Compounding

Let’s start with compounding. If I had to list the single most important concept to understand when it comes to wealth generation, this would be it. Put simply, it’s the secret to getting rich.

Compounding refers to the process of earning interest on your interest, or earnings on your earnings. The reason that compounding is so important when it comes to building wealth is that if you can compound your money by continually reinvesting your earnings, your money will grow at an exponential rate.

Just look at the chart below which shows how £10,000 grows when it’s compounded by 10% per year. In the first year, the gain is only £1,000. Yet by year 50, the gain is over £100,000 per year. That’s the power of compounding.

Ultimately, the sooner you begin compounding your money, the more wealth you can generate.

Risk and return

Next, it’s critical to understand that in the financial world return is directly proportional to risk. So, if you want to generate a healthy return on your money, you will have to take a degree of risk. This means investing in higher-risk assets such as stocks.

Many people don’t like taking any risk at all with their money, so they leave it sitting in a Cash ISA earning 1%. That’s fine, but it makes the process of building wealth extremely difficult as inflation actually erodes the value of the money over time.

The bottom line is that unless you’re earning an astronomical salary, investing your money in growth assets, which are higher risk than cash savings, is the best way to generate wealth over the long term.

Capital preservation

Finally, the third vital concept to understand is that of capital preservation. If your goal is to build your wealth significantly, it’s important to have sound risk management processes in place so  you don’t lose too much money on any one investment. As Warren Buffett says in relation to investing: “Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1”.

Losing vast amounts of money can really set you back. That’s because when you do, you have to make much more, percentage-wise, just to break even. For example, if you lose 50% on an investment, you have to make a 100% return just to break even. Lose 80% on a stock, and you need a 400% return to make it back to square one.

Perhaps the easiest way to lower your overall portfolio risk and reduce the chances of losing a lot of money is to diversify your capital across many different asset classes, sectors, stocks, and geographic regions. This way, if one asset struggles, it shouldn’t impact your overall returns too badly.

Investing doesn’t need to be complex. But you do need to get the basics right. Focus on the three concepts I’ve discussed above, and it will make the process of building up your wealth far easier.

The post Want to get rich? Here are 3 things you need to understand 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?

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.

“Never depend on single income. Make investment to create a second source” – Warren Buffett

Let’s start with this gem from Warren Buffett. It’s not an eloquent quote by any means, but in terms of wealth management advice, it’s spot on. After all, the average millionaire has seven different sources of income, apparently.

These days, building up multiple income streams is easier than ever. And one easy way of creating extra income is investing in dividend stocks. These are stocks that pay out cash payments to shareholders on a regular basis.

Take a look at the FTSE 100 today and you’ll find around a third of the stocks in the index offer yields of 5%, or higher. For example, Shell shares currently yield 5.8% while Lloyds yields 5.4%. With these kinds of yields on offer, it really is easy to start earning a second income from stocks. And this could make a big difference to your wealth over time.

“If other people are putting in 40-hour work weeks and you’re putting in 100-hour work weeks, then even if you’re doing the same thing… you will achieve in four months what it takes them a year to achieve” – Elon Musk

What I love about this quote is its simplicity. Elon Musk is widely regarded as one of the most influential entrepreneurs in the world today. Having co-founded PayPal, and now heading up Tesla and SpaceX, the guy is clearly a genius. Yet here, Musk is simply saying when it comes to achieving your goals, there’s no substitute for hard work.

I’ll admit working 100 hours a week is probably a little excessive. However, if you’re willing to show a little initiative and take on some extra work outside your 9-5 job, it could make a big difference to your wealth, over time.

For example, let’s say you pick up some freelance work that brings in an extra £3,000 per year on top of your regular salary. Invested properly, this extra cash could boost your savings substantially and potentially allow you to retire years earlier than you would have on your normal pay.

