you’ll want to start saving monthly to establish your ‘portfolio’.

We usually recommend that at least 3-6 months’ worth of expenditure is retained in ‘ready cash’, before you think about committing any of your savings to investment. This pot of money provides a safety margin, as it can cover unforeseen demands for cash without having to disturb your longer-term savings goal or having to sell any investments at a loss.

Step 1, will therefore be to work out your monthly outgoings, versus your net income (after tax etc). The difference is your monthly surplus income and is, in theory, the amount you can afford to save. We would recommend saving this initially into an instant access savings account, as this will be your ‘emergency fund’. Once you have accrued the recommended minimum level of cash, then you can move on to Step 2.

If the difference between your income and spending is negative then it’s likely you’re getting into debt before the end of the month or dipping into any savings you do have. In this case, you’ll need to reassess your outgoings and identify any areas where you can lower your spending. If not, over time the monthly shortfall could mean you accumulate potentially large debts, which can be a vicious spiral to try to get out of. 

 

Step 2 – Deciding what you are saving for

If you have a specific savings goal in mind, you will have a target amount and target date to aim for. The target date is an important factor in deciding how you will save towards it. 

If you are saving more generally ‘for the future’ this might give you a little more flexibility. 

Shorter-term – For example, if you want to save, say, £25,000 towards a house deposit in 3 years’ time, you will need to commit to saving around £695 per month for every month of those 3 years. Given the short timescale, you are unlikely to want to invest very much, if any, of it into any stock market investments, such as shares. The value of these investments can go up and down sharply in a short space of time and a dip in value near your target date could ruin your plans.

You might want to set up different pots for your short-term savings, and label the accounts, such as “Holiday”, “House Deposit”, “New Car”, and “Spends”. This could help you stay on track with more of your individual goals, rather than one pot that you might delve into occasionally. 

Medium Term – These would be your savings goals for in, say, 4 to 10 years’ time. Your new car fund or house deposit fund could fall into this bracket, which might allow an element of stock market investing to be suitable, or perhaps childcare and school fees if you’re planning a family. 

Longer-term – If you are thinking much longer term, say your retirement fund, you could have more than 30 or 40 years to your target date. In this case, you could afford to invest highly into equities, for the potential long-term growth, in the knowledge that the upwards trend of stock markets over the longer term will usually compensate for any short-term volatility. 

 

Step 3 – Deciding where to save

You’ve decided on your budget and your goals, and now you just need to decide where to save. 

For your cash savings, this is easier to choose. Most people will have at least one savings account with their main bank, and you can also shop around fairly easily by using the online comparison tools. 

For your more medium and longer-term investments, where you might be considering some element of stock market investing, we would recommend seeking the advice of a qualified financial planner, rather than relying on the current “sweetheart” recommendations in the media. 

Different investments offer different incentives too. For example, for your retirement planning, you could look at a personal pension, where the Government “top up” the amount you invest by giving you tax relief. A basic rate taxpayer investing £80 per month will receive an extra £20 (based on current tax legislation), equivalent to the 20% basic rate tax they may have paid on the income. This also applies to non-taxpayers and so can be a very efficient way of saving for them in particular.

ISA accounts, whilst new accounts don’t offer an initial incentive, allow your cash to grow tax-free, and the withdrawals are all tax-free too. You can have a cash ISA and an investment ISA, and which one, or combination, you go for will likely be dictated by the time frame you’re investing for.

Again, a financial planner will be able to guide you on the right path for you. 

 

Invitation

Interested in finding out how we can help you establish your financial plan and investment strategy? Perhaps you already have a plan in place and you’re interested in getting your children into the savings habit. Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.  You can call us on 01869 331469.

 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).