How to choose the right investments for you

This checklist will help you choose suitable savings and investments for all of your financial
life goals and should:

• Help you throughout your life - to assess any investment opportunity that anyone
  could ever put to you
• Help you avoid the money mistakes that many people make

Before jumping into any long-term investment, we’ve gathered 6 useful checks you’d need to
go through. You should only consider investing if you’ve repaid any expensive debts and
you’ve got a sufficient cash reserve to draw upon for emergencies. You can learn more
about these checks in our Money Insights video Season 2 - Episode 5.

This checklist is an educational guide. Salary Finance does not give financial advice. Seek
help with planning your financial numbers, from a competent financial planner/ coach and
use a regulated financial adviser to purchase any investment, pension or insurance products.

• Check 1 - How much could you put into this investment?
• Check 2 - Does this investment come with FREE money?
• Check 3 - What are the tax benefits with this investment?
• Check 4 - How easy can you access your money if you need to?
• Check 5 - Can this investment help you achieve your financial life goal?
• Check 6 - What will the investment (and any related advice) cost?

Check 1 - How much could you put into this investment?

The amount of money (over your emergency fund) you need to start investing depends on
what you invest in. For example, buy-to-let property investing requires a large sum of money
up front to cover your mortgage deposit and your buying and set-up costs whereas you can
start saving into tax advantaged plans (like ISAs and Pensions) for modest amounts each
month.
On the flipside, there may be limits on how much you can pay into tax advantaged plans and
on who can pay into them. Your age and residency may also be a factor.
So, check that you’re eligible to invest in the financial product (or strategy) you’re
considering; that you have enough money to get started and that you don’t exceed any
maximum investment limits.

Check 2 - Does this investment come with FREE money?

Whatever form they take, investments with free money boosters are difficult to beat.
Examples include:

• The money your employer pays into your pension plan – on top of your personal
  contributions

Check 3 - What are the tax benefits with this investment?

These four questions will help you test the tax benefits of any investment:
Will you get tax relief when you put your money into this investment?

• With pensions, for example, the answer is yes. But with ordinary ISAs the
  answer is no.
• Although, those special ISAs boost your savings like basic rate tax relief on
  pensions.

Check 4 - How easy can you access your money if you need to?

With a good emergency fund, you shouldn’t need short-term access to your longer-term
investments. But you may want to keep some of your investments accessible in case of a
significant change in your life.

• And your accessibility check comes in two parts:
  First, check how your chosen investment pots restrict your access to your money.
• With pensions you can’t normally access your money until 10 years before
  state pension age.
• Whilst with ordinary ISAs there’s no timing restriction on access.
  Second, check how quickly you could sell the assets you’re buying – if you needed
  to?
• It may be obvious that a directly owned property could be difficult to sell for
  the price you expect if property prices are crashing at that time
• But even property funds that you could hold inside your ISA or Pension might
  lock your money up for some considerable time during a financial crisis

Check 5 - Can this investment help you achieve your financial life goal?

Check that the investment you’re considering gives you access to the right types of investment asset (or funds) to help you achieve your specific goals.
For long-term pension savings you may want to choose Stock Market based funds for their real long-term growth potential and to cut the cost of that goal. Most company pensions offer
these as well as lower risk/return types of fund.
For a shorter-term goal – like building a deposit to buy a home – a cash deposit-based ISA
(ideally with those free bonuses) might be fine for you.
And if you’re considering mortgage-backed property investing, you need to beware of the “gearing” risk on your money – because it can wipe out your investment or even land you in debt if property prices fall heavily.
Matching your investments to your attitude to risk (and your capacity for it) is essential for your investing success. And you can learn more about ‘choosing the right level of risk’ for your personal circumstances by watching episode 6 of season 2 of our insight videos.

Check 6 - What will the investment (and any related advice) cost?

There’s no point putting money into an investment to earn a return over a bank savings account if a large part or all of your extra return is then eaten up in product, fund and adviser charges.
So, check the total effect of all charges on the investment you’re considering. You’ll find this number in the pre-sales notes you’ll receive on any UK regulated investment or pension
products.
And it should include any upfront and ongoing charges for professional advice. Make sure it does. It’s not as easy to add up all the layers of charges on unregulated investments or property investments but it’s essential to do so.
And you should seek professional help if you’re unable to work this out for yourself.