You may not realise this but making money begins BEFORE you make your first investment. Investors usually do their research, pick their stocks, maybe even work out their entry and exit levels, but they miss out on one critical thing?
What is it?
It’s the trading vehicle.
That’s the mode of transport within which your investments will travel and it’s REALLY important. The reason that it doesn’t seem important is because it doesn’t affect you today, tomorrow, and not even 6 months time. But it does affect you at the end of the tax year.
It’s only then that you realise how much the ‘profit’ that you made is actually yours, and how much has to go to the Tax-man.
It’s especially important because the tax laws on investments are actually very favourable. Unlike property landlords who get clobbered every time their heads look above the parapet, stock market investors are treated like royalty. The Government openly gives tax breaks and tax rebates encouraging us all to put our money in the stock market.
So think carefully from the outset whether a stock ISA, a SIPP, a joint share dealing account, a General Investment Account (GIA), a Corporate (Limited account), a CFD account, a T20 account, or an Options account is right for you. Each one has its pros and cons.
As a general rule I would recommend maxing out your stock ISA at £20k a year and your SIPP if you can. You should also consider how to invest within each one to take advantage of the full tax benefits.