Here, I’m going to reveal my saving and investing plan for 2021. And look at where I’ll be putting my own money next year.

2021: where I’m going to save

Let me start by explaining where I’m going to save in 2021. I have a simple plan.

First, I plan to contribute £4,000 to my Lifetime ISA to max out my annual allowance. This will get me a near-instant bonus of £1,000. Then, I’ll put my next £4,000 in savings into my wife’s Lifetime ISA (she’ll thank me later). By saving £8k into these ISAs, we’ll pick up government bonuses of £2k, taking the total amount saved to £10k.

After that, I’ll split my savings between my Stocks and Shares ISA and my Self-Invested Personal Pension (SIPP). The advantage of the Stocks and Shares ISA is that it provides a high level of flexibility. This year, for example, I pulled £10k out of my SA to help with a house down-payment. That kind of flexibility is valuable.

The advantage of the SIPP is that it’s extremely tax-efficient. Normally, contributions into a SIPP come with tax relief. However, I actually make contributions directly from my limited company as I’m a freelancer. These are treated as a business expense meaning they reduce my tax bill.

This LISA/Stocks and Shares ISA/SIPP combination works very well for me. I get the bonus top-ups from the LISA, flexibility from the Stocks and Shares ISA, and tax savings from the SIPP. I’ll point out that I use Hargreaves Lansdown for all three accounts, which makes it easy to manage my money.

Where I’ll be investing in 2021

In terms of where I’ll be investing, my preferred asset class is stocks. Over the long-run, stocks tend to generate excellent returns of around 7-10% per year. With that kind of return, money grows quickly.

I don’t just invest in UK stocks however. These days, I am very much a global investor. I mostly invest directly in shares. However, I also invest via funds, ETFs and investment trusts.

In 2021, there are three types of stocks I plan to buy.

• Large-cap growth stocks. I already own Apple, Microsoft, and Amazon. I’d like to buy more. I’d also like to add some other growth stocks to my portfolio, such as Adobe, Shopify, and Nike.

• Large-cap dividend stocks such as Unilever, Diageo, and Reckitt Benckiser. These provide me with portfolio stability. And I can reinvest the dividends they pay to compound my wealth.

• Disruptive small-cap growth stocks. These kinds of stocks are riskier but they have higher growth potential. One small-cap I want to buy more of is Upwork. It operates a freelance employment platform. With the ‘gig economy’ expanding rapidly, I think it has enormous potential.

I’ll point out that I’m not going to buy these kinds of stocks at any valuation. I’ll be waiting patiently for attractive entry points. I’ve found over the years this is the best way to make strong returns from investing in the stock market.

The post Where I’ll be saving and investing my money in 2021 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Apple, Microsoft, Amazon, Unilever, Diageo, Hargreaves Lansdown, Reckitt Benckiser, and Upwork. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Apple, Microsoft, Nike, and Shopify. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and Unilever and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, in reality, it’s quite the opposite. Believe it or not, Britons are saving money like never before. According to Bank of England data, households’ deposits increased by a record £25.6bn in May, following strong increases in both April (£16.7bn) and March (£14.3bn). By contrast, in the six months to February 2020, household deposits rose by an average of just £5bn per month. Clearly, many people have been able to save money during the lockdown.

If you’ve saved up a decent amount of money in 2020, that’s great news. But what do you do with it now? 

You’ve saved money: what now? 

The best place to invest a lump sum will depend on your financial goals and risk tolerance. Of course, before you think about investing a lump sum, it’s important to ensure you’ve taken care of personal wealth management basics. Have you paid off high-interest debt such as credit card debt? There’s no point investing your money if you’re paying a ton of interest.

And have you built up a robust emergency fund so that you have plenty of cash available for emergencies? This is important in the current environment. These are the things to take care of before investing your money.

Short-term vs long-term goals

If you’ve sorted the basics, the next thing to do is think about your financial goals. Are they short-term or long-term focused?

If they’re short-term focused, your best bet, in my view, is to keep your money in either an easy access savings account or a fixed-term savings account.

