You may not even realise it, but you’re teaching your children financial lessons all the time. Your attitude to money and the way you handle it in your day-to-day life are more closely monitored by your children than you might think. And these behaviours will impact their future relationship with money. Investing, however, is one of the topics that is hardly mentioned at home, let alone taught in schools. And given how accessible it has become for the DIY investor, it could be wise to teach your kids some strong fundamentals.

Here, I take a look at five key investing basics that you should teach your teens before they leave home.  

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1. Start with the basics 

Investing can feel extremely complicated in the beginning. The lingo alone might make youngsters question their decision to learn about investing and finance. So aim to help them understand investing terminology by starting with easier concepts and progressing to more challenging ones. Aim to break down complicated words and topics and provide illustrative examples.

You could use a game-like format where you ask them questions and they win rewards for every right answer. This will solidify their conceptual knowledge about the investing basics early on and will set a great foundation that they could build upon. 

2. Use the brands your teens are familiar with

If you want to teach your children key investing basics, challenge them to build a portfolio of companies they are familiar with. Then ask them questions about certain consumer behaviours that have influenced their choices. They can initially start with their own preferences for clothing brands, tech companies and streaming providers.

In this way, you will stimulate them to look out for trends that create demand for new products like ‘green’ tech, healthy eating and much more. Again, make them think about how these consumer needs could affect their investments now and in the future. In this way, they will get used to looking out for signs that could guide them to the next big thing. 

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3. Diversification is key 

Make sure you discuss the old expression about not putting all your eggs in one basket. You want to instil in them that portfolio diversification could protect their investments by placing their eggs in several different baskets. Once they grasp the basics,  you can move on to spreading capital between different businesses, industries and geographies.

And while diversification could help to reduce the risk, make sure they also acknowledge that it will not automatically protect them from loss or ensure them a profit. 

4. Buy and hold 

Teens might think of investing as a game where they could turn a profit with a click of a button. It is your responsibility to teach your child that this is not a game and it involves real risks.  

In the short term, markets could go up and down in a quite unpredictable manner. However, in the long term, markets have historically moved upward. So. investing regularly in quality businesses and holding them for years, has proven to be a successful strategy for investors like Warren Buffett. It is important to be transparent with your kids. Teens need to know that success is not guaranteed.   

5. How compounding works

It’s important to teach your kids how compounding works. This is because they have the gift of time, meaning they can invest over many years. In this way, they can smooth out any market volatility and give themselves the chance to bag a profit.

Encourage them to find a compound interest calculator online and play around with it. Also aim to introduce them to practical tricks like the rule of 72 – a simple formula that could help them figure out how long it will take them to double their investment (72 ÷ interest rate = years). For example, let’s assume that they will make a 7% annual return on their investment. They can then take 72 and divide it by 7, which will show that their initial investment will double in approximately 10.28 years. 

We’ve got tons of helpful resources, including our investing basics guide which is an excellent place to start. 

The post 5 investing basics that you should teach your teens ASAP appeared first on The Motley Fool UK.

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What are index funds?

An index fund is a type of exchange-traded fund (ETF) or mutual fund that is designed to mimic the composition and performance of a market index (for example, the FTSE100). For this reason, index funds are also referred to as passive funds. So if the benchmark that the fund mimics goes up in value, so will the fund. 

On the other hand, we also have funds that are actively managed by portfolio managers. Their job is to choose what securities will make up the fund’s portfolio and their only goal is to try to outperform the market. If the fund manager makes poor investment decisions, this will cause the fund to underperform the market, which will essentially result in losses for the investors. 

So, with that in mind, let’s take a look at four reasons why I continued investing in index funds despite volatility in the market.

1. Low costs

One of the reasons I continuously invest in index funds is their low expense ratio. To put it simply, this is how much a fund charges for administrative expenses, including maintenance, reflected as a percentage of the fund’s average net assets. Meaning, that if the fund I invest in has an expense ratio of 0.10%, I will pay a £1 fee for every £1,000 I invest. And the best thing is that this is automatically deducted from my returns, so I don’t have to think about it too much. 

