Investing is never a sure-fire way to make money – the value of your investments can go down as well as up, after all, and there's always the risk you could get back less that you put in.
There's no guaranteed way to get a better outcome for your investments, but there are a few things you can do to try to maximise your potential returns. Here are our top six suggestions.
Make the most of your allowances
ISAs and pensions come with allowances from the Government, making them very tax-efficient ways to invest your hard-earned money.
Remember, investments can go down as well as up and you could get back less than was originally invested.
The ISA allowance for the 2021/22 tax year is £20,000 – that’s up to £20,000 you can put away without paying Income Tax or Capital Gains Tax on any withdrawals you make or interest on your investments. But if you don’t use your full allowance this year, it’s gone – there’s no rolling over to the new tax year on 6 April.
So, the sooner you can start investing in an ISA, the better to make the most of your £20,000 each tax year. Plus, interest rates are currently low, and as a result, the interest you’ll get on a cash ISA is likely to be low too. If you’re willing to take a bit more risk, a stocks and shares ISA could make you more money over the long-term.
There are a few pension allowances and rules you need to be aware of, but there’s a lot to take in and this is just an overview, so you can find out more by reading what pension tax relief is all about.
Pension annual allowance
The pension annual allowance for the 2021/22 tax year is up to a maximum of £40,000. But what you can’t do is put away more than your annual salary and still get tax relief – so if your salary is £36,000 per year, that’s your cap.
The tapered pension allowance
The tapered pension allowance kicks in replace with if, when your taxable income and your employer pension contributions are added together, this comes to more than £240,000. The £40,000 annual allowance will be tapered down for these higher earners by £1 for every £2 they make over £240,000, down to a minimum of £4,000.
Pension carry forward
Unlike with your ISA allowance, the annual pension allowance allows pension carry forward – your unused annual allowance from the previous three tax years can roll over to the current one. But you must use all your current annual allowance first, then you carry forward the earliest of the three years’ allowance to the current tax year.
Pension lifetime allowance
The pension lifetime allowance is how much you can save in your pensions across your lifetime without facing any tax charges – it’s currently £1,073,100. Having a pension over this amount when you retire can leave you facing big tax bills.
Otherwise known as not putting all your eggs in one basket. Spread your money across as many different investments as possible so that if one goes down, another one may remain stable or even go up.
You can aim for diversification by investing in a range of sectors, geographical locations and assets, like shares, property and bonds.
Sound like hard work? Take a look at investment funds. Each fund is like a ready-made multipack of different assets, so they're often seen as a shortcut to diversification. Investment platforms can select funds for you based on how risky you want to get with your investments, or you can pick your own from their shortlist. If you're a confident investor, you can even pick from every single fund they have to offer.
Keep an eye on fees
If you're using an investment platform, you'll be charged a fee. It's usually a percentage of your total investment that's deducted monthly, quarterly, biannually or annually. The lower the fee, the more of your investment returns you get to keep, so it's worth shopping around to compare like-for-like services.
Stay in it for the long haul
Investing certainly isn't a get-rich-quick scheme. To make the most out of your investments, you'll need to leave them alone. Hold onto them for at least five years, preferably more, regardless of market ups and downs. The benefit of investing long term is that you'll be able to weather those dips in the market, while money invested for a short time won't have as long to recover from any drops in value.
Make changes if you need to
While it's a good idea to invest for the long term, there's no reason you can't change exactly what you're investing in. How risky you want to be may change as you approach retirement, for example, as you want more guarantee that you're going to have a pot of money to see you through your golden years. So you could switch your portfolio so it's invested in less volatile assets.
Keep an eye on what's happening in the world too – economic or political events could impact your portfolio, so don't be afraid to make some adjustments. Most investment platforms will be monitoring these anyway and will make the adjustments on your behalf, especially if your investments are actively managed.
Invest little and often
Imagine you have £10,000 to invest (lucky you). You could either put it into a portfolio of funds, all at once, and hope that the market performs consistently well to increase your investment month on month. Or you could drip feed that £10,000 into the portfolio over the course of a year (or more).
This second approach is known as pound cost averaging, and it's a way to try to cushion your investment against market falls. It works because some months your shares will be more expensive if the market is doing well, but sometimes they will be cheaper if the market is down. So the cost of your shares will average out over time.
Pound cost averaging is also a great way to instil good investing behaviour: investing little and often and not trying to time the market.
Whether you want to be hands-on with your investments or just monitor how they're doing from time to time, MyAviva allows you to check your Aviva Pension, Stocks & Shares ISA or Investment Account whenever you like.