You might be au fait with the idea of financial resilience and might usually think about it in terms of protecting yourself from the unexpected. After all, we are often reminded of the importance of having an emergency fund in place. But what you might not be quite so familiar with, is the idea of being prepared for the expected, too – for the big moments that matter the most.
Camilla Esmund, senior manager at investment platform, interactive investor, said: “Whether it’s a dream holiday, a new baby, buying a home, or building a comfortable retirement – major life events can come with equally major price tags.” Here we take a closer look.
Time to start getting financially ready
We are often well-versed at preparing emotionally for life’s big occasions, from births and birthdays to marriage and buying your first home. But what we might not be quite so good at is preparing ourselves financially. In some cases, that side of things can be an afterthought – not to mention the fact the financial landscape isn’t always easy to navigate. Esmund said: “When it comes to getting financially ready, not everyone is aware of the tools available – or just how valuable they can be.”
It’s nicer with an ISA
If you want to get ahead of the game, then individual savings accounts (ISAs) have to be part of the plan. The problem is, despite ISAs being one of the most accessible and effective ways to build-long term wealth, worrying findings from The Investment Association show that nearly one in five UK adults have never even heard of a stocks and shares ISA.
Miranda Seath from the Investment Association, said: “ISAs are an important, tax-efficient tool to help people to achieve their financial milestones, whether that’s buying a first home, preparing for retirement, or simply securing their financial future. For many, they are also an important first step towards getting started with investing. Yet our research has highlighted a significant knowledge gap between those who are already investing and those who are yet to get started.”
Given stocks and shares can achieve better returns than cash savings over the long-term, this makes for concerning reading. Seath added: “This means that people across the UK are missing out on the benefits and growth potential investing can bring.”
(Though it’s important to remember that no investment is without risk – and that you could get back less than you put in).
Investing shouldn’t be viewed as stressful
At the same time, separate research conducted by Censuswide on behalf of interactive investor found that more than half of adults were feeling particularly stressed when thinking about investing for the future. It also revealed that a fifth of adults in their 20s find the thought of investing too stressful to make a start. These are perceptions which need to change – with the help of the investment industry.
Edmund said: “Investing doesn’t need to be intimidating. It should be accessible to all, and a tool to help save for life’s most precious moments and memories, as well as building long-term financial resilience.”
So what exactly do I need to do?
Here are some tips to help you build financial confidence at various life stages:
Early adulthood: starting smart and building a habit
These years are filled with change and unknowns, such as graduating, getting a first job, travelling, or starting to put down a financial base. While savings can offer short-term security, a stocks and shares ISA can introduce young adults to long-term investing in a manageable and accessible way.
Esmund said: “The good news is that even modest monthly contributions – such as £25 a month – made early can benefit from compounding growth, helping you get ahead of life’s bigger financial goals.” This can also help younger people develop a health investing habit for the long term. You can even set up a monthly direct debit to automatically transfer the money – leaving you with one less thing to think about.
Family, home, and career changes
Our 20s, 30s, and 40s are full of milestones ranging from buying a first home to starting a family – or moving up the career ladder. Many of these require some financial planning, given this era of life can be very busy, you may not have the time – or inclination – to build your own ISA portfolio and take care of it. This is where you might want to look at options such as a managed stocks and shares ISA.
Esmund said: “This period of life can be an expensive time but again, ISAs can provide the flexibility to save and invest for major costs. They allow access to funds without restrictions, making them a useful complement to your pension savings.”
Planning for your children’s futures
Both parents and grandparents will be keen to give children a valuable head start, and this is where Junior ISAs come into their own. These vehicles offer a smart and tax-efficient way to tuck money away. With annual tax-free contribution limits of £9,000, stocks and shares Junior ISAs can deliver stronger returns than cash savings, and especially over 18 years of potential investment growth. As an added bonus, these accounts can be a great way to engage children on investing from a young age.
Preparing for retirement and beyond
While retirement might feel a long way off for some, giving some thought to this period of your life as early as you can gives your investments time to grow. Alongside a pension, stocks and shares ISAs can offer a valuable second pot for long-term planning – with the added benefit of flexible access and tax-free withdrawals.
Many people use ISAs in later life to generate income, and to support lifestyle goals – such as travel – or to supplement part-time work as they transition away from full-time employment.
Don’t overlook investment ISAs
It might feel as though there’s a lot to take in here, but the key message is this: don’t overlook the role of stocks and shares ISAs when it comes to saving for life’s big moments. Esmund said: “Remember, you are not restricted to just investing in individual companies. You can choose to invest your money in a wide range of shares, funds, bonds and more. In fact, it’s important to diversify. Your focus needs to be on building a well-balanced ISA portfolio for the long-term.”
Investment platforms can help you put a portfolio together. While some give you the tools to do it all yourself, others offer ready-made portfolios and a helping hand. You can find the best platform for you by using our free comparison tools.
5 things to remember
Don’t make the mistake of thinking you need to invest large sums
Even a small regular direct debit into an ISA will build a good habit, harnessing compounding over time.
Let time do the heavy lifting
The earlier you start, the more time your money has to grow.
Keep an eye on fees
Over time, platform fees can quietly chip away at returns. A flat-fee provider can help you hold on to more of what you earn.
Stay invested
Don’t forget that time in the market – and not timing the market – is what counts.
Stay diversified
Be sure to spread your investments across sectors, regions and asset classes. This can help build a weather-proof portfolio to help navigate the inevitable ups and downs in the markets.
Seek advice
While the suggestions of what to do at the various life stages can be helpful, you need to remember that every investor is different. It’s essential for you to do what is right for you and your individual circumstances. If you’re feeling unsure or overwhelmed, you might want to think about speaking to a financial adviser who can help you navigate your way through the decisions you need to make.
You can find the best platform for you by using our free comparison tools.
Photo by Toa Heftiba on Unsplash