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case” – Robert G Allen

Finally, this is a fantastic wealth quote from US financial expert and best-selling author Robert Allen. And it’s a point that many people seem to miss, as millions of people across the UK appear to have the bulk of their money wasting away in Cash ISA accounts. Realistically, it’s very hard to become wealthy if your money is sitting in a cash savings account earning 1% interest per year because your money won’t even outgrow inflation.

The bottom line is if you want to generate wealth, you need to get your money working for you. This means investing it properly and constructing a diversified portfolio of assets capable of generating a healthy return. Do this, and you’ll give yourself a much better chance of retiring early… and wealthy.

The post Want to retire early and wealthy? Read these 3 quotes 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 Royal Dutch Shell and Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Saving vs investing

Breaking the terms down, saving refers to the process of putting money aside for future use and not spending it immediately. For example, if you’re paid £2,500 a month, and you put aside £500 for future use, you’ve saved 20% of your paycheque.

By contrast, investing is the process of using your money to buy an asset – such as a stock, fund, or property – that you believe is likely to appreciate in value over time, or generate a healthy level of income for you. It’s taking that £500 saved and using it to buy an asset that will make you wealthier.

Ultimately, saving and investing play very different roles in your financial strategy. Saving essentially frees up cash whereas investing puts that cash to use to boost your wealth. It’s not rocket science to realise, therefore, that if your goal is to be wealthy, the key is to focus on investing.

£180,000 vs £750,000

Here’s a look at a simple example of saving versus investing. Let’s say from age 30 you put £5,000 per year into a Cash ISA earning 1% interest per year. After 30 years, when you turn 60, your Cash ISA will be worth approximately £180,000. That’s certainly a handy sum of money for retirement. However, when you consider that you may live for another 30+ years, £180,000 is probably not enough to live a luxurious retirement.

Now let’s say that instead of putting that £5,000 a year into a Cash ISA earning 1%, you put the money into a diversified range of investment funds and stocks, and manage to achieve an average annual return of 9%. At the end of the 30-year period, your portfolio will be worth nearly £750,000.

That’s no doubt a much more substantial amount of money. Indeed, this size retirement portfolio opens up a whole new world of possibilities. With £750,000 to play with, you could potentially generate dividend income of £40,000 per year alone in retirement and not even have to touch your capital.

Now can you see why it’s so important to invest your money, rather than just save it? By investing your money you could end up with a significantly larger retirement pot.

Investing has never been easier

If you’re interested to learn more about how to invest your money, that’s great. These days, it’s easier than ever to get started. For example, through an online broker such as Hargreaves Lansdown, you could put some money into a number of low-cost tracker funds that simply track the market.

Or, you could consider some top-performing investment funds such as the Lindsell Train Global Equity fund which has risen 170% in the last five years.

Alternatively, you could put together your own stock portfolio from the information here at The Motley Fool. Go as fast or as slow as you like. But do make sure you take action and get your money working for you.

The post Want a £750,000 retirement portfolio? Stop saving and start investing 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 owns shares in Hargreaves Lansdown and has a position in the Lindsell Train Global Equity fund. 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.

Yet perhaps the biggest misconception of all when it comes to investing in stocks is that you have to be wealthy to invest. That simply isn’t true. These days, literally anyone can invest their money in stocks and take advantage of the power of the stock market to boost their wealth over time.

Huge misconception

I was actually discussing this very topic with a local builder just a few weeks ago. When he asked what I did for a living, I explained that I write about investing in stocks and funds and building wealth through the stock market. He was clearly interested because he told me he had a decent sum of money sitting in a Cash ISA earning 1% interest. His response though? “Sounds interesting, but you have to be wealthy to invest, right?”

I was actually quite stunned at this response. Here was a guy who was switched on and had built up some solid savings, yet had no idea that investing in the stock market to grow his wealth was even a possibility. His impression was that investing was only for rich people. At this stage of the conversation, I sat him down and explained that this investing belief couldn’t be further from the truth.

