Five tips to improve your financial fitness

If you’re looking to get your money matters in shape, there are plenty of simple steps you can take to help improve your financial fitness.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change and their effects on you will depend on your individual circumstances. Before transferring your investments, find out about any charges, exit penalties, benefits you may lose or investments that you can’t transfer to us.

What you’ll learn:

  • Why it’s important to use your annual ISA allowance.
  • Why you don’t need a big lump sum to get started.
  • How to spread risk.

Watch Clare Francis, Director of Savings and Investments, share some tips on improving your financial fitness.

If you want to work on your personal fitness as well as your finances, we’ve teamed up with Olympic cyclist Victoria Pendleton to offer some training tips in the video below.

Getting financially fit needn’t be complicated or difficult. There are plenty of simple steps we can all take to ensure our money is working as hard as it possibly can – here are five to get you started.

1. Use your annual ISA allowance

You can put up to £20,000 into tax-efficient ISAs in the 2017-18 tax year.

You can pay the full amount into a cash, an investment, or an innovative finance ISA, or alternatively, you can split your allowance however you want across these three types of ISA and the lifetime ISA. With the lifetime ISA,1 you can pay in a maximum £4,000 in each tax year and use your remaining £16,000 allowance between the other ISAs however you want. However, you can only pay into one of each type of ISA in each tax year. If you don’t make use of your annual ISA allowance, it’ll be gone for good once the next tax year starts on 6 April, 2018, so use it, don’t lose it. Remember that tax rules can and do change over time, and their effect on you will depend on your individual circumstances, which can also change.

Find out more about investment ISAs

2. Transfer existing ISAs

If you already have savings in a cash ISA but you’re not happy with the rate of interest it’s paying, you can transfer it to an investment ISA. Investing in stock-market-based investments, whether through a fund or direct shares, offers the potential for higher returns over the longer term, though it could be lower – it depends how your investments perform. However, it’s higher risk than keeping your cash because stock markets can fall as well as rise so you can lose money and you might get back less than you invest. ISA rules allow you to transfer money freely between different types of ISAs. But, if you’re transferring money you’ve paid into a cash ISA in the current tax year, it must be transferred in full. If contributions were made in previous tax years, you can choose what proportion of these you want to transfer.

Before transferring, check whether there’ll be any charges from your current provider. You should also check that there are no exit penalties or other benefits that you might lose.

3. Save regularly

Many people are put off investing because they think they need a big lump sum to get started, but there are plenty of funds that allow you to pay in small regular amounts, such as £50 a month.

Drip feeding your money into an investment gradually has advantages too. If you invest a fixed amount of money on a regular basis, you’ll buy shares across a range of prices, so you’ll get fewer shares when prices are high and more when they’re low. You effectively pay the average price over a fixed period, which can help smooth out market volatility.

4. Spread risk

If you’re keen to reduce risk when investing, aim to build a balanced portfolio that invests across the main asset classes including equities, bonds, property, and cash.

Investing in pooled investments such as unit trusts, open-ended investment companies (OEICs), investment trusts and Exchange-Traded Funds (ETFs) can help spread risk because you’re putting your money into a wide range of shares, bonds and other assets, which are chosen and monitored on your behalf by professional fund managers.

Make sure you think carefully about your financial objectives, how much risk you’re prepared to accept and your investment timeframe before choosing investments. If you’re unsure, seek professional financial advice.

Remember too that no matter how much you diversify, investments can fall as well as rise in value and you could get back less than you invested.

5. Be patient

Achieving financial fitness takes time, so be patient and don’t expect immediate results. Try to resist the urge to tinker too much with your investments, or to dip in and out of the market too regularly. Not only will this increase your costs, no-one knows which days will turn out to be the best trading days and by being out of the market, you could miss them.

Aim to remain invested for at least five years, but preferably longer, as this should hopefully give your investments enough time to recover from any downturns in the market. Of course, this isn’t a guarantee – you can still get back less than you put in after this time.

Watch Victoria Pendleton’s fitness tips

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