2. Tax-efficiency 

In the UK, every time you make a profit from selling a security for a higher price, you are obliged to pay Capital Gains Tax. Because of the way funds are set up (to mimic a benchmark), they don’t really make a lot of trades. This means they don’t generate a lot of capital gains. In case a fund sells an underlying stock for a profit, it is required to pass the earnings to its shareholders as distribution at least once per year. 

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3. Benefits of regular investment  

Investing in volatile markets is quite a stressful and tricky task, especially if you try to time the market. Instead, I’ve worked out an amount that I’m comfortable with and I invest it every week in a range of index funds. Adopting a long-term approach has really helped me to stay put during the more chaotic weeks. In theory, by pound-cost averaging over a long period, I should be able to ride out any future market volatility as long as I keep on investing in index funds. 

4. Diversification 

Creating a balanced portfolio is a challenging task. However, recent events have again proven that a diversified portfolio can shield an investor’s wealth. Investing in index funds is basically owning a piece of many companies in different industries. So in practice, you are already diversified by buying into several index funds.

Personally, I’ve spread 90% of my investments in index funds and I keep 10% for stock picking and riskier ventures. In this way, I have wide exposure to different asset classes and securities. 

If you want to invest but you’re not sure where to start, check out our investing basics. 

Please note that this article is for information purposes only and is not intended to recommend particular investment strategies. 

The post 4 reasons why I kept investing in index funds while markets were falling appeared first on The Motley Fool UK.

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Learning from the best in the investing game has always been a strategy worth pursuing. If you are committed to becoming a better investor, there’s a lot you can learn from the likes of Benjamin Graham, Warren Buffett and Richard Branson. These investors offer a wealth of knowledge that could help anyone become a better investor. Let’s dive straight in and explore their investing lessons.

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Benjamin Graham

We can only kick this off with the father of the value investing himself. In the words of Warren Buffett, Graham’s book, The Intelligent Investor: The Definitive Book on Value Investing, is one of the most influential investment guides ever written. It preaches the important investing principle of loss minimisation over profit maximisation.

Benjamin Graham wants investors to be guided by a rational plan that is completely shielded from the emotion that comes with both good and bad days in the market. He believes investors should ignore the short-term noise and keep their decisions focused on their long-term investing strategies. 

Warren Buffett

Investment philosophy 

One of the many investing lessons investors can learn from Warren Buffett is to have an investment philosophy. And for him, that has always been about having strong conviction. He strives to understand the businesses he invests in. If they make sense to him and he deems them worthy, he will bet big on them. If he doesn’t understand them or their industry, he will simply walk away without regrets. 

Invest in stocks over the long term

It’s no secret that Warren Buffett is a fan of investing in stocks that he plans to keep for life. He strongly believesn that over time, equities will do well. He also preaches the importance of taking the long-term approach to investing. This is why he is not so interested in the macroeconomics and the political environment that could affect the stock price in the short term. He is excited by the prospect of owning a piece of an amazing business with long-term earning potential. And this translates to more wealth for him and his shareholders.

His view is supported by the CNN Money guide on investment basics, which points out that over a longer period of time, stocks outperform all other investments. According to the guide, in the long run, stocks have returned an average of close to 10%. 

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Low-cost index funds

For the DIY investor, Buffett doesn’t recommend stocking picking. He advises investors to “own a cross-section of businesses that, in aggregate, are bound to do well.” It’s an investing lesson we can put into practice by investing in a low-cost index fund. It’s what Buffett plans to do. In the event of his death, his trustees are instructed to invest 90% of the cash for his wife into a low-cost S&P index fund.

Richard Branson 

You may be surprised by this entry on the list, but there is one valuable investing lesson that we could take from Richard Branson. When picking stocks, especially start-ups, for him the most important aspect is understanding the concept of the product at a first glance. This gives him confidence that the end user will also understand it.

He believes that if a product solves a problem for the customer, then there is a greater possibility of someone purchasing it. By extension, you can use this idea when picking investments. Before you invest, simply ask yourself how the company’s services or products are going to improve people’s lives. 

Final thoughts 

It goes without saying that fortune won’t come easy and you’ll make mistakes along the way. It’s essential that you do your own due diligence in the companies you plan to invest in. However, being aware of these great investing lessons could really help you maximise profits and minimise losses. 

The post Could these 5 investing lessons turn you into a millionaire? appeared first on The Motley Fool UK.