Investing has changed

You see, investing has changed a lot over the last 20 years. Once upon a time, before the internet, stock market investing was probably aimed more at the wealthy. Yet due to advances in technology, the cost of investing has come right down in recent years and it’s now also possible to start building an investment portfolio with just a small amount of money.

For example, with Hargreaves Lansdown – the UK’s largest online broker – you can now start up a portfolio with a lump sum of just £100. You can also set up a monthly investment plan with just £25 per month, which equates to just £5.77 per week. Forget needing to be wealthy to invest – you can invest for the cost of a sandwich and a coffee per week. £25 per month is less than most people pay for their mobile phone plans.

Growing your money

It’s amazing what you could you do with that money and how quickly it could grow. For example, you could invest in Fundsmith Equity fund which deals in high-quality companies all across the world. This particular fund is up 165% in the last five years, although past performance is no guarantee of future performance. Alternatively, once you built up a healthy balance you could pick up some dividend stocks yielding 5% and start building up a passive income. Ultimately, there are many different ways to build up your wealth through the stock market.

The key takeaway here though, is that these days, literally anyone can invest in stocks. If you think investing is only for the wealthy, you’re way off the mark.

The post Do you have to be wealthy to invest your money? 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 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.

Not taking it seriously

Consider this statistic from pensions and investment specialist LV. According to LV, which recently surveyed 2,400 people across the UK on their savings, 62% of those surveyed aged 45-54 didn’t know how much they’d saved for retirement. In other words, this suggests that more than six in 10 people are really not taking their savings seriously. How can people possibly expect to live a comfortable retirement if they’re not aware of how much money they have saved now and how much they still need to save in the future?

More time spent planning a holiday

It gets worse though. LV also found that 51% in this age bracket hadn’t thought about their retirement savings at all in the previous year and those that had done so had actually spent more time planning a holiday than their retirement. Again, this shows that many people are just not taking their retirement planning seriously.

No savings

What’s also worrying is just how much money the average person actually has tucked away for retirement. There appears to be a big gap between how much people have saved, and how much they need to live a comfortable lifestyle in retirement.

For example, according to LV, to live comfortably when you stop work, you need to have around £311,000 saved by 55 to sit alongside your State Pension.

Yet the pensions specialist found that the average pension saving for those aged 45-54 was just £71,342. Worse still, 39% of those in this age bracket had less than £50,000 and 13% had nothing at all.

Clearly, there’s a problem here. And one of the main issues is that people just aren’t making retirement saving a priority.

Leaving it late

What concerns me most about these particular statistics is the age group. We’re talking about 45 to 54-year-olds here.

It’s one thing to ignore retirement saving in your 20s. But in your late 40s and early 50s? That’s really worrying that people in this age group are neglecting their future prospects. As I explained last week, saving for retirement in your 40s is absolutely critical if you want to enjoy your retirement because in your 40s you still have time on your side. Leave it until your 50s, and it becomes much harder to build up a significant pension pot. 

The bottom line

Retirement saving doesn’t need to be time consuming or complicated. Yet it is important to at least spend a little bit of time on it every now and then to make sure you’re on the right track.

If you’re looking to learn more about effective wealth-building strategies, you’ve come to the right place.

The post 62% of Brits could be making a terrible retirement savings mistake 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.

Yet just because you’re interested in dividends doesn’t mean that you have to pick stocks yourself. There are many funds that pay investors a cash dividend on a regular basis. Here’s a look at three reputable dividend-paying funds I hold in high regard.

Franklin UK Rising Dividends Fund

The aim of this fund to provide investors with a growing level of income, along with some capital growth, in order to achieve a total return in excess of the FTSE All-Share Index over the medium-to-long term. Currently, it has a historic yield of 3.2% with income paid bi-annually. The top five holdings are Royal Dutch Shell, Diageo, Imperial Brands, RELX and GlaxoSmithKline.

