Finding diversified income streams for your ISA
There is a common misconception that income investing is just for those at or approaching retirem...
Whether you’re ready to invest depends on a number of factors and not everyone is in the same boat – and that’s okay! Whether you’re currently re-budgeting to get out of debt or simply overwhelmed by the idea of thinking of a 10-year plan, there’s a solution for everyone. Yes, investing can be intimidating, but you’ve got to do it – it’s your ticket to building real wealth and making your money work for you.
“An investment in knowledge pays the best interest” — Ben Franklin
Think you’re ready to invest? It won’t hurt to double check. Because before you buy anything, quizzing yourself about whether it’s really worth it – aka spending with intention – helps ensure you’re in control of your money. Here are some things to consider…
While bonds are deemed to be less risky than equities, it’s important to know that you can still lose money. But they do have the potential for capital growth and usually provide a yield that’s higher than interest on a cash account. Strategic bond funds are the most flexible type of bond fund because they can invest in any type of bond – government, investment grade, high yield and emerging market, as well as other fixed interest investments.
If you are willing to take more risk with your money, global equities are a good option for a first-time investment as they have the flexibility to invest in companies anywhere in the world. Funds can vary in the size of company they invest in and even which markets, like the UK, Europe and US.
The Baillie Gifford Global Discovery fund invests in smaller companies from around the world, looking primarily for firms with strong growth potential. Guinness Global Innovators, as the name suggests, looks for companies with innovative and disruption businesses.
Multi-asset funds can also be popular with first time investors, as smaller sums of money can be spread across different asset classes, giving some helpful diversification without the added research time. Multi-asset funds are categorised by the amount of equities they can invest in, meaning no matter your tolerance for risk, there’s a fund out there for you.
Find out more about the different types of multi-asset funds
Close Managed Income sits on the conservative side of the risk spectrum, as does the VT Momentum Diversified Income fund. The Jupiter Merlin Balanced fund is a fund of funds with a balanced approach to risk, while Rathbone Strategic Growth Portfolio has a big focus on delivering returns with limited volatility and via a risk-controlled framework. Looking for more risk? The TB Wise Multi-Asset Growth fund has the flexibility to invest up to 100% in equities.
While it’s important to start investing sooner rather than later – it’s equally as important to do it when it makes financial sense for you to do so.
For example, let’s say you re-budgeted and found £50 a month and want to start investing. But you also have a £2,000 balance on a credit card. The £50 is better served paying off your credit card debt faster.
At 20.77%, the average interest rate on credit cards in the UK, a £2,000 balance would take 24 years and 5 months to pay off if you paid the minimum payment each month*. Ouch! If instead you paid £50 + the minimum payment, you’d have paid off the card in 2 years and saved £2,553 in interest*. To get that same level of returns over 2 years on a £50 a month investment you’d need to return over 70% a year! Not likely.
In this case, it makes sense to focus on your debt and then, in 2 years’ time, invest the full £101 a month. And why not take the time you’re focusing on debt repayments to learn more about money and investing so when you’re ready to open that first ISA account, you know exactly where to start.
P.S. £101 invested monthly for 2 years with 5% annual returns would give you £2,543**
*Source: Barclaycard repayment calculator
**Source: This is Money savings calculator