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We are almost at the end of the first quarter of the year. With hindsight, we could say that 2022 hasn’t been particularly kind to either savers or investors. Inflation is still growing and bills are rising sharply, which will only stretch tight household budgets even further. To top it all off, we have also seen the first major European conflict since the Second World War. But despite all this uncertainty, retail investors remain upbeat, and some ISA holders are even planning to increase their contributions in 2022. 

Here, I break down the findings of a poll of 1,000 ISA holders conducted by Freetrade and InvestingReviews. Let’s dive straight in.

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Has market volatility spooked investors?

While uncertainty has been prevalent in the global markets, retail investors have managed to hold their nerve. The research suggests that almost a third of ISA holders (31%) plan to increase their contributions in 2022. In contrast, only a fraction of respondents (2%) said they expect to scale back on their contributions. 

But what do ISA holders invest in?

According to the poll, US tech stock remain the most popular investment among ISA holders in 2022. In particular, Tesla, Meta and Apple, as well as S&P 500 tracker ETFs. When it comes to investments trusts, the Scottish Mortgage Investment Trust leads the way for ISA contributions.

Given high inflation and the European geopolitical crisis, ISA investors have turned their sights towards mining, financial institutions and commodities ETFs in an attempt to ride out the uncertainty. 

Here are the most-bought equity investments among Freetrade ISA holders up to 11 March based on the number of buy orders:

And here are the most-bought ETFs among Freetrade ISA holders in the same period:

And finally, these are the most-bought investment trusts among Freetrade ISA holders:

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How are cash ISAs fairing against stocks and shares ISAs?

Cash ISA holders have seen the value of their pots lose value as inflation has soared to a 30-year high. With a typical return of under 1%, cash ISAs are now losing around 4.5% of their value in real terms (return minus inflation). This year alone, that loss could reach £8.7 billion and despite this, cash ISA holders outnumber their stocks and shares counterparts by three to one. 

The research revealed that wanting to know the exact return was the main reason cash ISA holders stayed put. Almost a third (32%) were unsure of how to use stocks and shares ISA. A further 37% were worried about investing in the stock market.

The survey also revealed some gender discrepancies. A larger proportion of women (39%) than men (34%) were worried about investing in the market. Women were also found to be more likely to not know how investing ISAs work (37% vs 24%).

If you are unsure of how stocks and shares ISAs work or simply want to check your knowledge, check out our ISA basics. 

A word of advice 

Commenting on the research, Dan Lane from Freetrade said he believes that strategies like having a sufficiently diversified portfolio and continued focus on the long term could prove instrumental in times of uncertainty.

He feels that a more passive approach, like pound-cost averaging, could smooth the impact of market volatility as buying investments regularly in small amounts could improve overall portfolio performance.  

Simon Jones, CEO of InvestingReviews said that long-term investors “shouldn’t allow themselves to be rattled” despite the current events. The lesson from the pandemic seems to be that those who remain disciplined are those who come out on top when the markets recover. 

The post 31% of ISA holders plan to increase their contributions despite uncertainty appeared first on The Motley Fool UK.

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We are currently in a very busy period for UK financial providers. To encourage people to invest, financial institutions will offer a variety of promotions and discounts in the run-up of the end of tax year on 5 April. If you already invest, with the ISA allowance set to reset, you’re presented with an opportunity to evaluate your short- and medium-term plans. 

Here, I take a look at five reasons why you should consider using your ISA allowance before you lose it forever.

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1. Tax relief 

The best thing about investing through an ISA has to be that you get a tax break. To put it simply, for as long as your money is in your ISA, you won’t pay any income or capital gains tax on your returns. In addition, if your investment portfolio includes some dividend-yielding stocks, then you are also exempt from paying dividend tax. It therefore makes sense to make the most of your ISA allowance each year.  

2. Minimal amount need to open an account

The ISA allowance clearly states the maximum amount that you can deposit in your ISAs each year. For the 2021-22 tax year, the ISA allowance is £20,000. This could of course change in the future according to new government regulations. However, most providers allow you to open an account with as little as £1 and deposit as many times as you want through the financial year. 

3. Maximising your returns

The tax relief available is something you shouldn’t underestimate. If you can afford to use your full ISA allowance each year, over a long period of time, you could potentially grow your pot to be worth hundreds of thousands of pounds.