What I like about this fund is that the portfolio manager has a specific focus on companies that are increasing their dividends. That’s an excellent long-term strategy in my view, as over time, dividend growth tends to generate capital growth too. The strategy appears to be working well, with the fund returning 58.5% for the five years to the end of July, vs 44.9% for the FTSE All-Share Index. With a net ongoing charge of just 0.55% through Hargreaves Lansdown, this fund could be a solid choice for UK dividend investors.

Threadneedle UK Equity Income Fund

For a more ‘vanilla’ dividend fund, check out Threadneedle UK Equity Income. This is included in Hargreaves Lansdown’s ‘Wealth 150+’ club, which is a selection of the broker’s favourite funds. It currently has a historic yield of 3.7%, paid quarterly, and the net ongoing charge is 0.68%.

The fund manager’s approach here is to maintain a core of large, high quality, dividend-paying companies, and then supplement these with out-of-favour higher-yielding stocks, or companies capable of strong growth and rapidly increasing dividends. Overall, the fund aims to achieve an above average rate of income combined with capital growth. For the five years to the end of August, it delivered annualised returns of a healthy 9.5%, vs 7.6% for the FTSE All Share. Top holdings are currently AstraZeneca, GlaxoSmithKline, Electrocomponents, WM Morrison Supermarkets and Imperial Brands.

Marlborough Multi Cap Income Fund

Lastly, for a more unique approach to dividend investing, take a look at this one from boutique investment manager Marlborough. It focuses on medium-sized and higher-risk smaller dividend-paying companies and as such, I believe it could be a great portfolio addition for those looking to diversify. Its historic yield is 4.4%, paid bi-annually. Fees are 0.64% through Hargreaves Lansdown.

The objective of this fund is to generate an attractive and growing level of dividend income in addition to long-term capital growth by investing in a diversified portfolio of equities. A glance at the portfolio reveals that it certainly is diversified – it currently has over 130 holdings, with the top ones being Polar Capital Holdings, Phoenix Group Holdings, Intermediate Capital Group, DS Smith and WH Smith.

Having returned 57.4% for the five years to the end of August, this fund has certainly delivered. I think it’s an excellent option for those seeking strong long-term total returns.

The post Retire wealthy: three super funds for dividend investors 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 GlaxoSmithKline, Imperial Brands, Diageo, Royal Dutch Shell, DS Smith and has a position in the Marlborough Multi Cap Income Fund. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, Diageo, DS Smith, Imperial Brands, RELX, and WH Smith. 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.

Buying at the top

Research shows that retail investors tend to consistently invest at the worst possible time. All too often, they invest near the top of the market because that’s when sentiment towards stocks is at its highest. This is a classic behavioural finance mistake. One strategy that can help you avoid making this mistake is to set up a regular investment plan whereby you drip-feed money into the markets all through the cycle. By doing this, your purchase prices will average out over time.

Panicking easily 

Another bad habit that many private investors exhibit is panicking as soon as an investment falls in value and is showing a loss. One of the most important things to understand about investing is that share prices can experience wild swings up and down, often for very little reason. To be a successful investor, you have to be comfortable with this volatility. Even high-quality FTSE 100 companies can move 5% to 10% in the space of just a few trading sessions. Yet just because an investment is down 10% doesn’t mean it’s time to sell. Most of the time, the best approach is to ignore the short-term price movements and focus on the long-term.

Not buying low 

In the same way that retail investors tend to buy at the top of the market, they also tend to miss out on the fantastic opportunities that are available when the market is plummeting. Buying stocks during periods of market turbulence takes courage. However, if you’re willing to take the risk and go against the herd, the rewards can be life-changing. For example, had you had the courage to dive into the FTSE 100 in the chaos of early 2016 when the index was at 5,500 points, you would now be sitting on a gain of over 40% when you include dividends. Not a bad return in just 2.5 years.

