Optimising your wealth planning is a great way to make your new year a successful one.

‘Quitter’s day’ - when the majority of people let their new year’s resolutions lapse - is said to fall somewhere between mid- to late-January, dependent on which study you believe. The exact date of quitting is not as important as the fact that we routinely set ourselves up to fail when it comes to the more noble intentions in our lives.

Even though we know there are potentially great rewards for perseverance, often they are too indistinct or too far away for us to appreciate in the here and now. This is certainly true of the management of our finances.

Despite the fact that our finances play such a large and vital role in our lives, many of us leave all-important financial decisions to languish in the pending tray. But successfully building capital up for big projects, school fees or retirement, for example, requires some serious forward planning and regular attention.

It is the only way of making the problem go away...

With that in mind, here are a few investment-related pledges (let’s not call them resolutions) to make in 2022 that will help you reach your longer-term goals:

Complete a wealth health check

Even if we avoid a repeat of the economic disruption seen over the past few years, the damage the pandemic has already done to our economy will almost certainly trickle down and significantly influence our long-term spending and savings habits.

With markets currently buckling under the weight of inflation fears, the path of interest rate rises and events in Ukraine, China and the Middle East, not to mention the ongoing repercussions of Brexit, it is always instructive to take a step back and check if one’s financial objectives are (a) still valid and (b) likely to be met by one’s current savings or investment strategy.

But checking your spending plans, optimising your tax allowances and looking at inter-generational transfers are a few of the things that should be on your regular financial checklist.

No one likes going to the doctor for a check-up, but you always feel better for having undergone it; similarly, this will be true with your ‘wealth health’ check.

Avoid gambling your future on advice from ‘friends’

Friends waxing lyrical about Tesla, Bitcoin, or Darktrace might not be the best foundation on which to build for your future. Dinner-party tips have now been superseded by social media where friends or huge groups can share well-meaning advice.

Social media has played a huge part in fueling interest, particularly among younger investors armed with a credit card and an online brokerage account. Many have been targeted with adverts ranging from hyper-growth tech stocks, such as Tesla, to foreign exchange currency trading and exposure to cryptocurrencies. Another market craze, which gained traction last year, was around ‘meme stocks’ such as GameStop, BlackBerry and AMC Entertainment, which go viral online and build a cult-like following of retail traders who push the share price through the roof irrespective of any investment fundamentals.

Research by Nationwide found the most common reason for starting to invest among Gen Z was seeing the success of peers. The FCA also found that almost 60% said they were making decisions shaped by social media hype.

Building a stable store of wealth – one that will support you through good times and bad –requires skill and patience. Pick a seasoned professional to help guide you towards a sustainable strategy that will work for you and your family. Distinguish between investment and gambling.

Last of all, don’t, like Mr. Micawber, rely on the hope that ‘something will turn up’.

Maximise tax-efficiency

While taxes shouldn't drive investment decisions, maximising tax efficiency can make a significant difference to your wealth and therefore quality of life in the future. We would always advise clients to maximise their tax allowances and optimise the use of the investment wrappers available to UK taxpayers. Here are a few of the main ones:

Individual Savings Accounts (ISAs) – Sheltering cash savings or investment portfolios from tax within an ISA is really a ‘no-brainer’. Investors pay no Income Tax on the interest or dividends they receive within an ISA. Any profits from investments are free of Capital Gains Tax too. The current individual annual allowance stands at £20,000.

Lifetime ISA - Designed for first-time buyers between the ages of 18 and 40, the Lifetime ISA is longer-term tax-free savings account that will let you save up to £4,000 per year and get a government bonus of 25% (i.e., up to £1,000). LISA savings can only be used to purchase a house or help with retirement but, as with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within a Lifetime ISA.

Pension – Savings grow tax-free in a pension wrapper, such as a Self-Invested Personal Pension (SIPP), enhancing returns over the long-term. Retirees can take a 25% tax-free lump sum too; thereafter, income taken is liable to income tax at the pensioner’s marginal rate.

Saving into a pension scheme attracts tax relief, subject to certain limits. In simple terms, this means that for a basic-rate taxpayer, HMRC tops up their £80 contribution by a further £20 to bring it up to £100. Higher- and additional- rate taxpayers can reclaim the extra tax relief through their self-assessment tax return.

Share your wealth efficiently

Gifting money to children and grandchildren is a great way of setting them up with a lump sum that can help them to learn about the value of savings and – possibly – even investing.

UK taxpayers each have an annual IHT-free gift allowance of £3,000 that they can transfer to their children or grandchildren. The icing on the cake is that gifts received are not liable for Income Tax, either.

You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.

For parents wishing to build up a tax-free sum for children under 18, a Junior ISA can be used to invest or hold cash. JISAs can be contributed to by others such as grandparents or godparents, subject to the current annual limit of £9,000.

Aim to be a tortoise, not a hare, when it comes to investing for retirement

The knock-on effects of the enormous monetary stimulus that was pumped into the economy over the pandemic mean we are now starting to see rapidly rising inflation as well as tax increases.  Combined, these present a threat not only to the ‘real’ value of your investments but also to your disposable income.

While investing in higher-risk assets such as equities - or things like crypto-currencies - might seem a tempting shortcut to building wealth, the safer and usually more successful option is to focus on a long-term growth strategy via a portfolio diversified across mainstream asset classes.

For those who are closer to retirement, and therefore without the prospect of many years’ employment income, risk must be carefully managed to ensure preservation of capital.

The risk/reward profile of a low-risk capital preservation strategy often surprises because of the powerful effects of active reinvestment of the income returns, or compounding – what Einstein called the eighth wonder of the world. There are several multi-asset class funds targeting low-risk, absolute (rather than relative) returns available that perform this role well and which provide an effective solution in the ‘decumulation’ phase of life.


Gen-Z lured by Wolf of Wall Street as many invest in search of a quick return (nationwidemediacentre.co.uk)

Young investors driven by competition and hype | FCA


Important information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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