The BAE Systems (LSE:BA.) share price is one of the biggest FTSE 100 gainers this year, and for good reason.

Results out this week show the UK defence giant is on track for a big uplift in annual profits. Countries continue to increase military orders with Russia’s war in Ukraine, and the recent conflict in Gaza.

The company manufactures fighter jets and submarines, among other large military equipment and machinery. It said it had logged £10bn of orders since the end of June 2023. That puts the group on track for more than £30bn in sales orders this year.

War footing

Last month I wrote how I picked up shares in Qinetiq Group. That’s one of the UK’s fastest-growing defence companies. Now I see potentially more value in its biggest rival.

And we’ve heard how the company’s business pipeline is booming. BAE Systems strategy director Steve Cardew told the market in August that global conflicts had spiked sales. Especially with the Russian invasion of Ukraine.

In July 2023 it signed a £280m weapons deal with the UK government. In September it boosted that supply with another £130m contract.

Shortly after, the US, UK and Australian governments announced they would spend £3.95bn on a new generation of submarines built by BAE Systems. These nuclear-powered subs are to back up a pact to counter China’s ambitions in the South Pacific.

That has led to BAE upgrading its guidance. Earnings per share will jump 10% to 12% in 2023, said chief exec Charles Woodburn.

24 years of dividend hikes

BAE shares come with a 25% higher price tag than at the turn of 2023. Quite the move for a £32bn company. And certainly for one of the world’s largest defence, aerospace and weapons manufacturers.

The thing that really gets me interested here is long-term value. When seeking compound growth — the eighth wonder of the world — consistency is key.

And BAE Systems has an incredible track record. Since this would be a long-term income stock for my SIPP, I like one specific fact. The company has improved its dividend per share every year since 1999.

Ignoring BAE Systems because it has repriced higher? That’s effectively saying I wouldn’t buy a company that is becoming more popular, and growing its revenue, profits and dividends.

What I’d pay

The downside, of course, of all this attention, is that shares are now trading at 16 times earnings — a healthy premium. But I see safety in numbers. Especially with the way the world is leaning these days.

If I’d have bought £10,000 worth of BAE shares in 2007 (£4.29 a share, 2331 shares), I’d have collected a modest 12.8p per share in dividends, worth £298.

That same £10,000 invested in 2022 would be worth £452.26 in dividends! Quite the uplift.

This, of course, doesn’t include the gain I’d have had from simply buying the stock 16 years ago and reinvesting dividends. By my calculations, if I’d have done that, my initial £10,000 of BAE shares would now be worth a tidy £50,403.67. So I can see the power of compounding, and time in the market.

I’ll leave the intraday trades and risky leveraged punts to others. I’ll stick to Britain’s best businesses for my long-term SIPP retirement stocks.

The post The BAE Systems share price is up on £30bn sales spike. Is it my next SIPP star? appeared first on The Twelfth Magpie.

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Tom Rodgers has positions in QinetiQ Group Plc. The Motley Fool UK has recommended BAE Systems and QinetiQ Group Plc. 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.

Stocks and Shares ISAs: a good idea

A Stocks and Shares ISA allows us to avoid paying capital gains tax on profits made from our investments. Investing ‘careers’ can last for 40 or 50 years, so that could add up to hundreds of thousands of pounds.

This type of ISA also allows an investor to avoid paying income tax on any dividends they receive. Research has consistently shown that reinvesting cash returns can turbocharge returns. The less I return to the taxman, the better!

Another reason for using a Stocks and Shares ISA is that returns are likely to beat those offered by a Cash ISA. Right now, the latter offers just 0.5% at best in interest. Of course, investment returns can never be guaranteed (and building up an emergency money fund is a bad idea) but a Cash ISA won’t help me grow my investments.  

Use it or lose it

One key point about the annual ISA allowance (£20,000) is that it has a time limit. In other words, I can’t roll over any of my 2020/21 allowance into the 2021/22 tax year. If I don’t use it, I lose it. 

Given this, if I didn’t already have one, I’d open one today, rather than waiting until after 5 April. I could then invest up to £20,000 for this year and repeat that after April 5 using the next year’s allowance. 

