man jumping over clock

The 2024 ISA deadline is fast approaching - act now!

Every year, individuals have the opportunity to top up their ISAs and set aside more tax-free savings. While this can be done at any time throughout the year, there’s an annual limit of £20,000 across all ISAs.

By taking advantage of every possible opportunity to invest your money without being penalised by capital gains tax (CGT), you’ll get the very most out of your hard earned cash.

Investing can be a daunting prospect, so we’ve put together a list of questions we tend to get asked when the ISA deadline comes around to help.

When is the ISA deadline for 2023/24?

The deadline for this tax year is midnight on 5th April 2024. After this time, your allowance resets, meaning that any unused allowance from 2023/24 will be lost. For example, if you’ve invested £15,000 over the tax year, then your remaining £5,000 of tax-free allowance will not be carried over to the 2024/25 tax year.

Your £20,000 allowance can be split across different ISAs if you wish, whether it’s a Stocks and Shares ISA, Cash ISA or Lifetime ISA (just be wary of your £4,000 per year limit with this one). If you have both a Stocks and Shares ISA and a Lifetime ISA for example, you could split this with £4,000 into the LISA, and a maximum of £16,000 into Stocks and Shares to take full advantage of the benefits.

man jumping over clock

Why do I need to act now?

If you don’t utilise your full £20,000 yearly allowance (and have the money sitting there in a standard savings account), then you’re missing out on valuable tax-free savings. Since ISAs are the most tax efficient way to save (besides pensions, however these are not instantly accessible), you’ll be missing out on the financial benefits they bring.

Ultimately, the more you add to your ISA (within your means), the better.

Can I invest more than £20,000 in one tax year?

The simple answer to this question is yes, you can. However, those additional savings must be invested elsewhere, as your ISA limit on tax-free savings will remain at £20,000. 

Depending on the amount of spare funds you have, we’d potentially recommend waiting until the new tax year begins on 6th April if you’ve already invested your full allowance for 2023/24. If you have a significant amount left over after making the most of your ISA allowance, please get in touch with our team of financial advisers who can recommend the next best savings option for you.

Will my allowance automatically reset on 6th April?

Yes, your allowance will simply reset from 6th April, meaning that you can then start to invest again up to £20,000 that tax year without incurring any penalties.

That being said, the government can change the ISA limits from time to time - so it’s important to stay up to date with legislation changes via their website. If you’re a Matthew Douglas customer, we’ll be sure to inform you of any significant changes to your investments as they arise.

I want to make use of my remaining ISA allowance. Can you help?

Yes, of course! At Matthew Douglas, our team of experienced advisers are on hand to help you make the most of your money, no matter what time of year.

If you’re paying into your ISA by bank transfer, debit card, Apply Pay or Google Pay, then you can do this right up until 23:59 on 5th April. If you pay by direct debit, this may have to be a bit earlier.

Get in touch with our team today - we’re happy to help in any way we can.


Vacant seat

Incredible opportunity for young IFAs as 75% set to retire by 2033

Of the 27,000 independent financial advisers in the UK, three-quarters will be of retirement age in the next 10 years. This presents a huge opportunity for younger advisers, who will take up the mantle when their predecessors leave the workforce, explains Russell Brett.

At Matthew Douglas, we believe in the power of diversity - not simply to make a statement but to embed resilience across our entire organisation. A great example of this is the fact that our workforce is incredibly diverse when it comes to the age of our expert Independent financial advisers (IFAs).

At Matthew Douglas, the average age of our varied team members is just 39. This stands in stark contrast to the rest of our sector where 75% of IFAs are aged 50-59, with 20,250 IFAs set to retire by 2033, according to figures from Financial Planner Life podcast director Sam Oakes.

Speaking at the Change Festival hosted by the Chartered Institute of Securities and Investment and NextGen Planners, Sam explained that three quarters of IFAs will be eligible to leave the workforce and accept retirement in the next decade.

Clearly, there’s nothing bad about IFAs being older in terms of quality of service and expertise, but when so many IFAs are close to retiring at the same time, some firms will experience serious problems if they lack diversity.

Filling the vacuum: young IFAs will come to the forefront

More generally, this creates an invaluable opportunity for younger advisers, who will be in the position of looking after the client-base active in the market after this mass exodus from the workforce.

"This is a huge opportunity for the next generation of advisers coming through and those that are thinking of joining the profession," Oakes said. "If they are retiring, the next generation of future advisers will be the ones who will be looking after their clients.”