You won’t get a great interest rate with either option unfortunately, because interest rates are abysmal at the moment. You might be able to pick up a rate of around 1% if you’re lucky. But at least your capital won’t be at risk. That’s important when saving for short-term goals.

Building long-term wealth 

If your goals are more long-term focused (five years-plus), your best option remains the stock market, in my view.

The stock market is volatile in the short term. However, in the long run, it tends to produce returns of around 7-10% per year, on average. That’s far higher than the returns from other asset classes, such as cash savings and bonds.

It’s possible to do much better than that too. For example, one of my favourite investment funds, Fundsmith, has returned about 19% per year over the last five years. You can invest in funds like this effortlessly these days through platforms such as Hargreaves Lansdown and AJ Bell.

Your returns can potentially be tax-free too. Invest within a Stocks and Shares ISA or a Lifetime ISA (LISA) and you won’t pay any tax on your gains.

Of course, stock market investing is riskier than keeping your money in the bank. It’s important to be fully aware of the risks.

I always say that the best approach to investing in the stock market is to invest bit by bit. This strategy can reduce the risks of investing at a market high and help you build your wealth more effectively over time.

The post Britons are saving money like never before. But where’s the best place to invest a lump sum? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With spending opportunities reduced significantly, many of those who are still in full-time employment have found themselves with more money to save each month.

This is reflected in recent data from the Bank of England (BoE) which shows that households’ deposits increased by a record £25.6bn in May (following strong increases in April and March). That compares to a pre-Covid-19 six-month average of around £5bn per month.

If you’ve saved money over lockdown, that’s great news. But what do you do with it now?

Where to invest savings now

Assuming you’ve already paid off any high-interest-rate debt and sorted an emergency fund, it could be a good idea to invest your savings for the future.

Leave all your savings in a bank account or a Cash ISA and it won’t get you very far. According to the BoE, the effective interest rate on new time deposits was just 0.87% in May. That’s a truly abysmal rate of interest. If you’re earning that kind of interest rate on your money over the long term, you’re only going to go backwards in real terms (i.e. once inflation is factored in).

Invest your money in the stock market, however, and there’s a good chance you’ll build your wealth up over time. Historically, the stock market has delivered returns of around 7-10% per year, on average, over the long run, which is an excellent return. That’s well above the long-term rate of inflation, and far higher than the returns from savings accounts.

Investing has never been easier

Investing in the stock market is incredibly easy these days. Open an account with a reputable provider, such as Hargreaves Lansdown or Interactive Investor, and you can literally be investing within minutes.

My advice would be to open a tax-efficient account, such as Stocks & Shares ISA (where all gains are tax-free), or perhaps even a Lifetime ISA if you’re under 40 (this comes with 25% bonuses on contributions but has restrictions on withdrawals). Then start building a diversified portfolio that contains a mix of UK and international stocks.

Build your wealth

If you don’t want to worry about picking stocks yourself, funds can be a great way to invest in the stock market. One of my favourites is Fundsmith Equity. This is a global equity fund that’s returned about 50% over the last three years. Exchange-traded funds (ETFs) and investment trusts can also help you get diversified exposure to the stock market with minimal hassle.

Alternatively, if you don’t mind doing a bit of research yourself, consider picking your own stocks. This approach to investing can be higher risk. But it can also generate higher returns. For example, had you invested £2,000 in online fashion retailer Boohoo five years ago, that money would now be worth around £30,000.

Just make sure you think long-term. In the short term, the stock market can be volatile. It’s important to be aware of the risks. In the long run, however, stocks tend to produce fantastic returns for investors.

The post Saved money over lockdown? Here’s how to build your wealth now appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Hargreaves Lansdown and Boohoo and has a position in the Fundsmith Equity fund. The Motley Fool UK has recommended boohoo group and Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pay yourself first

If your goal is to build up your wealth, one of the smartest things you can do whenever you get paid is ‘pay yourself first.’ This is the process of redirecting a proportion of your salary into a savings or investment account as soon as you receive it, before you pay all your bills and other expenses. By paying yourself first, you remove the temptation to spend all your money and it becomes much easier to save. 