Achieving ISA millionaire status could be within reach if you consistently use your full ISA allowance and you set yourself a long-term goal. However, you should note that investing in the market increases your risk and you could end up with less than you put in. 

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4. Flexible withdrawals 

Some ISA providers are becoming more flexible in terms of their withdrawal policies. However, don’t take this for granted as these rules are not universal.

But how does this work in practice? Let’s say you’ve opened a flexible cash ISA in the current financial year and you have deposited £5,000 so far. If you need to withdraw £500, you can then deposit back the £500 in the same financial year without this affecting your ISA allowance – as long as you have a flexible ISA. 

5. ISA transfers

Transferring an ISA is possible, but it is always important to follow the ISA transfer rules. There are several reasons why you could potentially consider initiating an ISA transfer, including to:

• Change providers due to better offerings
• Consolidate your pots into one account to reduce the fees you are paying
• Get exposure to the stock market

Alongside the rules, make sure you check the providers and the charges, penalties or benefits that you might lose as a result of the swap. 

Takeaway

When using your ISA allowance, it’s wise to keep your sight of the investing basics. Whether you decide to invest or simply to save, think long term. Even in uncertain times, a long-term investment strategy remains valid and sticking to your plan will increase your chances to reach your financial goals.

As well as this, don’t put all your eggs in the same basket. Aim to diversify your portfolio across different geographies and assets types, as it is highly unlikely that they will all perform poorly at the same time. This could provide you with a sense of security when the market is volatile. 

Please note that tax treatment will depend on your individual circumstances and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. You are responsible for carrying out your own due diligence and for obtaining professional advice before making any investment decisions. 

The post 5 reasons why you should aim to use your ISA allowance while you can appeared first on The Motley Fool UK.

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If you are unsure of the types of ISAs there are and how they work, make sure you visit our article on ISA basics. Otherwise, let’s look at when and why a stocks and shares ISA or a cash ISA could best serve your needs. 

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What are you saving for?

Knowing what you are saving for will make your life a lot easier when deciding between a stocks and shares ISA and a cash ISA. 

For example, if you’ve landed yourself a side hustle that is earning you some extra cash and you want to make the most of it, then a stocks and shares ISA could be a great option for you, especially if you want to get some exposure to investing. However, if you have a specific goal and a particular timeframe, a cash ISA could serve you better in this instance. This is because it will provide you with a sense of security, without exposing you to the pitfalls of investing. 

With that in mind, here are some financial goals and the ISA that could best help you achieve them. 

1. Buying a house

This is a pretty important milestone for most people. So you will want to make sure that you have a form of security, which is usually provided by a cash ISA. If you are buying your first home and the property is valued at or under £450,000 an even better option could be a cash lifetime ISA. This will allow you to benefit from a 25% government bonus each year. Just bear in mind that because you can only deposit up to £4,000 a year, this will only work if you are planning to save over a period of time.

2. Retirement savings

This is a lifelong financial goal, so a stocks and shares ISA could help you make the most of it. When you have time on your side, exposure to the stock market could prove to be the best option for greater returns. This is because you can afford to stay invested in order to ride out any market volatility. However, if market conditions are against you, there is no reason why you cannot switch back to a cash ISA. But historically, people who take a long-term investing approach are the ones who come out on top. 

If you wish, you can even use a lifetime ISA to fund your retirement. And if you want to get the best of both worlds, you can go for a stocks and shares lifetime ISA. 

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3. Saving for a big holiday

This short-term goal is a no brainer, as you can put money aside in a cash ISA whenever you can afford to. Here you can also experiment with different budgeting apps, where you can split your savings into dedicated pots. You can even use the round-up functionality if it is on offer. This will allow you to round up your purchases to the nearest pound and put away the difference. If you’re struggling to put money away, this could be a great, hassle-free way to save regularly and benefit from the miracle of the compounding interest. 

4. Trying out investing 

A stocks and shares ISA is a great option if you want to get exposure to investing. An added benefit is that the tax wrapper will also save you time to having to deal with all the tax rules. It’s also worth exploring this option if you want to make a better return than you would get with cash ISA. If you decide to go with a stocks and shares ISA, then make sure you don’t exceed your £20,000 ISA allowance. 

