Not everyone wants to be adventurous with their savings. Indeed, simply putting your hard-earned money into a cash Isa may seem like the obvious thing to do. But when it comes to money, nothing is certain. Even cash carries its own risks. As we have seen recently, with inflation steadily creeping upwards, even your money can lose value. And even with their tax benefits - no tax on interest payments - most cash Isas are not paying enough interest to stay ahead of the ever encroaching threat of inflation. So what to do? Well, if you can afford to take on some more risk, you might consider putting some of your money into the stock market.
Even with interest rates potentially on the rise, it could be a while before Isa providers and banks are willing to pay enough to their Isa savers to ensure their pot keeps pace with inflation. Stocks and shares Isas also carry significant tax benefits, with no tax payable on dividends or capital gains. Armed with the right information, investing in stock market funds can be a good way to put your money to work for you.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Capital growth
When you invest in shares, you are buying a slice of ownership in a listed company. These slices of ownership can be bought and sold on a stock exchange, and their value can (and does) fluctuate based on other investors’ perception of how well that company is likely to do.
Although share price fluctuations are unpredictable, with some shares falling in price as company fortunes hit rough patches, over the long term a diverse portfolio of shares tends to increase in value. By buying a fund rather than individual shares, you can, in one fell swoop, purchase a varied selection of shares that have been hand-picked for you by an experienced fund manager.
Dividends
Dividends can be another major benefit of holding shares. Sometimes, listed companies will opt to divide a portion of their profits among their shareholders instead of reinvesting it into the company itself. There are generally two reasons for doing this: either the company wants to attract more shareholders to potentially raise more capital, or the company is large enough, and established enough, to not need to use all of their profits to maintain and grow their businesses.
By taking any dividends you earn and reinvesting them, you can boost the rate of growth of your shares portfolio. And remember, you don’t pay any taxes on shares held within an Isa, so you can maximise that growth year after year.
Bonds
Corporate and government bonds are typically seen as less risky than shares, but more risky than cash. These are effectively agreements for you, the investor, to loan a company or government a certain amount of money, which is repaid to you with an agreed amount on top over a determined period.
UK government bonds, or gilts, are widely viewed as being quite low risk, because of the perceived low probability of the government defaulting on payments.
Private companies generally carry more risk of default, but also tend to pay higher rates to counteract this increased risk. The riskier the company, the more it will have to pay to borrow money - so the higher yield a bond offers, the riskier it probably is.
The portfolio
A fund is more diverse than a single stock, but even so, different funds will carry different levels of risk depending on what they invest in. By striking the right mix of equities, bonds, cash, or other assets, a risk-rated managed fund can provide a one-stop investment shop. And that can be ideal for someone who is considering investing but unsure of where to look or how to pick assets.
Add to that a team of advisers who are standing ready to answer your questions, or adjust your investments, and you are in as safe a pair of hands as you could wish for in the risky but rewarding world of investment.
*Source: Bloomberg, 18 December 2017
Find out more at Charles-stanley.co.uk/personal-portfolio-service
The value of investments can go down as well as up and investors may not get back the amount they originally invested. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority and a member of the London Stock Exchange. Registered in England No. 1903304, Registered office: 55 Bishopsgate, London EC2N 3AS.
-
Quentin Deranque: a student’s death energizes the French far rightIN THE SPOTLIGHT Reactions to the violent killing of an ultra-conservative activist offer a glimpse at the culture wars roiling France ahead of next year’s elections.
-
Secured vs. unsecured loans: how do they differ and which is better?the explainer They are distinguished by the level of risk and the inclusion of collateral
-
‘States that set ambitious climate targets are already feeling the tension’Instant Opinion Opinion, comment and editorials of the day
-
Secured vs. unsecured loans: how do they differ and which is better?
the explainer They are distinguished by the level of risk and the inclusion of collateral
-
What to expect financially before getting a petthe explainer Be responsible for both your furry friend and your wallet
-
What to know before filing your own taxes for the first timethe explainer Tackle this financial milestone with confidence
-
What’s a good credit card APR?The Explainer They have gotten even steeper in recent years
-
What are the best investments for beginners?The Explainer Stocks and ETFs and bonds, oh my
-
How to juggle saving and paying off debtthe explainer Putting money aside while also considering what you owe to others can be a tricky balancing act
-
Filing statuses: What they are and how to choose one for your taxesThe Explainer Your status will determine how much you pay, plus the tax credits and deductions you can claim
-
The pros and cons of tapping your 401(k) for a down paymentpros and cons Does it make good financial sense to raid your retirement for a home purchase?