Overtrading 

Making too many trades can also have a negative impact on your wealth. This is simply due to the fact that commissions and stamp duty add up if you’re constantly tinkering with your portfolio. Remember, an investment portfolio is like a bar of soap – the more you touch it, the smaller it gets. Often, the best approach is to simply leave your portfolio alone.

Not diversifying 

Lastly, many investors fail to diversify properly and this ends up hurting their investment performance. Spreading your capital out over many different investments is crucial when it comes to generating wealth from the stock market.

Diversification has several benefits. First, it reduces your stock-specific risk. If you only own two stocks and one crashes 50%, your portfolio will fall 25%. However, if you own 20 stocks and one crashes 50%, your portfolio will only fall 2.5%. Second, diversifying internationally into niche areas can help boost your performance. For example, those who have bought US technology stocks in recent years have most likely boosted their wealth considerably as this sector has soared.

Investing doesn’t need to be complicated. However, it’s important to get the basics right. Avoid the bad habits above and you’ll give yourself a good shot at generating long-term wealth through the stock market.

The post 5 investing habits that could prevent you from 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?

However, before you panic about counting your pennies in retirement, understand that there are things you can do today that might help you enjoy a more comfortable lifestyle in retirement. If you act quickly, there’s a good chance you can salvage your retirement and enjoy your golden years in style.

Here are three smart moves that could make you considerably better off.

Open a tax-efficient investment account

The first thing to do in order to avoid living off the State Pension is to open an investing account. And you want this to be a tax-efficient account, so you pay as little tax on your money as legally possible. The more money you can shelter from the taxman, the more you’ll have for your retirement.

There are several good tax-efficient investment accounts here in the UK that are designed to help people maximise their retirement savings. One such account is the Stocks & Shares ISA, in which all investment gains are tax-free. Another is the Lifetime ISA, which is open to those aged 18-39 and has the added benefit of 25% bonuses on your contributions as long as your money is kept in the account until you turn 60 (or buy your first property). Third, there’s the self-invested personal pension (SIPP) which also provides tax relief on contributions. 

Each of these accounts has different features so it’s worth checking to see which one best suits your personal requirements before opening an account.

Set up a direct debit

The next smart move is to set up a direct debit to ensure that you are regularly saving into your investment account. This will prevent you from spending your entire pay-cheque and not saving anything. Work out how much of your salary you want to save per month (i.e. 10%), and then instruct your bank to pay this amount into your investment account as soon as you receive your salary. This will make the process of saving money considerably easier.

Build your portfolio

Once your tax-efficient account is open and your money is regularly arriving in your account, you’ll be able to start building a portfolio that will boost your wealth. You can start thinking about the best investments for your goals, requirements and risk tolerance today. So where do you start?

One option is to consider picking stocks yourself. For example, you could purchase shares in some of the largest companies in the world such as Royal Dutch Shell, Unilever and HSBC and simply pocket the dividends these companies regularly pay. 

Alternatively, if you don’t want to choose stocks yourself, you could purchase a mutual fund, where your money is pooled together with the money of other investors and managed by a professional fund manager. I have discussed some top-performing funds with excellent long-term track records recently. A third option is to simply track the market with a low-cost exchange-traded fund. There are plenty of options, no matter your goals and risk tolerance.

Retirement should be something to look forward to. Start planning for it now so you can live the lifestyle you deserve.

The post 3 things you can do TODAY to avoid living off 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?

Edward Sheldon owns shares in Royal Dutch Shell and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended HSBC Holdings. 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.

Government bonus

The first main attraction of the Lifetime ISA is the generous 25% bonus on offer from the government on contributions of up to £4,000 per year, up to age 50. Contribute £1,000 and you’ll receive a bonus of £250. Pay in £4,000 and the government will pay you an extra £1,000. There are no complicated forms to fill in and the bonuses normally arrive in your account within weeks – it’s that simple. It’s not rocket science to realise that receiving these kinds of bonuses on your contributions could turbocharge your wealth pretty quickly. The sooner you open an account and start contributing, the more you could potentially benefit.