Invest your money 

If you’re working towards a long-term financial goal, it could be a good idea to invest your money, as opposed to just saving it. The problem savers face right now is that the interest rates offered by savings accounts are abysmally low. For example, the best rate you can pick up is around 1.5%, which is actually below the rate of inflation. This means that money held in a savings account is actually losing its purchasing power over time.

By investing your money in assets such as shares and funds, you could potentially generate returns that are much higher than this over the long run. For example, the most popular investment fund in the UK, Fundsmith, has returned around 150% over the last five years, although past performance is no guarantee of future performance. 

Create a passive income

Another smart idea if you have money to invest is to start building up a passive income. The ‘Holy Grail’ of personal finance, passive income is cash flow that’s generated without having to actively work for it. Build up enough of it and you could potentially quit your job.

These days, investors are spoilt for choice when it comes to assets that can generate passive income. For example, there are many stocks in the FTSE 100 offering dividend yields of 6% or more right now. There are also plenty of investment trusts that have high yields and could be used to generate passive income. 

Protect your money from the taxman

Finally, consider investing through a Stocks & Shares ISA. The advantage of this account is that all gains and income from investments are sheltered from the taxman. So, for example, the passive income I mentioned above could be completely tax-free for you. Additionally, it’s a flexible account that allows you to access your money at any time. Currently, every adult in the UK can contribute up to £20,000 per year into a Stocks & Shares ISA.

Those aged 18-40 may also want to consider the Lifetime ISA. Like the Stocks & Shares ISA, all gains and income within this type of account are tax-free. The added advantage here though is that all contributions come with a 25% bonus from the government. For example, contribute £1,000 into the account and the government will give you an extra £250. There are restrictions here, unfortunately – you can’t touch the money until your turn 60 or buy your first house, and you can only put in £4,000 per year. However, overall, it’s a super deal.

The post 4 top money moves to make this payday appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Save money by paying yourself first

Many people in their 20s struggle to save money. The reason? There’s no money left to save at the end of the month. Once they’ve paid their rent, bills, and transport, bought some new clothes and enjoyed a few nights out, there’s nothing left over.

The solution to this problem? Get into the habit of paying yourself first – it makes saving much easier. As soon as you receive your salary, redirect a proportion of it (aim for 10%+) into another account. Then, you can spend the rest guilt-free. The chances are, you won’t even miss that 10% but your savings will grow substantially over time.

Build an emergency fund

Once you’ve begun saving, focus on building up an ‘emergency fund’. This is a stash of money that provides financial security and will protect you against financial shocks such as losing your job or being hit with a large unexpected dentist bill. In terms of how much to save here, most experts agree that your emergency fund should be large enough to cover at least three months’ worth of expenses.

Open a tax-efficient account

If you’re saving for long-term goals, it can be a smart idea to open a tax-efficient account. This way, you’ll protect your gains from the taxman. One good option is the Stocks & Shares ISA. With this account, you can invest up to £20,000 per year and access your money whenever you want. Another account to consider is the Lifetime ISA. This one, which has an annual allowance of £4,000, comes with 25% bonuses from the government, however, you can’t touch the money until you turn 60 or buy your first home.

Think about retirement saving now

Your 20s is also a good time to start thinking about saving for retirement, believe it or not. Retirement may still be 40 years off, however, if you start saving a little bit now, by the time you retire, that money will have grown significantly due to the power of compounding (earning interest on your interest). If you leave retirement saving late, as most people do, you’ll have to save a huge amount later in life to be able to live comfortably in retirement.

Build your wealth by buying assets

Finally, your 20s is a great time to start accumulating assets in order to build your wealth. Assets are things that make you wealthier over time. For example, a stock that pays you a regular cash dividend is an asset. Every time you receive a dividend, you’re a little bit wealthier. Similarly, an investment fund like Fundsmith is an asset.

