– Stéphanie Tumba
With a new year come opportunities to get involved in a new field. Many people are realising the potential of investing in businesses or real estate as opposed to keeping their funds sat in savings accounts and this can turn into a lucrative business if you make reasoned and strategic choices. With many people not knowing where to start on their investment journey here are my 5 top tips for getting starting in investing so that you are primed to for investment success.
1/ Only invest money you can lose. First and foremost, keep this golden rule in your mind. It may seem like common sense but many first-time investors are drawn into ‘too good to be true’ deals and invest way more than is sensible initially, blinded by the potential returns. In reality, there is no such thing as a ‘certain’ investment as there is always a chance things may not go to plan; the unfortunate reality is statistics show that 7 out of 10 start-ups do not survive more than 3 years. Options such as property are often more attractive for initial investors, but investing in business can provide the opportunity to make a larger return, so it is important to be well researched and only put in what you can afford to lose to minimise initial risks.
2/ Educate yourself: A great way to build your confidence in the investment circle is to utilise the experiences and knowledge of others – they have gone through it so you don’t have to! There are many fantastic books that can equip you for your first investment; my first read was Angel investing: the gust guide to making money and having fun investing in startups by David Rose.
Similarly, you could join a business angel club so you can not only learn from more experienced investors through their events but it can also provide an invaluable support network throughout the investment process. Try to attend as many seminars, conferences, or trainings on the subject as you can before making your first investment and continue your learning along the way!
3/ Are you ready for a long-term relationship? – It is important to consider exactly what it is you want from your investments, besides the return. I recommend investing in start-ups only if you think it’s exciting and fun and you’re prepared to build some long-term relationships. If you want to make money quickly, you will probably have to consider another avenue. Start-up investment is a long-term commitment as most start-ups have negative cash flow for the first two to three years, meaning they lose more than they earn. Some only break even after 5 years so potentially avoid this area if you are looking for a speedy exit. However, if you want to create a long-term relationship and see the progress along the way, consider start-up investment.
4/ Diversify your portfolio – It is important throughout your investing career that you do not put all your eggs in one basket. I started by committing small sums to 5-10 companies. For any investment, the risk of failure is relatively high, no matter how good the idea sounds, so by having a large and diversified portfolio, you will avoid the “all or nothing” side. This could be achieved by mixing real estate with investment in start-ups. As previously mentioned, investment in start-ups requires building a relationship with those in the business so don’t invest in too many start-ups so you are not able to build in enough time to follow up. As a rough guide when you start to build up your investment portfolio, you could choose to test the water and invest £1000 in 5 to 10 different start-ups through platform such as Seedrs or other equity crowd funding platforms.
5/ Stay informed! If you have previous investment experience in stocks, you are probably used to checking their daily price and all the latest news online to inform yourself on when is the right time to buy and when is the right time to sell. If you decide to start seed money investments, a more practical mind-set is necessary. It is not only about having a general knowledge of the business and economic climate; you should be committed to establishing a relationship with your start-ups so you remain up to date with what’s going on in the company – this could be through weekly newsletters and monthly catch up.
Getting started in investing can be a daunting prospect if it is a completely new industry for you but the benefits that you can unlock are numerous, and are not purely monetary. By following these 5 top tips you will be able to put your best foot forward and begin navigating the world of investments more confidently
THE END OF YEAR TAX CHECKS THAT COULD SAVE YOU THOUSANDS
Charlie Reading, Founder and MD of Efficient Portfolio
After HMRC’s tax return deadline at the end of January, it can be tempting to drop your guard, believing that your new tax bill is a long way away.
It’s true, you’ve got a whole year until the next bill is due. What most don’t consider, however, is that there is a range of checks that you can do reduce that bill significantly.
Astute investors make use of their tax-free allowances every year and save thousands of pounds in the process. With such massive savings on the line, it’s a strategy to certainly consider.
With that, here are some easy checks and tips from Charlie Reading, Founder and Managing Director of Efficient Portfolio chartered financial planners, that could start you on your way to a much leaner tax bill:
1. Maximise Your ISA Allowances
Good returns, flexibility, diversity and tax efficiency should be key components in your financial strategy, and the ISA helps to deliver all of these. Historically, ISAs have been at the cornerstone of tax-efficient saving and are often referred to as one of the essential steps in your strategy, as they can help your wealth grow without you being penalised by heavy tax charges. They are an incredibly useful way of saving, and, as such, it is generally encouraged that people take advantage of their benefits. However, the ISA allowance is offered on a ‘use it or lose it’ basis, so if you fail to maximise it, you can’t make up the funds later on.