If you have made up your mind, it’s a great idea to explore the market before the end of the financial year on 5 April. That way you can take advantage of this year’s ISA allowance. Head over to our dedicated comparison pages to find out more about our: 

• Top-rated stocks and shares ISAs
• Top-rated cash ISAs

Please note that tax treatment will depend on your individual circumstances and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. You are responsible for carrying out your own due diligence and for obtaining professional advice before making any investment decisions. 

The post Stocks and shares ISA vs cash ISA: which is right for your goal? appeared first on The Motley Fool UK.

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• How much is needed in an ISA to target a £2,764 monthly passive income?

There is no shortage of male presence in the corporate world. Male CEOs far outnumber female CEOs in FTSE100 companies. The picture is similar in the financial sector. To some, this may suggest men are better suited to jobs in finance and investing than women. However, according to a survey by Fidelity Investments, this is not really the case. In fact, the survey showed that female retail investors outperform their male counterparts.

Let’s find out why women could prove to be better than men when it comes to investing and finance.

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Debunking the myth 

When it comes to financial matters, women appear to do a better job than men, according to the 2021 Women and Investing Study. Female retail investors were found to consistently outperform male investors by an average of 0.4% a year. Furthermore, we’ve seen more women than ever before invest outside of retirement (67% in 2021 vs 44% in 2018). While women outperform men, they were also found to be better at saving money by almost 1% annually.  

Whilst the study revealed women’s superiority when it comes to investing and saving, it also provided an insight into the public outlook of the matter. Only 9% of respondents believed that the women were actually better. It is clear that stereotypes remain strong but nonetheless, the data tells a different story.

It is also worth mentioning, that a recent Moneybox survey revealed similar results. Since last March, they have seen a 9% increase in women opening a stocks & shares ISA or stocks & shares LISA and a 5% increase in women opening a self-invested personal pension (SIPP).  

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What makes women better investors than men? 

The evidence may be conclusive, but it’s also worth contextualising why female retail investors outperform their male counterparts. A lot of this comes down to strategy. Women are more likely to take the long-term investing approach, whilst some men are prone to more impulsive routes. Women are typically more risk-averse and long-term investors, which puts them one step ahead. 

Another reason is that men tend to focus more on the equity market. Whilst women tend to diversify their portfolios and invest in funds, bonds and equities. Diversifying your portfolio is traditionally a great strategy for coping with turbulent times. Lastly, Fidelity also found that men are most likely to make trades (35%). Whilst most brokerages firms do not charge transaction fees, some still do, and that could significantly eat away at the value of your investment returns. 

Why is this important?

You might be quick to dismiss the data. After all the difference found between female and male investors is less than 1%, right? Well, think again as any savvy investor knows that little differences compound over time to make massive differences.  

Let’s look at an example to make this clear. Imagine that you open a stocks and shares ISA at the beginning of the financial year with a £1,000 initial deposit. For the next 30 years, you max out your annual ISA allowance of £20,000 (assuming it won’t change) and see a consistent annual return of 6%. This will see your portfolio grow to £1,586,907 in 30 years. Now let’s just adjust the numbers to allow for the additional 0.4% (6.4%) return of the female retail investor.

Assuming everything else remains constant, this will result in a portfolio worth £1,703,480 over the same period. This is an additional £116,000 that could be put to good use in retirement. Increase the return more and the difference becomes even more stark. 

The bottom line 

The data paints a clear picture: female retail investors outperform their male counterparts. Women are also more efficient when it comes to savings. However, this doesn’t mean you have to despair if you are a man or rejoice if you are a woman.  

The truth is that women tend to make better investment and savings decisions when they take a more risk-averse and long-term approach. This shows that we could all take a step back, consider the bigger picture and learn from these findings.  

The post Women do it better! Female retail investors outperform their male counterparts appeared first on The Motley Fool UK.

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• Lost money on Diageo shares? Consider buying this £2.19 FTSE stock to try and make it up
• How much is needed in an ISA to target a £2,764 monthly passive income?

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1. Not understanding how the withdrawal penalty works

Using a lifetime ISA is a great way to save tax-free for your first home or to fund retirement. And on top of that, the government will reward your effort with a 25% bonus worth up to £1,000 a year.

