As highlighted in our previous articles, today’s Generation Y are facing some tough challenges when it comes to planning for their financial future. Whilst auto-enrolment schemes have helped to encourage a culture of saving, student debt, stagnant wages and rising inflation have meant that many millennials aren’t able to put away as much as they would like to for retirement.
With interest rates sitting so low, placing savings into a traditional bank account is only going to generate minimal returns. Instead, here are a range of investment options that millennials can easily engage in, that could get their money working as hard as they do.
Also known as ‘crowd-lending’, Peer-to-Peer websites provide a platform for matching borrowers with lenders, with the main USP being that, with no banking intermediary, borrowers often get slightly lower rates and savers potentially may get improved returns.
You do not have to invest large sums of money and you are covered by the Personal Savings Allowance, meaning any basic-rate tax payer can earn up to £1,000 per annum interest tax free and any higher-rate tax payer £500.
You can find out more about P2P Lending in our article here.
A mutual fund is an investment vehicle that allows investors to pool their money for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s investments and attempt to produce capital gains and/or income for the fund’s investors. They are ideal for those who do not want to invest in the financial markets themselves as the professional fund managers will choose the right investments on your behalf. However, as they are actively managed, you are paying for that person to select your investments and, thus, the fees are higher than non-managed investment vehicles.
These funds are usually invested across numerous asset classes, which provides you with a more diversified portfolio and therefore spreads your risk.
You can find out more about having a diversified portfolio in our article here.
Whilst many people have successfully grown their money on the stock market over the years, plenty have suffered painful losses too. It is therefore wise to do your homework first and to manage your own expectations of the returns you hope to make.
Stocks have the potential to make you money in two ways; via capital growth as the share price increases and as an income paid in the form of dividends. However, shares are subject to a number of external factors, such as competitor behaviour, merger and acquisition activity and the economic environment; they are therefore better when viewed as a more long-term investment, as any short-term fluctuations can be absorbed over time.
ETF’s are marketable securities that trade like stocks. They track indexes, commodities, bonds or a collection of assets such as an index fund and they will rise and fall in line with the respective market into which they are invested.
ETFs are also diversified, offering you the chance to choose and spread your level of risk.
As with Mutual Funds, Bond Funds are managed by a dedicated manager, which will incur extra fees that should be considered before investing. A bond is effectively a loan that you make to a government or company in return for a pre-determined rate of interest which is paid out at regular intervals (often monthly) over a specific period of time. Once the bond matures (on a set date) you are paid back your original loan amount. Individual bonds are generally sold at their maturation date however some fund managers do sell them early and re-invest the proceeds.
Bonds are generally considered to be a ‘safe’ investment, as the company you are loaning to is contractually obliged to pay the interest on a bond. However, if the company defaults on their loan, the value of the bond can fall.
There are other forms of investment available such as cryptocurrency, which could also be considered.
We are not authorised to discuss or advise on cryptocurrency. Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional. Capital is at risk; investments and the income from them can fall as well as rise.
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As tax year end approaches, there is still time to make use of your available reliefs and allowances.
This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.
As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.
It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.