You've used the calculator. You know your number. Now what?
A guest post for Saving Tool UK
Saving Tool UK's calculators are very good at one thing: telling you what your number is. The pot you need. The retirement age that works and hence the monthly contribution that gets you there. What they can't do, and indeed what no calculator can do, is tell you what to actually do with that information once you've closed the tab.
This article is that bit that comes after the calculator. Four decisions, in the order they matter: where to put your money (ISA versus SIPP), who to put it with (platforms), what to actually buy (funds), and how to stop yourself ruining it (the long game). It's written for the perfectly normal UK adult who has worked out their number, knows they need to act on it, and would quite like someone to explain the next steps in plain English. Nothing here is financial advice, your circumstances are your own, but by the end you should know what the decisions are, roughly how to think about them, or whether it's worth picking up the phone to a proper adviser.
Decision 1: ISA or SIPP — and in what proportion?
This is the one that paralyses people, and you know what? It really shouldn't.
A Stocks and Shares ISA and a Self-Invested Personal Pension (SIPP) are both wrappers. Think of them as differently shaped boxes you put your investments into. The investments inside can be identical. The boxes have different rules about how much you can put in, and about tax going in and tax coming out, and that is essentially the whole game.
A SIPP gives you tax relief on the way in. Put £80 in as a basic-rate taxpayer and the government tops it up to £100. Higher and additional-rate taxpayers can claim back more through self-assessment. The catch is that you cannot touch it until age 57 (rising from 55 in 2028), and 75% of what you take out is taxable as income.
A Stocks and Shares ISA gives you no tax relief going in. You pay in from money you've already been taxed on. But everything inside grows tax-free, and you can take some or all of it out at any age, for any reason, with no tax to pay at all.
For most people building towards financial independence in the UK, the sensible default is some of each. And the proportion matters less than most people think. The SIPP wins on tax efficiency if you're a higher-rate taxpayer now and expect to be a basic-rate taxpayer in retirement. The ISA wins on flexibility, which matters enormously if you are planning to stop working before 57. This is why "ISA bridging" exists as a concept, and why Saving Tool UK has a calculator for it: your ISA is the bridge between the year you stop working and the year your pension becomes accessible.
A reasonable rule of thumb: max your workplace pension up to the employer match (that's free money, never leave it), then think about whether the next pound is better off in an ISA or a SIPP. If you are unsure, splitting roughly evenly is rarely a terrible answer.
Decision 2: Pick a platform, then stop thinking about it
A platform is just the company (which you will mostly see as your online account) that holds your investments. Hargreaves Lansdown, AJ Bell, InvestEngine, Vanguard, Trading 212, Fidelity, interactive investor and others. I ran some of those platforms during my career and they all do roughly the same thing. But they do charge different prices for it.
Charges are the one thing in investing you can actually control. Markets do what they do. Funds perform how they perform. But platform fees are a fixed cost that compounds against you for decades. The difference between 0.15% and 0.45% sounds trivial. Over forty years on a growing pot, it is not trivial. It is potentially tens of thousands of pounds.
The honest truth is that for most UK investors, there are perhaps four or five platforms that are reasonable choices, and the differences between them at any given pot size are smaller than the energy people spend agonising over them. Here is what actually matters:
Percentage fees vs flat fees. Some platforms charge a percentage of your pot (typically 0.15%–0.45%). Others charge a flat monthly or annual fee (typically £5–£15 a month). Percentage fees are cheaper for small pots. Flat fees become cheaper above roughly £50,000–£100,000. If you have a six-figure pot on a percentage platform, you are almost certainly paying too much.
Capped fees. Some platforms cap their charges for ISAs or SIPPs at a maximum annual amount. This can be the best of both worlds.
Dealing charges. Most platforms now offer free or near-free dealing on funds. Some charge per trade for shares and ETFs. If you are buying one fund a month, dealing charges barely matter. If you are trading frequently, you should not be trading frequently. More on that in a minute.