It all sounds great, right? The catch is that if you need the money for anything other than funding your retirement or paying for a first home, you’ll have to pay back the government a penalty fee of 25% of the balance of your account. 

You might think this equates to simply paying back the bonus the government has given you. Well, think again. This is actually one of the worst lifetime ISA mistakes that people make. Let’s assume that you have maxed out your £4,000 annual LISA allowance and claimed the £1,000 government bonus. This takes your account balance to £5,000. If you want to withdraw the £5,000, you’ll have to give the government 25% of the total, or £1,250, which will leave you with £3,750, not the £4,000 you originally deposited. 

So, make no mistake, this lifetime ISA blunder could cost you more than you initially thought. 

2. Not reading the small print 

Let’s assume that you’re planning to use your LISA towards buying your first home. You haven’t been able to save for very long, but you’ve managed to max out the annual allowance and put £4,000 into the account in a matter of months. This takes you one step closer to your dream of owning a property. However, if you overlook the small print that comes with all LISAs, you might find you can’t access the government bonus you were counting on.

The small print stipulates that you have to have contributed for 12 months before you can access your money with the bonus for your first home. You can’t just deposit £4,000 at the beginning of the financial year and then withdraw it all (including the bonus) a few months later. So, if you plan to use a LISA to save for your first home, make sure you are not planning to buy in the 12 months after opening your account. 

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3. Using your LISA to invest in the stock market  

Did you know that you can use your lifetime ISA to invest in the stock market? That’s right, you can use it in the same way as you would a stocks and shares ISA. 

A key aspect to consider, however, is whether you can afford for your money to be invested in the market for more than five years. If the answer is no, then a stock and shares LISA might not be suitable for you. This is because investing in the stock market should be considered a long-term endeavour. As that will allow you to ride out any stock market volatility.

For example, the early days of the Covid-19 pandemic were characterised by extreme uncertainty that led to a frantic market selloff. And if you were to withdraw your money at that time (for example, because you found a house that you want to buy), then you could end up getting back less than you initially deposited because the markets were down. 

Avoid the pitfalls of this lifetime ISA mistake by considering whether you can afford to invest your LISA five or more years. 

Get the most out of your LISA

• Don’t get caught out by the 12-month rule. If you want to access your money and collect the government bonus, you have to contribute to your LISA for at least 12 months.
• To max out your LISA allowance (£4,000), you will need to put away at least £333 a month.
• Only get a stocks and shares LISA if you plan to invest for more than five years. This way you can ride out any market volatility. 
• Don’t put all your savings for a house into a LISA. Keep some in an easy access savings account so that it’s accessible for expenses like conveyancing and legal fees. 

The post 3 lifetime ISA mistakes that you can not afford to make appeared first on The Motley Fool UK.

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• How much is needed in an ISA to target a £2,764 monthly passive income?

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What is stock market volatility?

It’s simply a measure of how much the market’s overall value fluctuates over a given period of time. And to be more precise, we can calculate volatility by looking at how much an asset’s price varies from its average price. So for example, the market could become more volatile in uncertain times, as it was at the beginning of the Covid-19 pandemic and is now as a result of Russia’s invasion of Ukraine.

And because no one knows what will happen, the uncertainly can lead to frantic buying and selling. With that in mind, let’s take a look at four reasons why such volatility shouldn’t change your plans.

1. Get used to uncertainly if you plan to invest long term

Let’s be honest, the stock market outlook is always unclear. Like Matthew McConaughey told Leonardo in the Wolf of Wall Street, nobody knows what will happen to a stock. It’s only when we look back that we spot the obvious and the red flags. 

In 10 years’ time, we’ll know how the pandemic unfolded and when the war ended. But for now, if you decide to step away from the market because of its volatility and things work out for the better, then you won’t be able to wind the clock back.  

2. Don’t underestimate the time you spend in the market 

Time in the market beats timing the market. This approach stands the test of time, partly because the market cycle is different from both the economic and news cycle.

Investors are less concerned with the noise at the moment than what might happen in the future, as they tend to anticipate it. However, predicting the direction or the changes in the market is hard, if not impossible.

So, trying to time the market only increases your risk of making a loss. This is because missing even a handful of the best market days will seriously impact your long-term returns. 

