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Experienced Investor

Six New Year’s resolutions for DIY investors

Emma Lunn
Written By:
Emma Lunn

Investment experts share their tips to help you get your portfolio in top shape for 2021.

Use ISAs and SIPPs

Rob Morgan, investment analyst at Charles Stanley Direct:

One of the most important elements of investing is ensuring your portfolio is tax efficient. Even if avoiding paying unnecessary tax doesn’t seem relevant now, it might in the future. It could be worth planning ahead for when your wealth grows.

ISAs are often the first port of call for those looking to save tax. They are simple, flexible and tax-efficient – there’s no income or capital gains tax to pay – and Junior ISAs can be used as additional provision for children. The allowances for the current 2020/21 tax year are £20,000 and £9,000 respectively. The ISA allowance is available to any UK resident over 18 and can be split between different types – the most common being Cash and Stocks & Shares.

Pensions are likely to be an important consideration for those investing for retirement. When you make a contribution to your pension such as a SIPP (Self Invested Personal Pension), the government adds money. This is called tax relief and is one of the main advantages of using a pension to save for retirement.

Not everyone is aware of this special helping hand offered by pensions, but it can have a considerable impact on the size of your retirement funds and the income you can generate.

In the 2020/21 tax year, an investor can receive up to 45% tax relief when they make a contribution to a personal pension such as a SIPP, with 20% paid by the government into the pension and any higher and additional rate income tax reclaimable.

Take stock and reduce stress

Jess Miller, head of product and proposition at Schroders Personal Wealth:

The Schroders Personal Wealth Money and Mind Report showed that almost half (48%) of those surveyed admitted that their financial situation causes stress. Gaining a clear understanding of what your financial priorities are could help with confidence and improve financial wellbeing. Seizing control is crucial. A good place to start is making a list of the things you would like to address. Dig out paperwork and identify any areas where you feel like improvement or change is needed and who you may need to seek support and guidance from.

Over time it is easy to accumulate lots of savings accounts and credit cards. Not only does this often result in lots of post and admin, it could leave you more vulnerable to fraud. Make plans to have a ‘financial admin day’ and take stock of exactly what you’ve got and what you need, and look to close those accounts and cards you don’t use.

Look at best buy lists

Myron Jobson, personal finance campaigner at interactive investor:

Choosing the right fund for you from literally thousands of options can be daunting. This is where rated fund list, such as our Super 60 and ‘Ace 40 – for ethical investors – can be a really useful tool for investors. They help investors narrow down the dizzying array of funds to the very cream of the crop.

But not all-rated lists are made the same. A minority of platform recommended lists include investment trusts, and ETFs also have something of the Cinderella status, too. So investors still have a choice of which rated fund list to choose as a starting point for their own research. However, there is no getting around the need for investors frame investments in the context of their own attitude to risk and the investment time horizon. We help our customers navigate our rated lists with some helpful pointers, such as ‘core, adventurous, low cost and smaller companies’.

Open up your growth and income options

Ed Monk, associate director of personal investing at Fidelity International:

Getting the balance of income and growth assets in your portfolio right is always important but is likely to require even more attention in 2021. In recent years, generating a stable income has been simple enough – equity income funds concentrating on high, stable dividend-paying companies have provided those regular cash pay-outs, with a decent chance your money will grow thrown in as well.

Now that equation looks a lot tougher. Funds which have paid higher levels of income this year have tended to lose capital value at the same time. To get the mix right next year is likely to require more assets with growth prospects to maintain your portfolio’s capital level, with income generated not only from dividends but also the proceeds of selling growth assets. A proper spread of funds or shares covering all areas of the market – large and small, growth and value – gives you the chance of capturing a return wherever it happens, whether that’s to grow your assets or to produce income. A multi-asset fund set for income can do the job for those not confident to pick investments for themselves.

Consider a tracker

Christopher Mellor, head of EMEA ETF equity and commodity product management at Invesco:

You may think diversifying your portfolio means adding complexity. But maybe you should first consider simplifying the more obvious parts of your portfolio.

Exchange-traded funds, or ETFs, have been around for decades. The largest and best-known ETFs are the ones that simply track an index. They don’t attempt to beat them, they simply aim to deliver the benchmark return minus the annual fee (which by the way is clearly stated and generally lower than you’re likely to pay for other investments). ETFs are not all the same, however. Some will do a better job than others, so it pays to compare.

Why would you want to track an index? Simply speaking, some indices have been hard to beat on a consistent basis, so perhaps you don’t want to waste money trying. It could make more sense to use passive, low cost ETFs for that exposure. That could save you money to spend elsewhere.

Take advice if necessary

Holly Mackay, founder and managing director at Boring Money:

Don’t assume that financial advice has to come with a huge ongoing price tag. There are emerging new digital advice models which are most suitable for those people pre-retirement with relatively simple needs. If you are one of the many who wants to save into an ISA, or a DIY pension, and you just want a sense-check to make sure you’re not doing anything daft, consider a robo-adviser such as Nutmeg or Wealthify, or check out what your bank offers if you are with Barclays, HSBC, NatWest or Santander. They might not be perfect but they are pretty low-cost, won’t blow up in your face if you’re investing for the long-term and will give you some important peace of mind. OpenMoney is another option which provides digital advice on mortgages and investments.

If you have more complex needs or are at the point of retirement, I think seeing an adviser for at least a sense-check is well worth it. Some advisers will work on an hourly rate to tackle a specific question you have – at £150 to £250 an hour it might sound a lot, but they could save you from paying £1000s in tax you don’t need to, save you from chucking away valuable benefits and generally see you right. Alternatively for a cheaper route, Standard Life has some new digital advice which I think is probably most useful for those aged 55 to 70.