Liontrust Views Spring 2023 - Flipbook - Page 12
There are risks. Markets are vulnerable to unexpected events, whether
Two methods commonly used to accumulate the
war in Ukraine, a pandemic or natural disasters. However, taking a
required capital include ISAs and the tax-free lump
medium to long-term approach – five years minimum, ideally 10 to
sum element of personal pensions.
15 years-plus – can help smooth out ups and downs.
The main reason to use these vehicles to
There are key life events where the benefits of investing will be
repay a mortgage is because you expect the
realised.
investment returns – which are tax-free – to
outstrip the interest rate payable on the
Saving for a home deposit/wedding
mortgage.
A home is usually the biggest purchase of our lives, typically financed
through a mortgage. Some mortgages can provide 100% of the
Paying down a mortgage as early as
finance to buy a home, but many require a deposit of 5% or more.
possible might appeal to those who prefer
to reduce their risk exposure. But given
Meanwhile, according to a survey by wedding planners Hitched.
relatively low mortgage rates, the potential
co.uk, the average wedding now costs £18,400, highlighting the
investment returns of higher-risk assets over
need for healthy savings or investments.
the 25-year term common to most mortgages
is an attractive option for those comfortable
For people looking to raise a deposit quickly, a savings account,
with the risks.
preferably within an Individual Savings Account (ISA) wrapper, is an
option. Alternatively, a fixed-term bond could provide a guaranteed
Investing for retirement
income and payout.
The state pension is unlikely to provide the
standard of living in retirement that most of us
There are key life events
where the benefits of
investing will be realised.
expect. This means investing to ensure financial
security in retirement is key.
Establishing the planned date of retirement will
determine the investment timeframe available and the
relative risk profile of the options you choose.
Those with more time and greater risk appetite may prefer to invest in
equities, possibly through a stocks and shares ISA.
The second issue is how much to invest. As a general
guideline, experts suggest saving a percentage of your
Investing for school fees/university
income that is half your age.
The Independent Schools Council estimates the average cost for a
private education is around £15,655 a year for a day pupil, and
The best tax treatment is available on personal pensions,
£37,000 a year for boarding fees.
self-invested personal pensions (SIPPs), small self-administered
schemes (SSASes) and employers’ defined contribution and final
Those looking to pay for a child’s education should therefore start
salary schemes.
saving early. While interest rates have risen recently, they are still
outstripped by inflation so investing in equities has potential to deliver
These plans offer various tax breaks, including rebates on
higher returns over the longer term.
contributions, so that no tax is paid on contributions. Furthermore,
25% of the pot can be taken as a tax-free lump sum after the age of
Taxes on these gains can be avoided if the investment is made via an
55, although any income taken is taxable.
ISA, which is exempt from capital gains and income taxes. However,
a JISA should not be used to save for school fees because the funds
Many investors will be looking for their investments to provide a
cannot be accessed before the child turns 18.
retirement income. Rising rates have boosted annuity rates to a 14year high – good news for those considering this option.
Investing to pay off the mortgage
For many, their home is the most valuable asset they will ever have
Alternatively, continuing to invest your portfolio and drawing an income
– and involves the biggest transaction of their lives.
from it can help to ensure that your income is insulated from inflation.
While taking out a repayment mortgage will ensure the debt is
Wherever investors decide to put their money, assessing their goals
repaid over the term, those opting for interest-only mortgages will
and planning for different stages of their lives can help to ensure a
need to repay the loan principal at the end.
smoother financial ride through life.
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LIONTRUST VIEWS – SPRING