Tax-free

The next main advantage of this ISA, is that just like the Cash ISA and the Stocks & Shares ISA, this investment vehicle is tax-free. Any capital gains, dividends or interest you generate are yours to keep – you won’t have to hand over a slice to the taxman. This is a significant benefit that shouldn’t be ignored. Over the long term, paying no tax on your gains could boost your retirement pot significantly. Make a £5,000 capital gain on a stock? That’s yours to keep. Pocket £2,000 in dividends for the year? Again, all yours. The less tax you pay over your investing career, the more chance you give yourself of retiring wealthy.

Access to world-class investments

Third, with a Lifetime ISA, you’ll have access to a vast range of funds, ETFs, stocks and other investments, although the exact range is likely to depend on your provider.

For example, through a Lifetime ISA, you could invest in the Fundsmith Equity Fund, which invests globally and is one of the most popular funds in the UK right now. Over one, three and five years it has returned an incredible 19%, 98% and 165%, although past performance is no guarantee of future performance.

Alternatively, through a Lifetime ISA you could pick a portfolio of stocks yourself. Whether your preference is for large-cap stocks like Royal Dutch Shell or smaller companies such as Boohoo.com, through a Lifetime ISA you can profit from these kinds of companies, tax-free.

The catch

Of course, while the Lifetime ISA has considerable benefits, it also has its drawbacks. One is that your funds cannot be withdrawn without a sizeable penalty before you turn 60, unless you use the money to buy your first property. It’s important to fully understand the product before you start contributing. Yet overall, this ISA certainly has the potential to boost your wealth. If you aspire to retire wealthy and you’re eligible, it could definitely be worth checking out.

The post Born between 1979 and 2000 and want to retire wealthy? Read this 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 Boohoo Group. The Motley Fool UK has recommended boohoo group. 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.

The easiest way to save

Yet a recent study showed that only a minority of British adults actually do this. Indeed, according to Skipton Building Society, which surveyed over 2,600 Britons on their finances earlier this year, only one in four people in the UK have a direct debit set up to divert a proportion of their salary into their savings. This goes a long way toward explaining why savings rates are so low across the country.

You see, when you don’t pay yourself first, it’s very easy to blow your whole pay packet and have nothing left over at the end of the month. Plenty of people have good intentions when it comes to saving, but if money is sitting in their bank account, it’s all too easy to spend it at the shops, or on a big night out with friends on the weekend.

Of course, setting up a direct debit isn’t always necessary if you’re disciplined with your money. Many people direct funds into their savings manually. But the key, if you’re serious about boosting your savings, is to always pay yourself first. When you receive your salary, first direct a proportion of it to savings, then take care of your expenses and then, finally, spend the rest if you want to.

Another savings mistake

Another fundamental wealth concept is getting your money working for you. Yet Skipton’s research suggests that plenty of people across the UK don’t seem to grasp this concept. Indeed, the building society found that more than one in five Britons actually keep their cash savings in a ‘piggy bank’ at home. This is quite alarming.

If your money is sitting at home in a piggy bank, then it’s not generating interest and it’s certainly not growing faster than inflation. What that means, as I explained here, is that the money is actually losing purchasing power as time goes by. In other words, in five or 10 years, it will buy you fewer goods and services than it would today, simply because prices will have risen over time.

If you’re serious about boosting your retirement savings, it’s absolutely crucial to have your money working for you and growing at a rate above inflation. And the best way to do that is to allocate a proportion of your money to growth assets such as shares, funds and investment trusts. These assets will grow your wealth over the long term and ensure that your money is not eroded by inflation over time.

The post Only 25% of Britons are making this smart retirement savings move appeared first on The Twelfth Magpie.

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