Matthew Douglas Ltd is prepared to meet the challenge

In October, we won the national MoneyAge Diversity Award and so, unlike some firms, we won’t be frantically recruiting to fill the expected shortfall of advisers as they retire. Instead, we’re organically upskilling our workforce so that when the time comes for them to take over the accounts of their predecessors, they’ll have the practical knowledge to advise clients without qualms or concerns. 

From the client’s perspective, it will be a seamless transition that raises no questions beyond ‘so, how are my financial objectives shaping up?’

To learn more about how you can invest your money wisely to improve your own finances before retirement, get in touch with our expert team.


2024 looking up

Our summary of the 2023 Autumn Statement

The Chancellor’s Autumn Statement may have contained 110 new or altered measures to help grow our economy, but there are a few important announcements which may affect you, our client.

We’ve gone through the full set of changes to compile this simple guide which will summarise everything you need to know about how your finances may be impacted. 

2024 in finance

Pensions

Honouring the ‘triple lock’ commitment

Jeremy Hunt has confirmed that the government will be honouring its commitment to the pensions ‘triple lock’ in full. 

The triple lock is a commitment to increase state pensions by whichever is highest out of average earnings growth, CPI inflation, or the figure of 2.5%. Having been in place since 2011, the policy is very popular and it provides a great deal of financial security for retirement.

As a result, the government will be increasing the full new state pension by 8.5% to £221.20 per week from April 2024, an increase of up to £900 per year. This increase is noted as one of the largest ever cash increases to the state pension.

Pension pot reforms

The Chancellor also announced that he will consult on giving people one singular pension pot for life, giving pension savers ‘a legal right to require a new employer to pay pension contributions into their existing pension fund’. Under the new “Pot for Life” plans, the majority of workplace pension savers will be in funds of £30bn or larger by 2030.

According to Mr Hunt, these reforms could help to unlock an extra £1,000 per year in retirement for an average earner who starts saving from the age of 18.

Inheritance Tax & National Insurance

Despite rumours circulating in recent weeks, the Chancellor announced that there will be no inheritance tax cuts in this year’s Autumn Statement. However, he has confirmed that National Insurance, the national tax based on earned or salaried income only, IS being cut from 12% to 10% for earnings between £12,570 and £50,270. This means that over 27 million people in the UK will benefit from a higher take-home pay as a result. 

For an individual earning a salary of £35,400 per year, they will save over £450 per year as a result of this reduction. These new policies will come into effect from 6th January 2024, rather than when the new tax year begins in April 2024. 

For employees paying the basic rate of tax, the combined rate of income tax and National Insurance will fall from 32% to 30% - the lowest since the 1980s.

Additionally, Class 2 National Insurance (for the self-employed) will be completely abolished, saving the average self-employed individual £192 per year. Those who pay the Class 4 National Insurance at 9% on all earnings between £12,570 and £50,270 will see this cut by 1 percentage point - to 8% - in April next year.

Investing

Individual Savings Accounts (ISAs) are set to be overhauled to enable savers to pay into multiple accounts of the same type for the first time, from April 2024, with the current £20k tax-free allowance remaining unchanged. Savers will also be able to invest in long-term asset funds, including private equity and real estate.

The government has also stated that it will be extending the tax advantages of venture capital trusts and the enterprise investment scheme by 10 years, to 2035.

Younger people will now benefit from being able to purchase fractional shares, which previously was not possible. Additionally, normal Lifetime ISAs will now only be available to those over 18, as opposed to the age of 16 - with Junior ISAs available up until the age of 18, with no overlap.

Comments from our Director, Russell Brett

Jeremy Hunt’s second Autumn Statement seems a little less fraught when compared to the post Liz Truss clean-up times that we saw 12 months ago.

According to the Office of Budget Responsibility (OBR), the books appear a little healthier now for the government, with stronger than expected tax revenues, driven primarily by earnings and price inflation.

However, this environment is undoubtedly challenging - the Institute for Fiscal Studies (IFS) states that the UK overall tax burden has increased to the highest level since 1948, amounting to about 37% of national income by the next general election, likely to be in 2024.

Nevertheless, the UK is now looking to avoid recession, with +0.6% GDP growth expected for 2023 along with slightly higher growth over the coming years. In addition, inflation is expected to continue to decrease to reach the Bank of England’s target of 2%, by the middle of 2025.

