Portfolio careers have become increasingly commonplace in recent years as people opt to earn their income from multiple roles. Also referred to as polyworking or a squiggly career, it usually involves a combination of freelance, contract and other types of employment, often in different sectors.
But while there can be real advantages to portfolio careers — such as the freedom and flexibility — there are downsides too. Perhaps the most obvious is the financial compromises it can involve, as portfolio careers tend to feature fluctuating and unpredictable incomes. This can make it difficult to plan ahead, especially when it comes to investments and pensions. So, what do you need to consider if you’re in a portfolio career and you want to make a success of investing?
Why do you need to invest?
You might wonder why investing for the long term is so important when you’re trying to make your portfolio career work. But there are several good reasons. For instance, knowing you have a long-term financial safety net in place can be invaluable peace of mind when the immediate future feels uncertain. In addition, there’s a decent chance you won’t have a pension set up for you by an employer, so the responsibility for your financial future lies entirely with you. And don’t forget that your investments can provide another source of income if you need it, whether now or further down the line.
Know where you stand
One of the challenges of managing different incomes is that it can be tricky to see the full financial picture. So, a good place to start is to create a simple budgeting document where you have a record of the money you have coming in and your regular expenses. This can include listing all your different income streams — including any irregular side hustles — and estimating how much you earn from them.
Take advantage of the one of the many money management apps available. They can pull your different accounts and assets — including savings, current accounts and investments — under one roof. This makes it easier to keep an eye on your different accounts and assets, monitor your spending patterns and generally manage your money more effectively, helping you understand what’s available for saving and investing. We have more on the best savings apps available.
Set some goals
It can help to have some extra motivation for long-term investing when your income is uncertain or fluctuating, so consider setting some goals. It might be about having peace of mind that you can have financial independence later in life as well as now, or it could be more specific. For those in portfolio careers, the latter might include being able to carve out some proper time off each year, funding career development or setting up (or expanding) a business. While cash savings are best for short-term goals, stock market-based investments are better for anything five years or more in the future as your cash will be eroded by inflation over time.
Build an emergency fund
When your income is seasonal or unpredictable it can be especially useful to have a short-term pot of money to fall back on should you need to cover your outgoings in the event of cashflow problems. This usually entails keeping a decent amount of money — perhaps the equivalent of three to six months of your earnings — in accessible cash savings.
Get into a habit
Whether it’s cash savings, a Stocks and Shares ISA or a pension, one of the best things you can do is set up a regular pattern of payments and contributions. Once you’ve done this — such as a £25 monthly standing order into an investment ISA and/or personal pension plan — it’s easier to just continue making those payments and perhaps reduce or increase them as and when circumstances demand.
Take advantage of pensions
If most of your employment is of a contract, freelance and/or self-employed nature, you probably won’t have access to a workplace pension. But you can still open a personal pension — all you need is your National Insurance number. You then pick a provider and decide on the investments, which most providers will help with in some way. You can open a personal pension from £1 a month with some providers, although most (including Self-Invested Personal Pensions (Sipps)) require monthly investments of £20, £25 or £50 a month.
Pensions are great value: contributions benefit from tax relief, which means that a contribution of £10,000 made by a basic rate taxpayer only costs £8,000 after income tax relief. For a higher-rate taxpayer, the net cost is just £6,000.
Can you get a polygamous working bonus?
A growing number of people are holding down more than one full-time role, taking advantage of remote working to juggle employers (without their knowledge). While this is almost certainly against their employment terms, it’s not technically illegal (though it seems likely to result in burnout and could have tax implications). A polygamous worker can have pension plans with each employer — and this can really boost their pension over time, according to Standard Life.
It used the example of someone working from age 22 to 68, paying the minimum 8% into their pension (5% employer, 3% employee), and — crucially — holding two jobs and paying into two pension plans for ten years between 35 and 45. They could build up a pension pot of £257,000 by age 68 (adjusted for 2% inflation), £47,000 more than if they’d worked one job for their entire career.
Benefit from the little-and-often approach
Even a small amount set aside each month can build up into a very useful fund over time. This is due to the snowballing effect of compounding, when the profit generated by investments is reinvested in order to generate its own growth. Drip-feeding your payments over time can also take some of the emotion out of investing by helping prevent you from fixating on short-term stock market ups and downs. Most investment platforms allow you to invest from around £25 a month, and several have minimum investment levels of just £1 a month.
Tailor it to your circumstances
Conversely, your income patterns might make it easier to pay into investments or pensions through lump sums as and when you can, rather than contributing the same amount each month. When it comes to pensions, there’s some extra flexibility that might work well for you. While there’s a cap on the amount you can pay into a pension each year, under the Annual Allowance rules, there’s also the option to carry forward.
This involves using any unused allowances from the previous three tax years to maximise your pension contributions in the current tax year. And if you don’t use all your allowance in a tax year, you can carry it forward and still benefit from it in future. So, if your income tends to be much higher in some years than others, you could consider paying more into your pension during the more bountiful times and reduce it when your pickings are a bit thinner.
Diversify your portfolio as well as your career
If working in a variety of different sectors provides peace of mind from a career perspective, the same principle applies to investing. A diversified portfolio is one in which your money is spread across different companies, funds, regions, sectors and asset classes rather than relying on a single basket of stocks or companies.
Smart investors spread the risk by buying funds that give exposure to different markets and asset classes. You should also diversify with cash, bond and mixed asset funds.
Get the best from your investment platform
Whether you’re new to investing or a relatively old hand, choosing the right platform for you will help you get the best from it. There’s a wide range of options available, and the right one for you will depend on factors such as the amount you’re investing, the level of help you’d like, the investment choice you want and the channel through which you prefer to view and manage your investments.
Head over to what to look for in an investment platform, and use our free platform comparison tools to understand which platforms cater for your investment needs at which price.
Photo by engin akyurt on Unsplash
