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| Investments for absolute beginners In these tough economic climes, every penny counts. It has never been more important to look after your money, and to ensure that whatever savings and investments you manage to squirrel away, work as hard as possible for you and your family. While budgeting for the day to day, can prove a tall order for many Britons seeking to ride out the recession, preparing for the future is key to smart financial planning. |  |
Building up a nest egg as a buffer for those unexpected bills, to prepare for life changes such as the arrival of a new baby, and ultimately a comfortable, worry-free retirement, could be the holy grail for anyone who works for a living.
Given the current depressed bank rates for savings and volatile financial markets, first-time investors seeking a safe place for their cash are understandably cautious. If you have some savings but have yet to start a pension plan, follow our guide to the smartest investments for beginners...
Pension wise
When it comes to pensions you're never too young to start investing, and the earlier you start paying into a plan, no matter how modest in the outset, the more you'll benefit from your hard work when you retire. As state pensions can no longer be relied upon to provide more than a very basic contribution to your expenses, a private pension plan could be considered an essential investment in light of the current state of the economy. Alternatively, if you have access to a good company pension scheme where your employer will make contributions on your behalf, make sure you consider joining.
Personal Pensions
If you're self-employed or not eligible to join your employer's scheme, Stakeholder and Personal Pensions could be a way to improve your position. If you are not earning, perhaps because you have taken a career break, you can still pay into a personal pension.
The Treasury sets an annual allowance each year. In 2009/10 the gross allowance is 245,000 and in 2010/11 it will be 255,000.
And did you know that the Government will contribute 20% of every investment you make to a personal pension, up to certain limits? So 100 investment will only cost you 80. If you're in the 40% tax band, you're also eligible to claim an extra 20% tax relief when you submit your annual tax return
This type of pension is designed to adapt to your level of earnings over time, giving you the option to make top-up payments whenever you have extra funds you want to add in, rather than committing to a fixed higher level you might not always be able to afford.
All about ISAs
There are two types of ISA; cash ISAs and stocks and shares ISAs. Which one is right for you?
Cash ISAs
For those with small to medium savings who feel they will need to access their cash in the shorter term, a cash ISA is ideal. You can invest up to 3,600 each tax year, and any interest you accrue is tax free. Whichever tax band you're in, investing in an ISA makes good financial sense. If you'll be 50 or over on 5 April 2010 and are eligible to invest, you will be able to invest up to 10,200 in ISAs (5,100 for a cash ISA) from 6 October 2009.
Stocks and shares ISAs
If you've amassed a more substantial amount, then maybe a stocks and shares ISA could prove an option for medium to long-term investment.
You must be confident that you would not need access to funds for a minimum of five years. This is because the money you put into a stocks and shares ISA can be invested in a range of options on the stock market, which provide the potential for long-term growth. It is important to remember that while it has the potential for good returns, you may get back less than you originally invested. You can invest up to 7,200 in each tax year. If you'll be 50 or over on 5 April 2010, then from 6 October 2009 you will be able to invest up to 10,200 in a stocks and shares ISA, less any amount saved in a cash ISA.
Mix and match
All eligible UK taxpayers, under the age of 50 on 5 April 2010, have a current annual ISA allowance of 7,200, of which up to 3,600 can be held in a cash ISA and the remainder up to 7,200 in a stocks and shares ISA. Alternatively, you can invest your full 7,200 allowance into a stocks and shares ISA. You can open one cash ISA and one stocks and shares ISA each tax year.
If you'll be 50 or over on 5 April 2010 and are eligible to invest in an ISA, from 6 October 2009 you will be able to invest up to 10,200 in a stocks and shares ISA less any amount saved in cash ISA.
Do remember, however, that both Personal Pension Plans and stocks and shares ISAs are stock market-based investments, which means their value is subject to stock market ups and downs and you may get back less than invested.
To ensure you choose the right pension plan and investment products for your specific requirements, consult your financial advisor for further information.
If you have any queries about your ISA eligibility, contact the HMRC ISA help line on 0845 604 1701