This Autumn Statement’s headlines are clearly centered around National Insurance Contributions (NICS), which will help those still in earned or salaried employment, although there is a message here for employers to note - the employee relative burden of NICS may be coming down, but not for the employer. 

Above current inflation State Pension increases will certainly help those in retirement, while the pension Lifetime Allowance appears destined to be removed, and the more flexible ISA investing should benefit both young and old.

If you have any queries or concerns regarding the Autumn Budget, please don’t hesitate to get in touch with our team, who will be happy to help.


Digital Footprints

What are the dangers of cryptocurrency? An exploration of DIY digital investing

Amid fresh warnings over the rising rates of cryptocurrency scams, investment in digital assets is on the rise in the UK with almost 10% of the population partaking. But how safe is DIY investing and what are the potential pitfalls of this novel investment strategy? Russell Brett explains.

What are the dangers of cryptocurrency? An exploration of DIY digital investing - Matthew Douglas Ltd

Nearly 5 million people in the UK currently hold cryptocurrency assets such as Bitcoin, with interest in digital investing on the rise. However, wannabe investors should be shrewd about where they place their hard-earned assets. 

This is confirmed in a direct warning from Lloyds Bank earlier this month, reporting that cyber crime is up by 23% in 2023 compared to last year, with a rising number of investors being defrauded by scams and fraudulent adverts.

What exactly is cryptocurrency?

Cryptocurrency is a form of currency that only exists digitally and not in the physical world. Unlike recognised currencies, it is monitored only by a decentralised system online and not a central authority. 

Part of the widespread interest in cryptocurrency is because it is a relatively new field, which means that there are few regulations determining what investors can and can’t do. However, it also means that, currently,  no bank, government or regulator manages assets held on these platforms.

Assets can be widely accessed - with no accountability

While fewer regulations may sound appealing, it can create a host of problems for users. A key concern is that trading in cryptocurrency opens up would-be investors to a higher likelihood of being targeted by criminals - such as the $3.8 billion fraudsters stole last year alone. 

As your details are all stored online in what is called ‘the blockchain’ they are in effect accessible at all times to would-be hackers. 

 Having a digital wallet also makes it harder to trace spent or stolen assets and if something were to go wrong, the inherent lack of regulation means that no one is held accountable. 

In fact, because it is a system of peer-to-peer trading, the vast majority of the time it will not be possible to retrieve any lost assets. For example, crypto transactions consist of sending assets directly from one user to another - much in the same way you transfer funds between friends and family - rather than a direct debit or recognised transaction.

Follow the ‘three-year rule’ when it comes to investing

Clearly, I wouldn’t advise anyone to trade with cryptocurrency. At the moment, it’s an unregulated system that opens up users to inherent vulnerabilities that by far outweigh any potential gains.

But more than that, if anyone is looking to see a virtually immediate short-term yield, I would advise them against investing altogether. With investments, it’s important to understand that the value of your assets will invariably fluctuate; its worth will go up, down and hopefully, up again. I would advise anyone looking to secure a viable long-term investment with a sustainable yield that they seek to invest for a minimum of three years.

This will give you sufficient time to start to see patterns emerge as markets shift and your assets mature. 

Investing with expert advice is essential

Ultimately, while I can understand the perceived appeal of this type of investing, the risks associated with it are simply too great. The lack of regulation in crypto means that we are likely to see more cyber crime as criminals abuse a system that most authorities are still in the early stages of comprehending - let alone regulating.

If you are considering growing your money in assets that you can understand, and in an organic and tax-efficient way that minimises fees and maximises your long-term yield, I’d always recommend doing it in real, regulated currency under the guidance of seasoned financial professionals - such as our team of expert investors. 

If you’d like to learn more, get in touch today


Tax cut

How to avoid higher Income Tax rates

Soaring levels of inflation, including wage inflation, have been pushing earners into higher tax brackets; how can you offset the damage to your pay packet in real terms?

With 14 consecutive Interest Rate rises in the last 18 months, more UK workers than ever before are paying the higher 40% tax rates. Russell Brett explores the issue - and what you can do to downplay the damage to your spending power.

How to avoid higher Income Tax rates - Matthew Douglas

Income Tax brackets are currently frozen at 2021-22 levels and will be for another three years. This is a direct result of the debt incurred by the nation when millions of workers were put on furlough during COVID lockdowns. 