By contrast, liabilities reduce your wealth. A good example is a sports car. To keep that car running, you’ll need to pay for fuel, insurance, and regular servicing. Over time, that car will make you poorer.

If you can grasp this concept early on, and you focus on buying assets such as stocks and funds instead of liabilities, it will make a huge difference to your wealth over time.

The post In your 20s? Here are 5 top money tips that could boost your wealth by thousands appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon has a position in Fundsmith Equity fund. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Paying yourself first

Saving money is always a smart thing to do, no matter your age, and the easiest way to do this is to pay yourself first. As soon as you receive your paycheque, skim a little bit off the top (aim for 10%+ if you can) and redirect this money into a savings or investment account.

If, like most people, you wait until the end of the month to save money, the chances are you won’t have much left. You’ll have already spent your money over the course of the month because it was sitting in your bank account, just waiting to be spent.

However, if you pay yourself first and move a proportion of your income into a separate savings or investment account, it removes the temptation to spend the money. You can then spend the rest guilt-free. Get into the habit of paying yourself first while you’re still young and it will do wonders for your wealth over time. 

Contributing towards your pension

When you’re in your 20s or 30s, putting money into a pension (retirement) account may seem like a strange idea. Retirement could be 40 years away, so why think about it now? The reason it’s a good idea is to do with compounding (earning interest on your interest). When money is compounded, it grows exponentially over time. The longer you leave it to compound, the more it grows.

So, for example, if you have £10,000 now and earn a return of 8% per year on this money, you’ll earn £800 in the first year, taking the total investment to £10,800. However, earn 8% on your money for 40 years and you won’t simply earn £32,000 (40 years x £800) interest – instead your total interest will be closer to £207,000. Your original investment of £10,000 will have grown to around £217,000. That’s the power of compounding for you.

The sooner you start paying into a pension, the better, as it will give you more time to take advantage of the power of compounding.

Investing in shares

Finally, investing in shares while you’re still young is another move that can set you up for life. The reason for this is that, over the long term, shares tend to generate much higher returns than savings accounts, meaning they can really help you build up your wealth.

While shares can be volatile in the short term, over the long run, the asset class tends to produce returns of around 6-10% per year. That’s far higher than the interest rates offered on savings accounts. Stick £10,000 in a cash savings account earning 1% per year and in 10 years, you’ll have just over £11,000. However, earn 10% per year on your money for 10 years and it will grow to nearly £26,000. That’s a big difference.

Ultimately, building your wealth up like this early on through shares could have a huge impact on your life. 

The post In your 20s or 30s? Here are 3 financial moves that could set you up for life appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Of course, you’re right. Building up a retirement pot to help fund your later years is important.

But I’m not crazy. And I still wouldn’t recommend saving for retirement.

Invest, don’t save

The reason for this is that saving means keeping your money in cash. And that means that your money isn’t working for you.

What I’d recommend is investing for retirement. That means converting your cash into an asset that will hopefully increase in value over time. Ideally, it would provide an income as well.

The cost of cash

There are two reasons why I think saving in cash for your retirement is a bad idea: inflation and low interest rates.

UK inflation was 2% in June, the latest figure available. By contrast, the best Cash ISA savings rate I can find at the time of writing is 1.87% on a three-year fixed rate deal. For easy access Cash ISA accounts, rates are lower.

This means that in real terms (after inflation), money saved in cash is falling in value each year.

Admittedly, things haven’t always been this grim for cash savers. According to data gathered by Barclays, over the last 100 years or so, savers have earned an average of about 1% above inflation.

However, stock market investors have earned about 5% per year above inflation over the same period.

Look at these numbers

What does this mean in terms of cold, hard cash? I’ve used the figures above to estimate how much you’d need to save each month to build up a retirement pot of £250k, adjusted for inflation, in 20 years’ time:

• Cash saving per month: £941
• Stock market investment per month: £608

These numbers suggest that saving in cash will require you to save 50% more than if you put your money into the stock market. Ouch.

