Investment and ISAs

I have been asked to talk about pensions, which i plan to do, but plan was to leave it till the end, as it is very big and complicated with lots of calculation. So here i will talk about Investment. Investment is defined in Merriam Webster dictionary as the outlay of money usually for income or profit. Sorting our the finances and having some sort of passive income is never a bad idea but to know how much you are going to get serious about it, then you need to set out your financial plans and goals? 

Once you do then it is time to invest and here is what i will try to clarify, how to invest? What can you invest in? And hopefully avoid or pay less taxes (as far as an outsider like me could know)

First, all the recommendations and advice from financial advisors is to set up an emergency fund. Which is cash money that you put in an easy accessible bank account, that money should cover your expenses for 3-6 months at least, in case of job loss or any big unaccepted expenses. I know that we medics are lucky, and we would hardly struggle to find a job at least in the mean time and particularly after starting work in the UK and having some UK experience but still it is a good idea to set up the emergency fund for any unexpected circumstances. It is also very useful when you invest, so that if you have an emergency you wouldn't need to sell your investment at loss or at minimal profit.

But before talking about possible investment options, at least the ones i am aware of. I have to talk about ISAs!

ISAs stands for individual saving account. They are accounts which works the same as normal account but whatever money you make using those accounts, you don't pay income tax or capital gains tax on it.

To better explain the benefits of an ISA, i will mention the possible taxes you might have to pay on your "savings". Obviously will not talk about income tax which you pay already.

1. Capital gains tax
This is tax you pay when you sell an asset that has increased in value. You pay a tax on the amount of the "increase" of your asset. The percentage you pay depends on what kinds of taxpayer are you (all medics are higher as far as i know) and whether that asset is a property or something else. (Examples of assets you might pay on, personal possessions that are worth more than 6000£, property, main home under some specific circumstances, shares in the stock market or business assets).
The one i am interested in the stock market shares and i will talk about that later.

2. Tax on your saving interests
There is a personal saving allowance which is 500 pounds for higher tax payer and 1000 £ for basic tax payer. So if you put your money in a bank and get interest on it, if you get more than 500 pounds per year you will be paying tax on it. Now with the interest rate of 1% you need to have a 50000 £ in the bank thats before paying tax on it.

That's where ISAs come in, as any increase in your money that is in ISA account is tax free. There are 4 different type of ISAs.

Worth mentioning is you have only 20,000 pounds to put across all your ISAs in a tax year, which is your ISA allowance

1. Cash ISA
It is the same as any other normal bank account but any interest you make is taxfree even if it is above the personal saving allowance

2. Stocks and shares ISA
You use this account to buy shares in companies UK and abroad. No capital gains tax on selling your shares and no tax on the dividends you get from the companies you have invested in

3. Lifetime ISA (LISA)
It is a different time of ISA, made specifically for either buying a house or for retirement. It is a kinda of replacement for the help to buy ISA. Basically the money you put in, the government gives you a 25% bonus (or taxback whatever you want to call it) but it has a maximum of 4000£ that you can put in per tax year. If you put in the max of 4000£, the government will put a 1000£. The catch is, you can only withdraw the money, including the government bonus in set circumstances which are
- Buying your first home
- Age 60 and above
- Terminally ill with less than 12 months to live

You can withdraw the money at any point but you will forfeit the government bonus and an extra penality, basically 25% of your money. So if you have 5000£ and you wanted to withdraw, 25% will be taken which is 1250£ leaving you with 3750£, 250£ less than what you started with. Also worth mentioning that penality was reduced to 20% during COVID, so if you wanted to withdraw till April 2021, you will only loose the government bonus.
The life time ISA can be cash or stocks and shares. Cash lifetime ISAs are usually free but in stocks and shares you have to factor in, the fees for the platform and managing ur fund. You can't use the money to buy a house except after 12 months from opening the LISA.

There is also a limit to the price of the house you are buying which is 450000£ in or outside London, which was an improvement from the old and now inactive help to buy ISA which had an upper limit of 250000£ outside London (and 450000£ inside London)

4. Innovative finance ISA (IFISA)
Last type of ISA which lets you invest your money in peer to peer lending. Basically you are lending your money out and then take it back with interest.

