Knowing what to do with your money can be mystifying, whether you’re in lockdown or not. That’s why we took your most pressing questions straight to experts in investing, saving and pensions.
We spoke to Wealthify‘s co-founder and all-round stock guru Michelle Pearce-Burke about investment, asked Raisin UK's co-founder and saving specialist Kevin Mountford about rainy day funds, and put your pension queries to PensionBee’s chief marketing officer Jasper Martens.
Wealthify’s Michelle Pearce-Burke answers your investment queries
Q: The markets are extremely volatile – is it the right time to put money into an investment account?
There’s never a perfect time to start investing. Due to the impact of the coronavirus, stock markets have dropped since the start of the year, which worries some people. But others see it as an opportunity to buy while stock prices are cheaper than usual. When markets are down, you essentially get more for your money, which could work in your favour in the long run – assuming they bounce back.
If you’re unsure about when to open an investment account, you could consider drip feeding money in. Services like Wealthify have no minimum investment amount, so you could break your funds into chunks and invest at different times. This way you can dip your toe in the water and, hopefully, gain confidence along the way.
Q: Have the markets ever experienced a decline like this? How long did they take to bounce back?
Markets naturally go up and down and you should be aware that you could lose some of your investment. While large declines like we saw in March tend to be rare, they happen! The good news is history has taught us markets typically recover and provide attractive returns. The exact timeframe depends on what you invested in, and when. Looking at the recent decline, while global markets initially dropped around 34% in a month, they bounced back 23% in the following month!
Q: If investments aren’t performing as hoped, would withdrawing help limit losses?
When you withdraw from your investment account during a downturn, you lock your losses in. If you stay invested, you have the chance markets may bounce back. Consider the figures above. If you had withdrawn your money on the 22nd March, when many markets were near their recent lows, you wouldn’t have benefited from the improvement in prices since then (although past performance is not a reliable indicator of future results).
Q: Isn’t investing time consuming?
It can be if you’re a DIY investor! But Wealthify takes care of all your investment decisions so you don’t have to worry about where to invest or how your money is doing. We do the legwork, so you can focus on the things you enjoy.
Q: Investing seems complicated. Is it hard to get started?
At Wealthify, we make investment straightforward and jargon-free. By handling your investment decisions, we take the hard work away. We always keep you informed of what we do with your money, but you won’t have to make any of the complicated and difficult decisions that usually come along with becoming an investor.
Don’t forget: your investments’ value can go down as well as up, and you could get back less than invested.
Raisin’s Kevin Mountford tackles your saving questions
Q: With inflation levels at all-time lows, is now a good time to save?
Absolutely! With two historic rate cuts and a global pandemic, it’s been turbulent for savers recently, so it may not seem like the time to save. But market interest rates have long been independent of the Bank of England’s base rate. While some of the bigger banks made moves to remove or reduce leading rates, other smaller brands and challengers stepped up to replace and increase rates across the board. Do a little research to find the best rates and you could earn hundreds more on your savings in the long run.
Q: Fixed-rate accounts often offer the best interest rates. If someone's saving through one of these accounts and their financial position changes, what can be done?
Raisin UK and our banking partners take financial hardship seriously. Usually, only certain mitigating factors will allow your money to be released from a fixed-rate bond early. These are always included in the saving product’s T&Cs, which you can read in full before investing.
If you're nervous or unsure about locking your money away for a pre-determined amount of time, perhaps a Notice Account might be a better option. They offer very competitive rates and give more flexibility over access to your money should you need it.
Q: Those looking to buy a home in the next year or two may want to work their money as hard as possible. As the situation’s a bit precarious, would saving into a fixed-rate account or investing be better?
While investing can offer generous returns, it carries a weight of risk too. And, generally speaking, you normally invest with a longer timeline in mind of at least 5 years or even more. Fixed-rate savings accounts offer a more secure view of your expected interest earned over a time period. You should always look for FSCS-protected accounts to ensure up to £85,000 of your money is protected.
