You’ve started investing – what next? Five steps for staying financially savvy

When markets are volatile it can be tempting to want to keep a close eye and check on your investments regularly. However, if you are taking a long-term view, getting your finances organised is very important and there are a few other things you may want to consider and prioritise.  

1. Managing your debts 

With the Bank of England raising interest rates, mortgage and loan rates are also rising, meaning it can make sense to sit down and work out exactly what you owe and at what rate you are borrowing. Whether or not you will want to put any additional money you have into savings or investments or pay down long-term debt, such as a mortgage, will depend on your personal circumstances.  

If interest rates continue to rise in the coming months, so too will the cost of borrowing, so it is prudent to make managing your debts a key part of your financial plan. 

Read more: Overpaying your mortgage or investing? 

2. Budgeting for a rainy day 

While it’s a great idea to invest, remember past performance is no guarantee of future returns. You should also assess your ‘rainy day’ funds which, if they are invested, should be easily accessible and kept in a lower-risk portfolio that is unlikely to lose too much value should markets continue to fall.  

In addition to a ‘rainy day’ fund, it’s prudent to keep three-to-six months of expenditure aside in an easy to access cash account in an emergency fund. As the past couple of years have shown us, unexpected events can affect us all financially. The impact of Covid saw many people lose their jobs, or their income reduced through furlough. While it is by no means guaranteed, the threat of a potential oncoming recession means we should never take our financial security for granted.  

How much do you have aside as an emergency fund and is it still enough? If your circumstances have changed, for example if you’ve gone freelance or become a parent, consider having a larger sum set aside. 

3. Setting out your financial goals 

You would have had a clear idea of why you were investing when you put your money to work, but it is always worth regularly revisiting your financial goals. Are you looking to retire early? Pay off your mortgage? Pay for school fees? A trip of a lifetime? Whatever you are investing for, being clear about how much you will need and when you’ll need that money is vital in understanding the risk level and duration of your investment.  

This will also help you set out other aspects of your finances in making sure they fit with your investments. What are your monthly incomings and outgoings and how might these change? For example, are you close to that big promotion and pay rise, or maybe you plan to take a step back from work as you approach retirement?  

Could you be saving or investing more? Remember, the Nutmeg Wealth Services team is on hand should you wish to speak with an expert about your individual goals, and how best to achieve them. 

4. Taking advantage of different tax wrappers 

You may have already invested by opening an ISA or pension, but are you taking full advantage of all your tax allowances? In the current tax year, your maximum ISA allowance is £20,000 with no tax paid on any growth, returns or interest you earn through your investments. For those considering the Lifetime ISA for their first home or retirement, you can contribute up to £4,000 per tax year and the government will give you a 25% bonus – that’s up to £1,000 every tax year. For pensions, the standard annual allowance is currently £40,000 above which you could get charged tax.  

Not everybody has the means to use all of their ISA and pension allowances in one go, but putting your money to work either through regular lump sums or by setting up a Direct Debit can be a sensible approach. The concept of pound-cost averaging means that by making regular contributions to your investments you can, to some extent, smooth out excessive market volatility. By making regular contributions you naturally buy less stock when prices are high and more when prices are low. 

5. Consolidating your pensions

It’s often said that ‘a job for life’ is a thing of the past, with most of us now working for different employers during our careers or becoming self-employed. This can result in several workplace pensions all with pots at different amounts and invested in different assets at different risk levels. There are also multiple types of pensions, subject to different rules and benefits. The question is, do you have access to all these different pensions schemes, or is the paperwork buried in a filing cabinet somewhere? 

Pension consolidation is about bringing all of these pots together under one roof, which could make things easier to manage, and potentially reduce costs as you will only be paying the fees with one provider. The bad news is you may have to dig deep into that filing cabinet to find scheme details. However, if you don’t have all the information to hand, you may consider using the government’s free Pension Tracing Service, though this will only give you the contact numbers for schemes rather than account numbers or your specific pension details.  

If you haven’t already, you may wish to consider consolidating these pots into a pension with a digital wealth manager like Nutmeg, which is expertly designed – considering your chosen risk level and investment style – straightforward to set up, and transparent with no hidden costs or exit fees.  

Staying savvy  

Investing for you and your family’s future is a savvy step – if you’re reading this now, you’re most likely well underway in making the most of your long-term finances. But there are many aspects to achieving your financial goals, and we hope these tips have given you extra incentive to keep on top of your money. It’s never nice to see your portfolio in the red, but putting this in the context of the probability of higher returns the longer you invest, should – we hope – give you the freedom to focus on other things.  

Risk warning  

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. Tax treatment depends on your individual circumstances and may be subject to change in the future.