Investing is like a rollercoaster, some days there are ups, some days there are downs, not only with your money but also with the overall performance. There is also the possibility you could get back less than you originally invested.
We carried out a survey Footnote [1] to find out what people were doing to help try and ride out those highs and lows of the market.
Diversify
Making sure you scatter your seeds wisely when diversifying your portfolio can help to ensure you're spreading your risk across different funds or shares and risk profiles. Investing across different things should mean that even if one investment goes down, another may stay stable or could even go up. When asked we found out that only 13% of people were invested in a diversified portfolio.
Keep an eye on fees
When you use an investment platform, you’ll usually be charged a fee; fees could include transaction, withdrawal and platform fees. You may only be charged some of these but equally you could be charged all of them. The lower the fee, the more of your investment returns you’ll get to keep, so it’s important to shop around to compare services and fees. Out of those asked 7% of people said they didn't know how much they currently paid in fees and charges on their investments.
Stay in it for the long haul
Riding the waves of investments can sometimes be quite daunting. When asked, 9% of people said that when their investments go down, they would transfer to another provider. But the performance of the investment isn’t determined by the provider, it’s determined by fund performance and what's happening in the economy, and often in the world in general.
Sometimes, making the most out of an investment means keeping it where it is. Some investments will weather the dips in the market and recover from the lows.
Invest little and often
30% of the people we asked said they didn’t think they had enough money to invest. In our current climate spare cash is celebrated. You could think about it like this though.
You have £1,000 to invest (lucky you). You could either put it into a portfolio of funds, all at once, and hope that the market performs consistently well to increase your investment month on month. Or you could drip feed that £1,000 into the portfolio over the course of a year (or more).
This second approach is known as pound cost averaging, and it's a way to try to cushion your investment against market falls. It works because some months your investments will be more expensive if the market is doing well, but sometimes they will be cheaper if the market is down. So, the cost of your investments will average out over time. Pound cost averaging is also a great way to instil good investing behaviour: investing little and often and not trying to time the market. Whether you want to be hands-on with your investments or just monitor how they're doing from time to time, MyAviva allows you to check your Aviva Pension, Stocks & Shares ISA or Investment Account whenever you like.
Make the most of your allowances
When you invest in a pension or an ISA you are given a limit on the amount you can put in. This is because you will get a tax benefit with these types of investment products. Tax benefits are subject to change, interpretation and depend on the individual's circumstances.
ISA allowance
With ISAs, you can pay in up to £20,000 a tax year (or £4,000 if paying into a Lifetime ISA). You can spread this allowance across all the different types of ISA products. You don't pay UK tax on any interest, capital growth or income your money earns in an ISA.
Pension allowances
Pension annual allowance
Now this one can be a bit more confusing because this has a few different conditions.
The annual allowance, which takes into account all pension savings built up for your benefit, is £60,000. This includes contributions paid by your employer, for example into a workplace pension.
You can only get tax relief on personal contributions up to your earnings. If you have no earnings, you can still put in £2,880 and get tax relief to bring the value up to £3,600.
The tapered pension allowance
A tapered pension allowance relates to those who are higher earners; if your threshold income is more than £200,000 and your adjusted income is more than £260,000 then your annual allowance begins to fall. For every £2 of income above the threshold, the annual allowance decreases by £1, up to a minimum limit. Find out more here.
Money purchase annual allowance
The money purchase annual allowance (MPAA) is a limit on the amount you can contribute to your pension once you've received taxable income from benefits you've accessed flexibly (e.g., through income drawdown). MPAA allows you to benefit from £10,000 of contributions - both personal and employer contributions count - before paying a tax charge. Don't forget you can still only get tax relief on personal contributions up to 100% of your earnings, even if they come to less than £10,000.
Pension carry forward
A carry forward allows you to use any unused annual allowance for the previous three tax years. It lets you optimise any previous allowance you hadn’t used before so you can make a larger contribution. This can only be used once you have used all of that year’s annual allowance.
Lump sum allowance and lump sum and death benefit allowance
The lump sum allowance is how much you can be paid from all your pensions tax-free during your lifetime, and in 2024/2025 it’s £268,275. The lump sum and death benefit allowance is the tax-free limit for payments during your lifetime and on death – it’s currently £1,073,100. UK Income Tax is payable on any benefits taken above these limits.
The value of an investment can go down as well as up. You could get back less than invested.
If you’re unsure make sure you speak to your financial adviser to tailor your portfolio to your needs. If you don’t have one, did you know Aviva have financial advisers? They’ll sit down with you and help create a personal plan for you, focused on your investment goals. There will be a charge for advice.