Your pressing pension questions, answered by PensionBee’s Jasper Martens
Q: What impact is coronavirus having on pension savings?
Pension savers may have noticed their pension balances have gone down in recent weeks, due to their stock market investments. The level of impact you’ll see will be determined by the type of plan you’re invested in (if you’re unsure about this, ask your pension provider).
Most plans are diversified which means risk is spread across assets (like shares, property, cash and bonds). Your pension savings can also be diversified geographically, meaning your money is invested in different stock markets around the world. This helps protect your pension from any big falls in the value of a particular asset, or region. That said, in the last few weeks most major markets have fallen, which is why pension balances have fluctuated.
Although it can be unsettling, anything that happens to your pension now is unlikely to bring lasting damage. Try to remember, pensions are a long-term investment and between now and the day you retire, stock markets will have several highs and lows – that’s the nature of investing. History shows that no downturn lasts forever, and eventually markets, and pension balances, will recover.
One positive of a downturn is it’s usually a good time to increase your pension contributions (if you can afford to), as investments are cheaper. This means your money can go further and you’ll be able to benefit once their value increases.
Q: At the moment, is it safer to consolidate pots or keep them separate?
As most pensions are already diversified, having your savings in different pots doesn’t mean they’ll be any more protected than they would be in one plan. If you’re already thinking of combining your pensions, an economic downturn shouldn’t put you off. Having lots of pensions means lots of management fees. It’s important to find out exactly how much you’re paying, as these charges can really eat into your savings. If you were to combine your pensions and save 1% a year on fees, you could increase a pension's value by almost 40% over the long-term.
Having your pensions in one place will make it much easier to monitor performance and have full visibility over how much you’re paying in fees. But, before you combine pensions, you’ll need to make sure you’re not giving up any valuable benefits, such as a guaranteed annuity rate, and won’t incur any exit fees. PensionBee can help you check this, and we’ll let you know if we find any fees over £10 as part of the transfer process.
Q: With the recent increase in online fraud, how can people protect themselves from scams?
In March, Action Fraud, the UK’s national reporting centre for fraud and cybercrime, announced that coronavirus-related fraud reports had increased by 400%. There’s also been an increase in pension scams, as scammers are attempting to take advantage of savers who are experiencing financial strain, by offering early access to savings.
To protect yourself from scams and fraud, be careful whenever you share personal information online (via websites, email and social media), and refuse to engage with anyone who contacts you out of the blue. You should be cautious of anyone calling to offer free advice or recommending that you move your investments.
We’ve recently launched an online game called Scam Man & Robbin’ in collaboration with three of the UK’s leading digital pension platforms, to raise awareness of pension scams. It challenges common misconceptions and highlights the warning signs to watch out for and how to protect yourself.
Q: Is it too late to start saving into a pension?
Whatever your age or circumstance, it’s never too late to start a pension. The sooner you get into the habit of saving a bit of your wages each month the better, as the power of compound interest could have a significant impact on your savings by the time you retire.
If you’re enrolled in your workplace pension scheme, your employer will be required to pay in at least 3% of your salary, while you pay in 5%. Some employers may offer to match your contributions to a set amount. So, if it’s possible to pay in more it’s worth considering as the long-term benefits are well worth any short-term sacrifices.
There are some tax advantages of saving into a pension, such as tax relief which the government provides as an incentive to save for later life. Basic rate taxpayers will usually get a 25% tax top up, so if you pay £100 into your pension from a personal bank account, HMRC will add £25 in tax relief. Higher and additional rate taxpayers can claim additional relief through their Self-Assessment tax returns.
Got another question?
Just tweet at @getyolt! And don’t forget, whether you’re looking to invest, save or combine pension pots, Wealthify, Raisin and PensionBee are all in Yolt! Find them under the Actions tab.
Remember: with investing your capital is at risk. At Yolt, we’re on a mission to empower you with your money, but our blog is not official financial or professional advice. If you’re not sure how to invest or what to invest in, seek independent financial advice.