Long-term profits

I should point out that the stock market isn’t suitable for short-term savings. In the short term — under five years — anything could happen to share prices. But history suggests that over longer periods, the market usually goes up.

Patient investors who are willing to ride out any short-term storms can usually do well.

Where to invest?

As you’ll guess, my choice of investment is the UK stock market. I’m building a portfolio of large, dividend-paying stocks that I can hold for years with minimal trading, to keep costs low. To avoid future tax bills, all my shares are in a Stocks and Shares ISA.

Most of my choices come from the FTSE 100. For example, I own shares of pharma giant GlaxoSmithKline, oil and gas firm Royal Dutch Shell and property firm British Land.

As I’m still working, I add cash to my portfolio each month and periodically use this to buy more shares. If this sounds a little too complicated, then an easier alternative would be to invest your cash in a FTSE 100 tracker fund each month.

Whatever you choose, I’d urge you to start as soon as possible. The earlier you start, the harder your money will work for you.

The post The 1 reason you shouldn’t save for retirement appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head owns shares of British Land Co, GlaxoSmithKline, and Royal Dutch Shell B. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Barclays and British Land Co. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, if you’re struggling to save, you may be interested to learn there’s a really simple trick that can help you save more money no matter how much you earn. This simple ‘payday trick’ could be the key to getting rich.

Always pay yourself first

The savings strategy I’m talking about is known as ‘paying yourself first’. Often referred to as the ‘golden rule’ of personal finance, it’s a simple strategy that makes saving money far easier. If you put this into practice regularly, it could help you build up substantial wealth.

The way it works is that instead of waiting until the end of the month to save money (like most people do), you put a certain proportion of your income away into a savings or investment account – either by direct debit or manual transfer – as soon as you get paid. In other words, before you pay your rent, your bills, and all your other expenses, you pay yourself, making your savings pot the priority. Once you’ve done that, you can then spend the rest guilt-free.

The reason this strategy works so well is that it removes the temptation to spend your money and forces you to be more disciplined about saving. If the money isn’t in your bank account, you won’t be tempted to spend it at the pub, or shopping on the weekend. The chances are you won’t even miss the money you’re saving if it’s not in your account in the first place. However, your savings pot will build up over time.

Get your money working for you

Of course, to really build your wealth, it’s also important to get your money working for you. If you keep all your money in a basic savings account earning 1% or so, you’re not going to get ahead once you factor in inflation.

One of the easiest ways to earn a good return on your money – assuming you have a long-term investment horizon – is to invest in the stock market. This form of investing is often seen as risky because the stock market can be volatile in the short term, meaning the value of your investments can go down. Yet over the long term, stock markets tend to rise, meaning if you’re willing to invest for a period of five years or longer, there’s a good chance that you’ll earn a solid return (6-10% per year) on your money.

Over time, the combination of paying yourself first and growing your money at a healthy rate through the stock market is likely to make a big difference to your wealth. The sooner you get started saving and investing like this, the more money you could build up.

If you’re looking to learn more about how to grow your money through stocks, you’ve come to the right place.

The post This simple ‘payday trick’ could be the key to getting rich appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Having said that, if you’re willing to spend a bit of time researching the best savings account rates on offer, you can find some deals that are relatively attractive. Here’s a look at three top saving account rates I’ve spotted recently.

Marcus by Goldman Sachs

If you’re looking for a savings account that is extremely flexible, the Marcus account could be worth a look. This account currently pays 1.5% AER (which includes a 0.15% bonus for 12 months). The advantages of this account are that it can be opened online and that you can make as many withdrawals as you want without penalty.

Metro Bank 1-Year Fixed-Term Account

If you’re happy to lock your money away for a year, this account could be worth considering. It currently pays an interest rate of 2% AER, which is certainly higher than the interest rates offered on most savings accounts. The minimum deposit is £500 and the maximum is £2m.

The drawback of this account is that it’s less flexible than many other savings accounts as you won’t have access to your funds. However, if you don’t need your money in the next 12 months, it could be a good option.