Every little helps

Not everyone will be able to invest the full allowance. Even so, I don’t think this should put anyone off. As little as £25 per month can help in building a nest egg. An annualised return of 7% over 30 years adds up to around £28,000 by 2051 (ignoring fees). 

Returns could be lower or higher, of course. An annualised return of 10% on £25 per month over the same period brings the total ISA pot to around £49,000. Again, I’m ignoring fees.   

Stock-picking

Picking stocks for an ISA portfolio is very personal. What suits one investor may not suit another based on their financial goals and risk tolerance. I’m adopting a quality-focused approach. I’m searching for companies with low debt and for those businesses capable of growing profits and generating consistently high returns on capital employed as they go. I won’t turn down a dividend, but I’m most interested in whether these cash returns can grow year-on-year. The actual size of the dividend is of less concern to someone like me who’s not dependent on making income from my investments.

Away from the numbers, the best shares to own in an ISA will arguably be those belonging to firms offering multiple products or services. Being a market leader or operating in a space with limited competition is also desirable. As the Brexit saga has taught us, there’s a lot to be said for buying shares in companies with a global reach too.

The length of time someone remains invested is also a key factor. If I invest £25 for 40 rather than 30 years, I’ll theoretically end up with even better returns: almost £60,000 (at 7%), almost £133,000 (at 10%) and a whopping £304,000 (ar 13%).

That’s the power of compounding over time. And that’s why using my ISA allowance is a priority for me.

The post The ISA deadline is approaching! Here’s what I’d do now 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?

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.

Avoiding the tax grab

Holding my investments within a Stocks and Shares ISA or Self-Invested Personal Pension (SIPP) is a no-brainer for long-term investors like me. Doing so ensures I won’t pay any tax on the profits I make or any dividends I receive. While returns are far from guaranteed, the more money I retain, the more I can benefit from compound interest. All other things being equal, this should see me achieve far better returns. 

Whether an ISA or SIPP is most appropriate will differ from person to person, of course. Any money held within an ISA can be accessed immediately. A SIPP, as one might have guessed, is geared towards saving for retirement. The fees for running each account can also differ substantially.

Speaking of which…

Limiting broker costs

Another way of boosting returns, at least in theory, is to minimise the commission costs I pay for buying or selling shares. A quick online search reveals that these can vary wildly between UK brokers. One charges as much as £11.95 per trade. Another charges £7.99 per trade. Sure, there are other things beyond costs to consider when selecting who to place trades with. But this doesn’t negate the fact that this difference in costs will add up over time.

However, I go one step further. Since timing the market consistently is so fiendishly difficult, I don’t even try. Instead, I automate the vast majority of my buying so that deals go through on the same day every month via my broker’s regular investment scheme.

In addition to taking emotion out of the equation, this strategy is also a far cheaper way of buying shares. One of my brokers charges just £1.50 per transaction. Another doesn’t charge any commission at all! This will save me potentially hundreds of pounds over an investing lifetime.

Sure, reducing the amount of commission I pay doesn’t guarantee stock market success. Nevertheless, it does increase the probability that my returns will be better.

Value for money

A final way I’m attempting to boost my performance is by checking that any funds I own represent the best value for money. This involves looking at the ongoing fees charged by the manager. 

Naturally, the cost of owning a specific fund needs to be balanced with the return it’s likely to generate. A FTSE 100 tracker may be cheap to run (and involve less risk) but its returns over decades may be less than one that focuses on, say, quality UK small-cap stocks. The point here is to compare like with like.

Nevertheless, if the differences between an active and passive fund are minimal in terms of stocks held, I’d be very likely to opt for the latter due to the cost-saving I can make. Again, this could have a substantial impact on my eventual returns from the stock market.

Look after the pennies and the pounds will look after themselves – that’s the Foolish way.

The post 3 simple ways I’m boosting my stock market returns in 2021 and beyond 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?

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.

But don’t despair! Today, I’ll show how investing this exact amount every month into a Self-Invested Personal Pension (SIPP) can be the pathway to wealth, even millionaire status! Let’s start by revising a few facts about the SIPP. 

SIPP it to retire rich!

Anyone serious about growing their wealth for retirement should consider opening a SIPP. Like the Stocks and Shares ISA, this is a tax-efficient savings vehicle. It won’t involve paying capital gains tax on any profits made from the investments. There isn’t even any income tax payable on any dividends received from the stocks owned. Over time, this really matters.

