From switching current accounts to seeking out dividend-paying funds, Moneywise rounds up 50 top tips to boost your income by making your savings work harder for you.
Here are 13 ways to boost your savings using equity investing. See the our guide 50 ways to boost your savings income for the rest.
13. Use Stocks and Shares Isas
If you’re frustrated by returns on your Cash Isa and can afford to tie up your money for five, or ideally 10 years, it’s worth considering a Stocks and Shares Isa. You can invest up to £20,000 a year, tax free. Moneywise recommends buying funds that invest in a portfolio of shares on your behalf, rather than individual shares. It’s cheaper and you won’t have to make difficult decisions about when to buy and sell shares.
14. Try the ‘bring your lunch to work’ Isa
An easy way to boost your future income is to use your current income more wisely. Chances are that buying lunch at work is not a treat, more a habit. So make your lunch at home and invest the money you save. Number-crunchers at Fidelity found that investing £5 a day into a Stocks and Shares Isa would earn you £10,000 in seven years and three months. Over five years, you would still end up with an impressive £6,615. Ditch the takeaways for good and you could end up with £35,928 after 20 years.
Maike Currie, investment director for personal investing at Fidelity International, comments: “A common misconception is that you need large amounts of money to start investing. This simply isn’t true. You can quickly build up a sizeable pot by making some small sacrifices or lifestyle changes, such as saving on an Uber ride or bringing your own lunch to work.”
15. Earn from UK equity income funds
These funds focus on UK companies that pay strong and consistent dividends, which should ideally rise over time. This makes them ideal for income seekers. But if you are prepared to reinvest dividends, they can also make an excellent core holding for those who are more focused on growing their capital. Chelverton UK Equity Income is a Moneywise First 50 fund and was the winner of the UK equity income category in the Moneywise Fund Awards 2017. It aims to deliver a high and increasing income over time by investing in a reasonably small portfolio of medium-sized companies.
16. Look for equity income beyond the UK
There is a lot of crossover between UK equity income funds, and a large chunk of returns will come from a limited number of companies. For this reason, it can make sense to look beyond the UK. Gavin Haynes, managing director of investment management firm Whitechurch Securities, likes Newton Global Higher Income and Artemis Global Income, which is a Moneywise First 50 fund.
17. Explore investment trusts
This is another type of pooled investment, where a fund manager runs a portfolio of shares on your behalf. Unlike funds though, trusts are listed companies and as such, only a limited number of shares are available. This means their price is affected by supply and demand. They can also gear – that is, borrow to invest – in order to boost returns and are able to hold back 15% of their income to boost returns at a later date, a significant boon for income seekers.
19. Diversify your income with a multi-asset fund
Offering instant diversification, multi-asset funds invest in cash, fixed interest and shares, making them ideal for investors who don’t want to go gung-ho into equities. Three sectors focus on this type of fund with gradually increasing levels of share exposure. At the lower end of the risk spectrum (0%-35% shares), Patrick Connolly, chartered financial planner at IFA Chase De Vere, tips Fidelity Multi Asset Income. In the 20%-60% sector, Sophie Kilvert, relationship manager at 7IM, likes Jupiter Merlin Income, while Mr Haynes suggests Royal London Sustainable World – a Moneywise First 50 fund – in 40%-85% shares.
20. Consider passive funds
One way to reduce costs is to use passive or tracker funds, where your fund tracks the performance of an index, such as the FTSE 100, rather than using a fund manager to actively select stocks. The regulator, the Financial Conduct Authority, says the average fund has an ongoing charge of 1.13%, but trackers can cost as little as 0.2% or even less.
21. Consider shares
Once you have a balanced portfolio of funds, some direct share holdings could give your investment income a boost, and if held within an Isa, will be paid tax free. You need to do your research, though, and not invest more than you can afford to lose. Pinning all your investment hopes on the back of one company is a risky strategy.
22. Invest in your employer
Around 500 British firms offer Save as You Earn (SAYE) schemes, giving you the option to buy discounted shares over a fixed period. At the end of that time, you can either buy the shares at the agreed price, or if they haven’t performed well, get your cash back. You also pay no income tax or national insurance on the difference between what you paid for the shares and their true value.
23. Ask about share incentives
Some companies reward staff with share incentive plans – your employer can pay you up to £3,000 in shares a year (often linked to your performance). You can pay up to £1,500 each year from pre-tax income, and for each share you buy your employer can give you a further two matching shares. Keep the shares for five years and no income tax, national insurance or capital gains tax will be liable when you sell.
24. Don’t trade too often
Respected fund manager Nick Train’s hallmark strategy is to buy quality shares and hold them for the long term without getting distracted by short-term ‘noise’. The technique has served the manager of the Finsbury Growth and Income Trust – a Moneywise First 50 fund – well, but amateur investors can benefit too. Trading costs money, so if you buy and sell too often you risk transaction charges eating into your returns or exacerbating any losses. Instead, do your research and only buy funds or shares you can commit to long term.
25. Don’t let your heart rule your head
You should never buy a share because you ‘like’ the company or invest in emerging markets because you had a great time travelling in those regions. Decisions about where to invest and when you buy and sell should be based on well-conducted research and analysis rather than a warm glow or a mild case of the jitters. Investing takes nerves and if you sell in panic at the first stock market wobble you may only crystallise your losses and miss out on future gains.
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