Virgin Money Regular Saver

Finally, this account currently offers an interest rate of an impressive 3% AER, which is quite high in today’s low-interest-rate environment. And your money is not locked away either as you can access it at any time.

There are two main issues to note with this account. Firstly, you can only save between £1 and £250 per month. Secondly, the account can only be opened in a branch. While these issues may be a little annoying, they’re certainly not deal-breakers.

Interested in higher returns?

Of course, if you’re willing to accept a little risk, there are ways to generate much higher returns on your money. One example is stock market investing. With stocks, you can expect returns of between 6% to 10% per year over the long run.

Stock market investing often gets a bad reputation as it’s generally not well understood. In the short term, stock markets can be volatile, meaning the value of your investments can go down. Novice investors often panic when this happens and they end up losing money.

However, over the long term, stock markets tend to rise. So if you’re in it for the long term, and you don’t panic when markets fall in the short term, the chances are you’ll generate a decent return on your money.

In the past, stocks have generated returns far higher than those from cash savings accounts. Just look at the performance of the Fundsmith Equity fund (a popular investment fund which invests globally) – over the last five years, it has grown at around 23% per year!

The takeaway here is that if you’re looking for higher returns on your money, it could be worth considering stock market investing instead of just keeping all your money in cash savings earning a low rate of return.

Stock market investing is riskier than keeping your money in a savings account, but the rewards can be far greater.

The post Like saving money? I think you’ll love these high-interest savings accounts! appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon has a position in the Fundsmith Equity fund. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here’s what I’d recommend.

1. Stop spending (so much)

Generally speaking, a person’s earnings tend to peak during their 40s. This could make it very tempting to splash the cash without considering the long-term costs of doing so.

The situation is even worse if, despite taking home a decent salary, you’re actually spending more than you earn. This is a problem frequently seen in relatively high earners. Perhaps as a result of wanting to impress their peers, the lifestyle they adopt and maintain ensures they actually have very little in terms of wealth.

There’s nothing wrong with a few treats, of course, but this shouldn’t be at the expense of planning for the future.

So, if you have a habit of spending all that you earn (or worse), it’s probably time to cut up some credit cards, pay off your debts and be more conservative with your cash. 

2. Start saving. Now

If you’ve put off saving until reaching 40, it now needs to become a priority. I’ll use an example to illustrate why.  

Since we’re living longer these days, let’s assume the retirement age in the future will be 70. 

A 20-year-old investing £100 every month for 50 years will end up with a little under £488,000 (assuming an average annual return of 7%). Someone saving the same amount from their 30th year — and achieving the same average annual return from their investments — would have almost £240,000 by the time they hit 70.

With fewer years to take advantage of the magic of earning interest on interest (a.k.a compounding), however, a 40-year-old would leave the market with only £113,000 — less than a quarter of the wealth our 20-year-old managed to accumulate. 

To have any chance of retiring with roughly the same amount, I calculate our 40-year-old would need to stick away £430 a month for three decades.

If that seems like a lot, spare a thought for anyone beginning to invest in their 50s. He/she would need to set aside almost £1000 a month to achieve the same result.

3. SIPP it

Having committed to saving more, another thing you can do to increase your chances of securing a comfortable retirement is to ensure that your investments are held within a Self-Invested Personal Pension (SIPP).

Thanks to the tax relief you receive from the government, this kind of account allows you to put more money to work than a Stocks and Shares ISA.

Returning to the example, if you pay the basic rate of tax (20%), that £430 per month becomes £537.50. Three decades of compounding this higher amount will leave you with just over £600,000. 

For me, one of the best justifications for having a SIPP, however, is the fact that you can’t get access to your cash before the age of 55. This should be regarded as a great thing for those playing catch-up with their savings since it means they won’t be tempted to withdraw the money on a whim.

Hopefully, the gains made between 40-55 will also encourage them to stay invested and continue adding to their investments for many years to come.

The post 3 things to do in your 40s to avoid relying on the State Pension appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.