There are a few other reasons for investing via a SIPP. Perhaps the most enticing of these is that any contributions made into the account qualifies for tax relief at a normal tax band. So, investors like me paying the basic rate (20%) will receive a 25% top-up from the government. In other words, £80 saved into an account becomes £100 after tax relief. 

Another positive is that I can save up to £40,000 in any one tax year. That’s double the ISA allowance!

£175.20 a month = retirement freedom

Back to the matter at hand. Let’s assume I’m saving the equivalent of the weekly State Pension (£175.20) into a SIPP every month. Thanks to the tax relief mentioned above, I would receive an extra £43.80 from the government, bringing the total monthly contributions to £219. Lovely!

Now, let’s assume I’m 40 years-old and I make these monthly instalments for the next 30 years. After all, there’s a possibility only those 70 and over might be able to access the State Pension by 2050. 

In 30 years, I will have saved a total of £78,840 according to my calculations. Let’s say this is invested this in the stock market and a penny wasn’t touched. I think I will be amazed by the results.

Wow! How much?

By 2050, that £78,840 will have grown to almost £175,000, assuming a 5% annualised return. As great as this sounds, the outcome could be even better if the chosen investments have performed well. 

A 10% annualised return would produce a little over £432,000 after 30 years. A 15% annualised return would make me a millionaire!

Of course, there are a few caveats. 

Keep costs low

Firstly, I must stress that there are no guarantees when it comes to returns. In reality, how much a person makes depends hugely on the age at which they begin investing and what they’re invested in. Small- and mid-cap companies tend to perform much better than big stocks over the long term, but they’re also far more volatile in the interim. 

Secondly, I’ve not taken account of any fees related to managing the SIPP, some of which will be unavoidable. Having said this, investors can keep costs low by not continually trading in and out of stocks. I’d just buy and hold.

In spite of these points, the numbers don’t lie. Look at how much money I could make by regularly saving into a tax-efficient account and trusting in the power of compounding!

I’d start investing the equivalent of the State Pension now and will be far less likely to be reliant on said State Pension in retirement.

The post Forget the State Pension. I’d drip-feed £175.20 a month into a SIPP to retire 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?

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.

Start retirement saving…Now

A lot of people have put off the idea of investing in the belief they need a lot of money to get started. This simply isn’t true. Most brokers only require you to put as little as £25 a month to work.

It really is amazing what a sum like this can grow to over time. Invest £25 every month for the next 30 years (very roughly the time 40-somethings have before taking retirement) and you’ll end up with just under £50,000, based on achieving an annual return of 10%.

Of course, the return could be lower or higher than this — we can’t say for sure. However, we do know that shares beat all other assets when it comes to growing your wealth over the long term.

Cut costs where you can and simply get started on your retirement pot journey.

Avoid the pre-retirement tax grab

If you want to boost your chances of being rich by retirement time, it makes sense to hang on to as much profit as you can along the way. One way of doing this is to make sure you buy shares within a Stocks and Shares ISA, or Self-Invested Personal Pension (SIPP).

While there are quite a few differences between these accounts, both allow you to shield your gains from the taxman. Nor will you pay any tax on dividends that you may receive from the shares you own. 

This really matters over the long term, because it means more of your money will be allowed to compound. 

Go small

Having opened an ISA and committed to putting some money aside every month, the next step is deciding what to buy. You could take a very general approach and buy a ‘target date’ fund. As it sounds, this invests your money based on when you expect to retire.

Importantly, it adjusts which assets your money is invested in as time ticks by. This means very little maintenance will be required over the 30 years or so that you’ll be invested for.

For those who want to boost their returns, however, you can’t beat buying quality stocks at great prices. Even initially-expensive-looking shares can turn out to be solid investments if a company can keep growing.

Those in their 40s who really want to make big money by retirement age should also consider holding small company stocks, either individually, or within a fund. These firms are more likely to grow faster than larger, more established companies, albeit at greater risk.

Buy the trend

Another way of boosting your savings is to buy into companies that have exposure to major themes such as, say, clean energy, video gaming and biotechnology. These industries have exceptionally bright futures. The earlier you can catch the investment wave, the greater your chance of retiring rich. 