By freezing Income Tax as inflation climbs and people negotiate higher wages to offset the strain on their finances, more taxpayers now fall into the higher tax brackets - and more of their taxable income is liable to be affected.

However, while this is unfortunate, it isn’t entirely unavoidable. There are a number of steps you can take to limit the impact the freeze on taxation has on your income.

Bypass Income Tax increases with ‘salary sacrifice’ 

‘Salary sacrifice’ is the scheme through which employees pay into their pension. 

One way to enjoy a greater salary without being subject to higher Income Tax fees is if you choose to pay a larger percentage of your wages into your pension pot. While this doesn’t provide a short-term solution to rising costs, it does mean that you can confidently negotiate a higher salary without incurring increased taxation. 

As this contribution comes from you and not your employer directly, it does not cost organisations more. So, for those looking to advance their career but not diminish their earnings due to fiscal drag, temporarily investing more in your pension pot and then changing your preferred contribution after April 2026 could be a logical step to shore up your finances in the long term.

Use your Spousal Income Tax Allowance

If you are married or united under a civil partnership, you have the option of transferring some of your spouse’s Income Tax Allowance to yourself - or vice versa.

This allows your partner to legally transfer up to £1,260 of their Personal Allowance to you and could reduce your tax by up to £252. This is a good option if your spouse is not currently working, is retired or has been made redundant, as it entitles your household to a greater proportion of tax-free income - which could lighten the load on those day-to-day expenses.

Negotiate a higher salary 

While this is part of the larger problem and a natural result of global inflationary pressures, it can also be an immediate solution that offers short-term spending power and long-term career advancement benefits.

By applying for another job or negotiating a higher salary in your current position, as long as the pay rise is higher than inflation, you can confidently offset your tax liability and enjoy more disposable income.

Of course, there are just some of the options open to you. For more information and to explore your financial opportunities, get in touch with our expert team today. 


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Tax relief matters

How to build a bigger pension pot

If you’re under 75 and have relevant UK earnings, you can benefit from tax relief when contributing to a personal pension like a Self-Invested Personal Pension Plan (SIPP) or workplace pension scheme within the annual allowance.

The government provides basic rate tax relief of 20% through ‘relief at source,’ which is claimed by the pension provider from HM Revenue & Customs (HMRC). For instance, if you invest £8,000 in your pension, the government adds £2,000, making your total contribution £10,000.

Higher and additional rate taxpayers can also reclaim further tax relief on their pension contributions. In the 2023/24 tax year, the higher rate tax starts at just over £50,000 of income per year, while the additional rate begins at £125,140. The tax rates for earned income at these levels are 40% and 45%, respectively.

This means that higher and additional rate taxpayers can reclaim an extra 20% or 25% on their pension contributions. Using the previous £10,000 example, these taxpayers may be eligible for an additional refund of £2,000 or £2,500, respectively.

To claim this relief, follow these steps:
Contribute to a pension scheme: 
Ensure you’re contributing to a registered pension scheme through your employer or a personal pension plan.
Check if you receive tax relief automatically: If you’re part of a workplace pension scheme, your employer might already deduct your contributions from your salary before applying tax. In this case, you’ll automatically receive tax relief at your highest income tax rate.
Claim additional tax relief through Self Assessment: If your pension provider claims tax relief for you at the basic rate (20%), and you’re a higher rate taxpayer, you’ll need to claim the additional tax relief through a Self Assessment tax return. Register for Self Assessment on the HMRC website and complete the form annually, declaring your pension contributions.
Adjust your tax code: If you don’t want to file a Self Assessment tax return, you can contact HMRC to adjust your tax code. Provide them with details of your pension contributions and relevant information about your income. They’ll update your tax code, and you’ll receive the additional tax relief through your PAYE (Pay As You Earn) system.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.


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Investment mistakes to avoid

Errors can have long-lasting consequences, setting you back financially

As individuals, we all have diverse visions for our future - some may be considering the forthcoming five years, while others may be focused on the next two decades. Regardless of your aspirations, ensuring that your investments are well-positioned and diligently contribute toward achieving your desired outcome is crucial. Ultimately, making the most suitable choice for you and your objectives matters most.

Investing is necessary if you want to grow your money over time – the spending power of cash tends to go backwards because returns on it aren’t enough to keep up with inflation.

