Those with money to save and invest face no shortage of options heading into 2021. Not only are there many saving options (ISAs, pensions, etc), but there are also lots of asset classes and investment structures (funds, ETFs, investment trusts, etc.) to consider.
Here, I’m going to reveal my saving and investing plan for 2021. And look at where I’ll be putting my own money next year.
2021: where I’m going to save
Let me start by explaining where I’m going to save in 2021. I have a simple plan.
First, I plan to contribute £4,000 to my Lifetime ISA to max out my annual allowance. This will get me a near-instant bonus of £1,000. Then, I’ll put my next £4,000 in savings into my wife’s Lifetime ISA (she’ll thank me later). By saving £8k into these ISAs, we’ll pick up government bonuses of £2k, taking the total amount saved to £10k.
After that, I’ll split my savings between my Stocks and Shares ISA and my Self-Invested Personal Pension (SIPP). The advantage of the Stocks and Shares ISA is that it provides a high level of flexibility. This year, for example, I pulled £10k out of my SA to help with a house down-payment. That kind of flexibility is valuable.
The advantage of the SIPP is that it’s extremely tax-efficient. Normally, contributions into a SIPP come with tax relief. However, I actually make contributions directly from my limited company as I’m a freelancer. These are treated as a business expense meaning they reduce my tax bill.
This LISA/Stocks and Shares ISA/SIPP combination works very well for me. I get the bonus top-ups from the LISA, flexibility from the Stocks and Shares ISA, and tax savings from the SIPP. I’ll point out that I use Hargreaves Lansdown for all three accounts, which makes it easy to manage my money.
Where I’ll be investing in 2021
In terms of where I’ll be investing, my preferred asset class is stocks. Over the long-run, stocks tend to generate excellent returns of around 7-10% per year. With that kind of return, money grows quickly.
I don’t just invest in UK stocks however. These days, I am very much a global investor. I mostly invest directly in shares. However, I also invest via funds, ETFs and investment trusts.
In 2021, there are three types of stocks I plan to buy.
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Large-cap growth stocks. I already own Apple, Microsoft, and Amazon. I’d like to buy more. I’d also like to add some other growth stocks to my portfolio, such as Adobe, Shopify, and Nike.
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Large-cap dividend stocks such as Unilever, Diageo, and Reckitt Benckiser. These provide me with portfolio stability. And I can reinvest the dividends they pay to compound my wealth.
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Disruptive small-cap growth stocks. These kinds of stocks are riskier but they have higher growth potential. One small-cap I want to buy more of is Upwork. It operates a freelance employment platform. With the ‘gig economy’ expanding rapidly, I think it has enormous potential.
I’ll point out that I’m not going to buy these kinds of stocks at any valuation. I’ll be waiting patiently for attractive entry points. I’ve found over the years this is the best way to make strong returns from investing in the stock market.