Tapping into these high growth stories doesn’t need to be complicated either. Investment managers, such Blackrock (iShares) and VanEck, offer a huge variety of index funds tracking major investment themes. Importantly, the fees charged for holding these funds are cheap, allowing you to retain more of your profits. 

The post No savings at 40? Here’s how to boost your chances of a richer 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?

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.

This is a big problem for anyone expecting a certain lifestyle in their golden years. After all, the new State Pension pays out just £175.30 per week, or £9115.60 per year.

The good news, however, is it’s never too late to begin. Here’s what to do.

How to get saving for retirement

The best way of saving for your retirement is via a pension. If you’re not currently enrolled in your employer’s scheme (many people will be, thanks to auto-enrollment), you need to get involved as soon as possible. The great thing about a workplace pension is that your employer also makes contributions, helping your pot to grow faster.

Now, doing the above will get you started. But it still might not be enough to give you the life that you want. Moreover, those who are self-employed won’t be able to take advantage, meaning they’ll definitely need to take the bull by the horns (albeit perhaps after consulting a financial advisor). 

Get a SIPP

Opening a Self-Invested Personal Pension (SIPP) is something everyone with one eye on retirement should consider. Unlike its workplace equivalent, this account puts you in full control of your savings. This, of course, isn’t the only benefit.

Like the Stocks and Shares ISA, the SIPP allows you to avoid paying any capital gains tax on the profits you make from your investments. Dividends aren’t taxed either. The only snag is that SIPP holders will need to pay tax when they start withdrawing their money. 

But there’s more. Any contributions made to a SIPP qualify for tax relief at your normal rate. So, a basic rate taxpayer (20%) depositing £200 into their account, for example, will receive an extra £50 to invest from the government. This is patently a good thing since the more you have to invest, the more you can take advantage of compound growth.

Another advantage of the SIPP is that you can contribute up to £40,000 per year — the maximum ISA contribution. This being the case, a SIPP could theoretically get you to your financial goals a little sooner. That’s handy for someone building a retirement nest egg from scratch.

What next?

Having opened a SIPP, the account holder needs to decide what to fill it with. This will depend on a number of factors, particularly their age and risk tolerance.

Younger SIPP holders may want to gravitate toward riskier investments like growth and/or small-cap stocks. After all, they have many years to go before needing to access their funds and can endure some volatility. Older investors, while still having exposure to equities through funds, may want to introduce traditionally less risky assets, like bonds, into their portfolios.

Regardless of your strategy, the numbers can be truly impressive. Someone who’s able to put £200 (or £250 after tax relief) to work every month for, say, 30 years will reap massive rewards. Ignoring costs, a not-unreasonable annual return of 8% would give £340,000!

Don’t delay — get a savings plan together. In a few years, or decades, you’ll be glad you did.

The post No retirement savings? Here’s what I’d do right 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?

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.

1. SIPP it

As much as we love the standard Stocks and Shares ISA at the Fool UK, we’re just as positive about another tax-efficient account — the Self Invested Personal Pension (or SIPP). As its name would suggest, this savings vehicle is ideal for those whose goal is to build a big nest egg for their golden years.

The great thing about the Self-Invested Personal Pension (SIPP) over the ISA is that it forces you to focus on the long term by preventing you from accessing your money until the age of 55 (rising to 57 from 2028). An ISA, on the other hand, can be raided at whim, which isn’t really conducive to generating wealth for retirement.

Another benefit of the SIPP over the standard ISA is that the government pays tax relief on any contributions you make. Pay in £800, for example, and you’ll receive an extra £200 to invest (assuming you’re a basic rate taxpayer). You can also pay in double the amount you can into an ISA (up to £40,000), although be aware that this allowance may change in the future. 

2. Make time your friend

If you want to make it to millionaire status, you need to make the most of what Einstein supposedly labelled the eighth wonder of the world: compound growth (or interest on interest).

To give you an idea of just how impressive compound growth is, £58,000 will, after 10 years be worth over £150,000, assuming an optimistic-but-not-impossible average annual return of 10%. After 20 years, it will be worth slightly more than £390,000. Stay invested for 30 years and you’ll have over £1,000,000.

To generate this kind of return in reality, however, you’ll need to be comfortable with having most of your cash tied up in stocks. This is vital since equities have consistently been the best performing of all assets over the long term.