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3. Diversification helps to smooth returns

It is extremely unlikely that every type of investment will perform poorly at the same time. This is why you should stick to a long-term approach in times when the markets are volatile. For example, when shares perform well, bonds often don’t and vice versa. Other asset classes like real estate or commodities could also take pole position. This is why diversification can provide a good defence against stock market volatility.  

A portfolio that is spread between different assets and across different geographies can save you a lot of stress during times of uncertainty. 

4. Volatility is part of the long-term investment cycle

There is always a reason for heightened volatility in the market. It’s inevitable, partly because of investors’ human instincts to react to events in the political, economic or corporate world. 

The key is to expect some market movement. Then you can respond rationally to the volatility and stay focused on your long-term goals. Simply put, well-diversified and well-focused investors should not be intimidated by volatility. In fact, when markets move, this can offer opportunities to buy assets at a discount.

Takeaway

There’s no doubt that stock market volatility can be painful for investors. But they can also offer attractive opportunities. Either way, remember to keep your cool during uncertain times and focus on your long-term goals. 

If you are new to investing, be sure to check our beginner’s guide. More experienced investors may want to take a look at some of our investing principles for volatile markets in action. 

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The post 4 reasons why stock market volatility shouldn’t put you off appeared first on The Motley Fool UK.

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We spend our working lives building towards a comfortable retirement. But with the cost of a comfortable retirement on the rise, many Brits are looking for ways to optimise their retirement income. This is proving to be easier said than done as spiralling inflation makes increasing our monthly pension contributions more challenging than ever. However, these five pension tips could help you reach the financial freedom that you’ve worked so hard for.  

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1. Max out your employer pension contributions 

This pension strategy could save you a lot of grief further down the line. Your workplace benefits package is important and you should aim to get the most out of it. If you are not sure how much your employer is contributing to your pension, check with HR. Some employers will match or even double-match employee contributions beyond the 8% auto-enrolment minimum.  

Usually, employers will offer some flexibility with what they contribute. But if the offer is there, consider your current contribution and whether you can increase it. If your employer doubles that up, it is essentially free money waiting for you in retirement. 

2. Consider salary sacrifice 

If you contribute to your pension via salary sacrifice, you might be surprised that it could save a few quid in tax. If your salary is close to the next tax bracket, upping your contribution will mean you don’t have to pay that extra tax. As things stand, the higher rate tax threshold is 50,271. Let’s say your pay goes up from £50,000 to £55,000, you have to pay 40% on the £4,729 over the threshold. 

However, you don’t have to pay the higher rate income tax now, if you decide to put that amount into your pension (via salary sacrifice). This pension tip could come in handy considering the wage inflation that we’ve seen recently. 

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3. Make sure your pension is beating inflation

The UK inflation rate is running at 5.5% in the 12 months to January 2022. This is more than double the Bank of England’s target, and there is a chance that your pension returns are not beating it. However, remember that pensions are long-term investments, so don’t panic just yet. It’s good practice to be aware of your yearly returns that should beat inflation over several decades. 

However, if your pension fund continues to be outpaced by inflation, you might consider rethinking your risk levels. This strategy involves redistributing your portfolio with assets that could get back on top of the price rises, like equities. Note, that this is not guaranteed as equities could fall any time or fail to keep pace with inflation.  

4. Explore the benefits of a SIPP

If you have aspirations to manage your own pension portfolio, this could be the right time. Many employers are now willing to pay pension contributions into a self-invested personal pension (SIPP), so it’s an option worth exploring with HR. 

As there are no restrictions in place, you can move any old pension pots into a SIPP. You just need to make sure you understand the risk when it comes to consolidating old pensions. When it comes to your current pension, however, a good strategy is to keep your employer contributions. 

5. Assess whether early retirement is an option

A lot of people dream about early retirement. However, without serious planning, the dream could quickly turn into a nightmare. However, if this is within your reach, consider ploughing some of your retirement money into ISAs. 

ISAs have helped more than 2,000 Brits achieve millionaire status and they can help fund an early retirement because your income is tax-free and can be accessed before the normal minimum pension age (NMPA).

The post 5 pension tips to help you get the retirement you want appeared first on The Motley Fool UK.

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