While the term ‘investment’ conjures up images of Wall Street and lucrative markets such as the foreign exchange, it in fact refers to something far more diverse and impactful. This is an important point to keep in mind, as it helps to demystify the concept of investment and makes it far less intimidating to everyday citizens.
Quite simply, there are a number of basic investment options which are accessible to those without knowledge of the financial market. Take ISA’s and SIPP’s, for example, which essentially serve as retirement savings vehicles that offer flexibility and viable interest rates to applicants. These types of government-backed pension schemes can be started by anyone in employment, which in turn enables younger citizens to build more substantial wealth over time.
Facts and Challenges: Are ISA’s or SIPP’s better in the Current Economy?
Two years ago, banking giant HSBC released a report which suggested that many of the world’s global communities are failing to save. Surveying 15,000 consumers across 15 global markets, it was revealed that the average American saver would exhaust their retirement fund just 14 years into their retirement. This was typical across other markets too, as while the average international retirement length is now 18 years the corresponding value of savings is expected to last for just 10. This means that people of all ages and demographics are struggling to save, which highlights the relevance of independent savings vehicles such as ISA’s and SiPP’s.
These facts aside, there is another potential issues facing savers in reside in the UK. According to investment savings experts Killik and Co, the Tories may look to limit pension contributions for high-earners who have an annual salary in excess of £150,000. This would hit the majority of SiPP’s hard, primarily because it would negate the significant tax advantages and employee contributions that distinguish such an investment vehicle. While the proposed purpose of these cuts is to fund huge inheritance tax allowances, they would also render SiPP’s increasingly redundant in the next five years.
With the Tories now holding an estimated six seat lead over Labor, they are favourites to win the upcoming election. Although they are unlikely to build the required majority, they should have ample opportunity to drive home this bill without serious opposition in the House of Commons. This, allied to the relative simplicity and flexibility of ISA accounts when compared with SiPP’s, would render such as investment vehicle far more lucrative and secure during the next parliamentary reign (especially for those whose pensions would be impacted by new legislation).
The Last Word
Ultimately, your decision on the best stocks to watch will hinge on numerous factors including your annual salary, political alignment and typical level of disposable income. Medium-earners who have comfortable disposable income without tipping the £150,000 threshold may still benefit from the tax advantages of SiPP’s, while also benefiting from matching employee contributions.
In contrast, those at more extreme ends of the earning spectrum will tend to favour ISA’s. While those with minimal income will benefit from the flexibility and low contribution thresholds associated with ISA’s, higher-earners will avoid any potential restrictions that may be implemented between now and 2020. Either way, there is still ample opportunity to save and identify the ideal investment vehicle for you in 2015.