Frequent mistakes can accumulate and potentially diminish your portfolio’s worth. Perhaps you need to accurately assess the time frame required for your assets to grow, or your investment goals might not align with your current portfolio approach.

What do I need to consider?
Inflation risk: 
Keeping all your money in a savings account can cause its value to erode due to inflation. Historically, investing in the stock market has been a more consistent way to combat inflation.
Emergency fund: Set aside an emergency fund, typically six months or more, to cover unexpected expenses without resorting to loans or selling devalued investments.
Tax matters: Utilise tax-efficient wrappers like Individual Savings Accounts (ISAs) or pensions to boost your finances and minimise tax liabilities.
Spread risk: Spread your investments across different asset classes, sectors, and regions to minimise losses when one type of investment underperforms.
5 years or more: Invest for at least five years with a long-term perspective, allowing your money to recover from market downturns and grow in value.
Don’t panic: Avoid panic-selling during market drops, as this could crystallise losses and cause you to miss out on potential gains.
A loss is a loss: Don’t hold onto underperforming stocks in hopes of recovery; reinvest in better prospects for long-term gains.
Stay focused: Don’t copy others’ investment choices mindlessly, as they may not suit your circumstances.
Expert advice: Investing is complex and requires time, research, and knowledge. Consider seeking specialist advice.
Learn from errors: Reflect on past investment decisions, both successful and unsuccessful, to avoid repeating mistakes in the future.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.


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The gender pension gap issue

73% of women make only minimum pension contributions, compared to 58% of men

A significant difference in pension contributions between men and women has been revealed from a recent study[1], highlighting that women are more likely to pay the minimum required amount into their pensions under auto-enrolment.

According to a study, 73% of women contribute the minimum amount (5% of their salary, topped up with 3% from their employer), while only 58% of men do the same. Additionally, 25% of men regularly contribute more than the minimum, compared to 17% of women. Moreover, 10% of men occasionally make extra lump sum contributions, whereas only 5% of women follow suit.

Working days for extended periods
This disparity in contribution levels contributes to the UK’s gender pension gap, which is estimated to be nearly 40% in 2019/2020[2]. Women not only contribute less as a percentage of their salary but are also 32%[3] more likely to reduce their working days for extended periods, affecting their earning potential.

Factors like falling below the auto-enrolment threshold, taking career breaks for motherhood or caring responsibilities, and long-term health conditions further impact women’s financial futures.

Cultural shifts in recent decades
The difference in contribution levels will ultimately lead to financial inequality in retirement. Even though auto-enrolment has successfully brought over 10 million people into the pension system, the current minimum contribution levels are insufficient for a comfortable retirement.

Life stages affecting women’s earning power exacerbate the gender pension gap. Despite cultural shifts in recent decades, women still bear the brunt of caring responsibilities for children and vulnerable adults. The government’s free childcare offerings may help improve the situation, but further expansion of the auto-enrolment scheme is necessary to make significant progress.

Source data:
[1] Boxclever conducted research among 6,000 UK adults. Fieldwork was conducted 6th Sept – 16th October 2022. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.
[2] ‘The Gender Pension Gap’, House of Commons Library, 4 April 2022.
[3] ‘Caught in a gap: the role of employers in enabling women to build better pensions’, Phoenix Insights, December 2022.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.


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How to use your inheritance most effectively

Making informed decisions to managing the funds wisely

Inheriting wealth can be both a blessing and a challenge. It presents an opportunity to improve your financial security and accomplish your goals but it also involves managing the funds wisely. Cash flow modelling is essential to help you make informed decisions about using your inheritance effectively.

Using investment growth, inflation, and interest rates assumptions, cash flow modelling creates a comprehensive picture of your current and future financial situation.

Analysing your financial situation
Creating an individual cash flow plan involves thoroughly analysing your financial situation, goals, and future needs.

Gather information about your current financial situation. This includes your income, expenses, assets (property, investments, pensions, etc), and liabilities (such as loans).

Understanding of your net worth
Establishing an overview of your assets. Determine the value of your property, investments, and savings. It’s essential to have a clear understanding of your net worth.

Identifying your financial goals and commitments. Consider short-term and long-term goals, such as saving for a house, funding your children’s education, or planning for retirement.

Achieve financial independence
Creating a lifetime cash flow model. Considering your goals and commitments, this plan should project your income, expenses, assets, and liabilities over time. It will help you estimate your future cash flow and determine if you’re on track to achieve financial independence.