To be clear, the longer you stay invested (and the more you save), the better your chances of retiring a millionaire.

3. Become a millionaire on the cheap

Becoming a millionaire is all about learning to buy at the lows and sell at the highs, right? Ideally, yes. The easiest bit of investing advice to convey is, however, also the hardest to achieve in practice.

Very few people are able to get their timing just right; even fewer are able to do so consistently over years of investing. This is why we think it’s a good idea to buy regularly and automate the process as much as possible. Most investment platforms offer their clients the option to buy on a set day every month, thus avoiding the temptation to ‘time’ their purchases.

Another positive to doing this is that it keeps costs low at around £1 per trade (costs vary depending on which platform you use). That’s far better than paying the normal charge of around £10-£12. Over many years of investing, paying the latter can have a huge negative impact on returns regardless of how good a stock picker you prove to be. 

A smart (but always Foolish) investor always endeavours to keep costs as low as possible to reap the rewards further down the line.

The post 3 smart moves to help you to retire a millionaire 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.

For most, this will involve opening a Stocks and Shares ISA or Self Invested Personal Pension (SIPP).

Which account is best for me?

The ISA and SIPP are similar and yet quite different. Both accounts allow you to protect any profits you make, or income you receive, through investing from the taxman. The fact you retain this money makes them brilliant investment vehicles for the long term because they allow you to benefit from the magic that’s compound interest.

Both accounts also allow you to invest in a range of assets, from stocks and bonds, to commercial property and gold. 

What’s the difference?

There are three big ways in which an ISA and SIPP differ. The first is to do with how much you’re able to save into each account. The ISA allowance in the 2019/20 tax year is £20,000. For the SIPP, it’s 100% of your salary up to £40,000 (although the rules for very high-earners and non-earners are different).

Secondly, saving money into a SIPP generates tax relief. Simply put, this means the government will top up whatever you put into your account with extra cash. For basic rate taxpayers, the relief will be 20%. So, put £80 in your SIPP and you’ll get an extra £20 from the government. Again, the more money you have, the greater the effect of compounding over time.

Another difference between an ISA and SIPP is to do with your ability to access the money you’ve put in each account.

Should you really need to, an ISA allows you to sell your investments and withdraw the cash just like a normal savings account. The snag is that reinvesting the money within the same tax year will count towards your £20,000 limit. You can’t access your SIPP before the age of 55 (rising to 57 in 2028).  

It’s also worth pointing out you’ll pay no tax on ISA withdrawals. With a SIPP, 25% will be tax free, but the remainder will be subject to income tax at your marginal rate. 

Why open an account now?

Aside from the fact that markets haven’t been this cheap for years, opening a Stocks and Shares ISA or SIPP now is ideal since you can take advantage of your 2019/20 allowance before the end of the tax year (5 April).

This is particularly important for ISA holders since that £20,000 allocation can’t be transferred to next year. Use it or lose it. Unused SIPP allowances from the three previous tax years can be carried forward. 

A word of caution 

As much as we recommend the ISA and SIPP (and you could open both!), it goes without saying the next few months are likely to be difficult for a lot of people.

For this reason, having an emergency cash fund should still take priority. In ‘normal’ times, this would pay for a broken boiler. In 2020, this is more likely to be used for a period of temporary unemployment. 

Clearly, the size of the emergency fund will depend on your personal situation but something in the range of 3-6 months of expenses would be ideal.

The post Don’t waste the market crash! I think it’s a great time to open a SIPP or Stocks and Shares ISA 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.

For those able to take a long-term approach and adopt the suggestions below, however, I think the next few months could prove to be the buying opportunity of the decade.

Get that account open!

If you plan on investing during this period of volatility and you don’t yet have one, I can’t stress enough the importance of opening a Stocks and Shares ISA and/or a Self-Invested Personal Pension (SIPP).

Although there are clear differences between these accounts (and your personal situation will determine which is most appropriate), both protect you from paying any tax on profits you make or income you receive. That could turn out to be a whopping amount of money saved in a few years, once markets have recovered. 

Opening an account as soon as possible is also vital since the end of the tax year is fast approaching. Wait until 6 April and you’ll forego your allowance for the 2019/20 tax year (£20,000 for an ISA and £40,000 for a SIPP).