To open an ISA you have to be 18 years and older (16 for cash ISA). You have to be under 40 for the LISA. And you have to be resident in the UK.

For IMGs we fit the criteria for opening an ISA. You can open all different types of ISA but in the same tax year you can't have more than one of each. For example you can have one cash ISA, one stocks and shares ISA, one LISA and one IFISA. You can spread the 20,000£ across them in whatever percentage you want (obviously with the exception of LISA where you are allowed only max of 4000£)

Now you know where to invest, the question now is to what ts invest into? The answer to that depends on the answer to the questions in the intro and what kind of risk do you plan to take

1. keep the money as cash

Usually useful in short term goals, as for most investments to achieve the best outcome you need a longer time to reap the benefits. Make sure you use the ISA or LISA (particularly if you are buying home).  You can use comparison websites to check feedback about the different providers. I personally don't have a cash ISA but I do have a cash Lisa which I just opened. I used moneybox to open cash LISA cause i am hoping to buy a house in next five years if i can. I opted for moneybox cause the application and ease of use as per the comparison sites. Make sure you compare the market always before choosing and if you plan to buy a house after more than 5 years or you have already bought a house and still wanna use the LISA for retirement then go for the stocks and shares LISA.

https://go.onelink.me/5M0L?pid=share&c=RHLCS3

(This is my referral link for moneybox, currently there is no benefit for you or me if you use it)

2. Investing in the stock market 

Some people get worried about making that decision but once you look things up, you will find out that stock markets historically have recovered from all dips from the great depression till now, that might put your mind at ease. like everything else has to be done sensibly and you have to know that the higher the risk of loosing the money, the higher the opportunity of significant wins. That also all capital is at risk if a company goes under.

Investment in the stock market is too big to be covered in a section here and I will write later about it and my experience there so far. There are so many ways that you can dabble around at no risk. There are so many applications that give you virtual money that you can use in what looks like the real stock market, where you will see your capital goes up and down. I will put some links and as i said will talk all about them later in detail, all the pros and cons, recommended resources, websites and books.

Do you want to get a free stock share worth up to £⁠100?

Create a Trading 212 Invest account using this link www.trading212.com/invite/FMSyL1hh and we both get a free share!

https://etoro.tw/2Twz7qw

https://wahedinvest.com/

3. Buy to let property

One of the ways to invest that a lot of people are into. Personally it didn't really appeal to me in its traditional way cause i felt that before i go down that line, i need to buy my property first, also i think it requires a lot of time and i am not sure i would be able to put that money in with my career.

But i came across a sort of investing in buy to let which is called crowdfunding, basically whoever is doing it will raise the money upfront and buy a property, rent it and sell it as shares giving regular rent for the term agreed (lets say five years) and after that sell the property and pay the investors back as per their shares. The one i used was called yielders, there is another one which i didn't use is called igloo (i just checked the website and apparently they put everything on hold as they are applying for FCA)

Anyway on yielders there is a calculator that tells you projected income at the end of the term including rent. I put in about 200 just to try it out, i have been getting rent dividend about 1 pound but during COVID apparently whoever was renting had some issues and there was one or two months of missed rent which was paid back later but then now it went down to half a pound. So all of those risks should be put in mind, it is safe in the essence that their is a property that you own a part off and in worst case scenario you should get your money back, i would have said rent is more reliable to get but COVID made it less certain. The other big negative thing when using similar investment is reselling, it is not very easy and you have to display it in a secondary market, where you have to pay fees and wait till someone buys from you.

The other thing in yielders, the really good and short-term investment are reserved for top-yielder which has a minimum of 50000£ investment 

https://www.yielders.co.uk/onboarding/sign-up?ref=HBarkouk7611

There are other forms of investment that keep popping up but honestly i didn't check eg Vintagecars, Wine, Art eg, paintings, sculptures

If you have any questions so far please let me know. I think my next two posts will be about investment in stocks&shares, and pension and whether to pension or not pension.