Pick one. Use the criteria I’ve outlined above combined with whichever one seems easiest for you to understand and use. Open the account. Move on with your life. You can always transfer later, and transfers are easier than they used to be.
Decision 3: Choose a fund, not a portfolio
This is the decision that people most enjoy overthinking, and it is also the one where overthinking does the most damage.
For the overwhelming majority of UK investors, the right answer is one or two broadly diversified, low-cost index funds. Something that tracks the whole world stock market. Something that holds thousands of companies across dozens of countries. Total ongoing charges well under 0.25%. That is genuinely it.
You do not need a clever portfolio. You do not need to pick a fund manager who is going to beat the market — most of them don't, and the ones who do, you cannot identify in advance. You do not need to time your entry. You do not need to read the financial press, ever. You especially do not need to listen to anyone on YouTube who has discovered The One Trick The Banks Don't Want You To Know. Indeed my wife has banned me from watching these type of YouTube videos because I tend to start shouting at the TV.
The reason this works is not magic. It is mathematics. By owning a tiny slice of every meaningful public company in the world, you capture the long-term growth of human economic productivity, minus a very small fee. Over thirty years, that has historically been a remarkably good place to put your money. Saving Tool UK's compound interest calculator is a useful way to see what that looks like for any sum you're prepared to commit each month.
If you want a small allocation to bonds for stability, particularly as you approach the date you want to use the money, that is a reasonable addition. But the default for someone twenty or thirty years away from needing the cash is a high allocation to equities, in one global fund, automatically reinvested.
That's the whole portfolio. You really could write it on the back of a beer mat.
Decision 4: Automate it, and then leave it alone
This is the most important decision and the one people pay least attention to.
Set up a standing order. Have the money leave your current account the day after payday and go straight into your ISA or SIPP. Have the platform automatically invest it in your chosen fund. Then - and this is the difficult bit - do not keep looking at it.
Not once a week. Not once a month. Once or twice a year is plenty.
Markets fall. They fall hard, sometimes. In 2008 the FTSE All-Share fell by about a third. In March 2020 it fell roughly the same in about four weeks. These events were not the end of investing. They were normal events that happen every decade or so and that anyone investing for thirty years will live through several times.
The single biggest mistake I watched ordinary investors make, across twenty-five years, was not picking the wrong fund or the wrong platform. It was selling at the bottom. Logging in during the worst week, seeing red everywhere, and pressing the sell button. Every single time, the people who held on did better than the people who didn't. Every. Single. Time.
The way you avoid making that mistake is to make it boring. Automatic contributions. One global fund. No daily app-checking. No financial news. The most successful long-term investors I knew were the ones who had genuinely forgotten about their accounts for years at a stretch.
Putting it together
You have used the calculator. You know your number. Here is the rest of the plan, on one page:
- Take the workplace pension match in full if you can.
- Decide your ISA/SIPP split. Don't agonise over it; roughly even is fine for most people.
- Pick a platform whose fee structure suits your pot size. Open the account.
- Buy a single low-cost global index fund. Add bonds later if you want, closer to retirement.
- Set up a standing order. Automate the investing. Re-check once a year.
- Ignore everything else.
That is the entire framework. There are no hot tips missing. There is no secret asset class that the wealthy use and ordinary people don't. There is no perfect entry point you are waiting for. There is just the slightly underwhelming truth that investing well, over a long enough timeframe, is mostly about not getting in your own way.
Saving Tool UK's calculators give you the target. The decisions above are how you get there. The rest is just time.
Stuart Welch is the author of the Simple Investing book series and writes at simpleinvesting.co.uk. He was previously Global Head of Personal Investing and Advice at Fidelity International, and held CEO roles at TD Direct Investing and NatWest Stockbrokers.
This article is information and education only and does not constitute financial advice. Investments can fall as well as rise in value and you may get back less than you invest. If you are unsure about the suitability of any investment, please seek independent financial advice.