Use it or lose it.

Separate the wheat

The huge fall in sentiment over the last few weeks has sent share prices of all companies — the good, the bad, and the ugly — tumbling. So long as you’re able to distinguish these correctly, you’re likely to make great money in time.

Good companies tend to be those with a strong competitive advantage, sound finances and skilled management teams (who are also part-owners). Bad/ugly companies tend to be burning through cash and are overwhelmed with debt. They may also operate in a declining industry, have poor brands, and limited strategic vision.

Having a watchlist is vital, even if there’s a very real possibility markets could continue falling for quite a while. Which brings me nicely to my next point.

Scale in

Since no one knows when the market will bottom, we have three options. Go all-in, avoid buying anything at all, or gradually drip-feed your money into the market. 

The first of these is downright scary The second will not make you any cash (quite the opposite, in fact!). The final option feels the most appropriate to me if things are to remain volatile.

One way of doing this is to divide any spare capital you have into three tranches. Invest the first portion immediately and the remaining two portions within the next two months. 

Naturally, this strategy can be modified. Instead of three tranches, you could have five, seven, or whatever. You could also plan to invest every other month rather than on a monthly basis. 

The point is that putting some money to work now gets the ball rolling and avoids ‘analysis paralysis’. 

Switch off

Having minimised your tax burden, identified desirable stocks and began to gradually feed your money into them, the final smart move is the simplest of them all to summarise.

Learning to take breaks from following the markets isn’t easy. It is, however, important if you’re to avoid making emotional decisions that ultimately compromise your returns. 

Switch off and get some air. Your future self will thank you.

The post This market crash could be the opportunity of the decade. Here’s how to avoid missing out appeared first on The Twelfth Magpie.

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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.

That’s why, today, I’m taking a closer look at a big development: the arrival of Vanguard on the scene.  

Van…who?

For those unfamiliar with the company, Vanguard is among the world’s biggest providers of passive funds — those that seek to track the market return rather than beat it. Right now, it has assets of $5.6trn (yes, trillion) under management.

Part of the reason Vanguard is so popular is the low fees it charges. To track the FTSE 100 index, for example, you’ll be charged an ongoing fee of 0.09%. Compare this with the typical charge levelled by professional money managers of between 1% and 2% on some active funds and it’s easy to see why inflows into the Pennsylvania-based firm have rocketed over the last decade or so. The less you shell out in fees, the more profit you retain, even if the aforementioned managers outperform (most don’t).  

So is this SIPP any good?

The newly-launched SIPP is certainly cheap — Vanguard has said that it will charge an account fee of 0.15% to holders.

The fee will also be capped at a £375. So, even if someone already has an ISA and/or a general investment account with the company (both launched in 2017), they’ll never pay more than this amount in total if they also sign up for the SIPP. To invest, those holding the account will need to put up a minimum of £100 a month (before tax relief is calculated) or a lump sum of £500 or more. 

While calculating pension costs can get a bit fiddly (depending on how much money you have, the investments you hold and how often you buy and sell), Vanguard’s offering does look cheaper compared to its rivals. Market leader Hargreaves Lansdown, for example, has an administration charge of 0.45%.

It will be fascinating to see whether this is a catalyst for other providers to lower their fees. If it does, investors only stand to benefit. 

What’s the catch?

For me, a slight issue with Vanguard’s SIPP offering is that it requires the holder to invest in — and solely in — funds that it runs. Then again, I don’t see this as a problem for a lot of people, particularly those that aren’t really interested in following the progress of their investments (which, ironically, can often lead to the best returns) and aren’t looking to put their money in anything remotely ‘exotic’. 

What’s more, Vanguard’s selection already runs to 77 funds including the one-stop-shop Target Retirement and Lifestrategy products — all of which give instant and sufficient diversification to the holder.

One other thing worth knowing is that the SIPP is currently only available to those in pre-retirement. In other words, anyone wanting to take money out of their account won’t be able to do so, at least until Vanguard makes this possible in the 2020/21 tax year.

Caveats aside, I suspect this new relatively low-cost account will prove very popular with those wishing to get their retirement savings in order. 

The post Saving for retirement? I think this news changes everything! 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.