Evaluating your risk tolerance and investment strategy. Assess whether your investment strategy aligns with your risk tolerance and financial goals. Adjust your portfolio as needed to ensure it’s optimised for your needs.

Minimise tax liabilities
Planning for potential risks and liabilities. Ensure you have adequate insurance coverage to protect against unforeseen events such as death or disability. Additionally, consider strategies to minimise tax liabilities for yourself and your beneficiaries.

Developing an investment strategy for inherited wealth, capital, and surplus income. If you inherit wealth or have additional income, develop a plan to invest this money wisely to grow your assets and achieve your financial goals.

Future needs and goals
Monitoring and reviewing your cash flow plan regularly. Regularly update your cash flow plan to reflect changes in your financial situation, goals, and market conditions. This will help you stay on track and adjust to maintain your financial independence.

By following these steps, you’ll have a comprehensive cash flow plan that provides a clear picture of your current financial situation and helps you plan for your future needs and goals. This will enable you to make informed decisions about your finances and ensure you’re on the path to achieving and maintaining financial independence.

Here are some benefits of creating a cash flow modelling plan when managing inherited wealth

Clarity on financial goals
Having s cash flow plan helps you identify and prioritise your short- and long-term financial objectives, such as buying a house, starting a business, or funding your retirement.

Effective wealth management
With a clear understanding of your financial situation, you can make better decisions about investing, saving, and spending your inherited wealth, ensuring that it serves your needs and goals over time.

Risk assessment
By analysing different scenarios and their potential impact on your finances, a cash flow plan enables you to assess and manage risks associated with investments and other financial decisions.

Tax planning
Inheritance often comes with tax implications. A cash flow plan can help you understand your tax liabilities and plan accordingly to minimise the impact on your financial health.

Retirement planning
If you have long-term personal goals like funding your retirement, a cash flow plan allows you to see how much you need to save and what returns you need to achieve to meet those objectives.

Estate planning
If you want to pass on wealth to your heirs, a cash flow plan can help you determine the best strategies for preserving and distributing your assets following your wishes.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.


City skyline

How to build a diversified portfolio of investments

What is it, and why is it important?

Trusting that your investments are progressing toward your objectives is vital, allowing you to concentrate on the things you value most in life. This is why building a diversified portfolio is crucial to any successful investment strategy. 

Diversifying your investment portfolio can limit your exposure to any single type of asset, therefore helping to reduce the risk and volatility of your portfolio. The primary goal is to spread your investment portfolio across many different asset classes to mitigate the risk of each.

Achieve long-term investing success
Investing in multiple different asset types ultimately means that certain investments’ positive performance neutralises others’ negative performance. Whilst this may be tipped in one way or another, it yields long-term, stable returns and lower risk over time.

Building a diversified portfolio is essential for anyone wanting to achieve long-term investing success. With the right approach, investors can create a balanced investment strategy that helps them reach their financial goals while minimising risk.

Understand your risk tolerance
Before you begin, it’s crucial to assess your risk tolerance. This involves evaluating your financial goals, time horizon, and comfort level with potential losses. Knowing your risk tolerance will help you select investments that align with your goals and preferences.

Choose a variety of asset classes
A well-diversified portfolio may include asset classes such as equities, bonds, cash, and alternative investments like property or commodities. Each asset class has its own risk and return characteristics, so including a mix of them can help balance your overall risk.

Invest in different sectors and industries
Within each asset class, diversify further by investing in various sectors and industries. This helps to protect your portfolio from downturns in specific areas of the economy. For example, if you invest in equities, consider holding multiple sectors like technology, healthcare, finance, and consumer goods.

Consider geographical diversification
Investing in different countries and regions can also reduce risk. Other economies and markets may respond differently to global events, so having exposure to international investments can provide additional diversification benefits.

Regularly rebalance your portfolio
Over time, the performance of your investments will cause some to grow more than others. This can make your portfolio unbalanced and expose you to more risk than you initially intended. To maintain your desired level of diversification, reviewing and rebalancing your portfolio periodically is essential.

Monitor and adjust
Keep an eye on your investments and the overall market conditions. Stay informed about global events that could impact your investments, and be prepared to adjust your portfolio if necessary.

Building a diversified portfolio requires time, research, and ongoing management. However, the benefits of spreading your risk and protecting your investments from market volatility make it a worthwhile endeavour for any investor.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.