Up until 5th April 2020, you can contribute up to £20,000 into an ISA, and a further £20,000 from 6th April 2020, thereby sheltering up to £40,000 per person, as long as you’re over 18.
2. Top Up Your Pension While You Still Can
At the time of writing, the highest level of State Pension you can receive is £129.20 a week, which is frankly a paltry sum to live on. That’s why saving for the future is so important. It might seem wise to enjoy life now and worry about retirement later, but you’d only be damaging your future quality of life.
Pensions are a highly tax-efficient way of saving and now offer a great deal of flexibility in retirement, as when you retire you can gain access to 25% of your pension pot as a tax-free lump sum, with the remainder taxed at your marginal rate.
The current pension annual allowance is set at £40,000, so if saving for your future is a priority, it is worth investigating which pension is right for you, sooner rather than later.
3. Protect Your Estate from Tax
Inheritance Tax (IHT) is a concern for people from all walks of life. If you are hoping to leave a legacy to your loved ones, the last thing you would want is for that legacy to be taxed at 40% and lost to the Government.
One simple way of combatting this is to consider using your annual IHT allowance. During your life, you are allowed to give away £3,000 per year without incurring any IHT charges upon your death. There are of course downsides to this, in that you lose all access and control over the money, but it may be a tax-efficient strategy to consider.
4. Don’t Overpay Your Capital Gains Tax
The final tax consideration at this time of year is Capital Gains Tax, which is also given on a ‘use it or lose it’ basis and is currently set at £12,000. The issue of Capital Gains Tax is most acute if you hold investments which have grown above your tax-free allowance.
To ensure you make the most of your Capital Gains Allowance, it is generally recommended to sell down a portion of your portfolio to realise the growth made, but only enough to maximise your allowance, is the most prudent strategy.
These funds can then be used to fund any outstanding allowance on your ISA, for example. The advantage of doing so is that by placing your money from a taxable to non-taxable environment you have the potential for further growth, and you benefit in the longer term by potentially reducing a future bill.
There’s plenty of time left before the taxman comes knocking once again, but there’s no better time than the present to start looking into how you can save you and your business thousands of pounds simply through tax allowances you might not have previously been aware of.
HOW TECHNOLOGY IS FUTUREPROOFING STOCK MARKET TRADING
Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange
Markets are shifting, there’s no doubt. Amid all the disruption and volatility from the past year, the Swiss Stock Exchange asked traders about what they expected in 2020 and beyond in our industry survey. The findings point to a rise in digital to help traders content with external forces.
First and foremost, traders are enthusiastic about what digital assets can offer.
Two thirds of traders polled said they’d had a marked rise in interest from their clients for digital assets and crypto-products. Given the interest, traders are increasingly bullish about the potential of these products – so much so that 80% have predicted an increase in overall demand in the long term. Market users believe these assets will help generate cost synergies and streamlining trading and settlement processes by creating efficiencies and ultimately reducing costs.
Our 2019 results reflect what traders have told us when it comes to digital assets and products. Last year, we saw significantly higher trading volumes from products with crypto currencies as underlyings. Overall volumes grew by +8.5% over 2018, but the increase in crypto products alone was +17%, reaching CHF 518.2 million ($534.54 m). There was a year-on-year increase in the number of transactions, as well (+21%): 19,636 trades in total.
The potential digital assets hold is clear – evidenced by the building of the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
According to traders, artificial intelligence (AI) is expected to bring further benefits to market operations.
Two thirds of our survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect it to reduce the cost of trading. Innovation in AI is already – and will continue to be – a key driver in making our industry more effective at withstanding future risks and challenges both within and beyond the market itself.
In Europe, there is growing momentum behind calls for shorter trading hours – this trend was reflected in our survey as well.
Industry groups such as the Investment Association are advocating for stock market trading hours to be cut from 8.5 to 6.5 hours to open the industry to working parents and women who cannot commit to such long workdays. We found traders were largely supportive of this, with many saying that it could even facilitate operational benefits. The roll of AI is clear here in improving efficiency while minimising time wastage: 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity.
Beyond the market itself, geopolitics continue to shape wider market sentiment.
It comes as no surprise that four fifths of traders said their strategies have been – to some extent – influenced by Donald Trump’s tweets. Interestingly, only 39% of those polled viewed Brexit as an influencing factor in trading activity, while three quarters believe the US election will drive trading activity in 2020 and 65% acknowledged trade wars would also have an impact.
More broadly, traders are split on the state of the global economy – 58% are bracing for a global recession while 42% predict stable macro-economic conditions over the next three years. What seems clear is that whatever happens in the wider economy, traders are making headway with new technologies that can improve their strategy, efficiency, and overall market health.
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