Investor Education
Bridging the Gap: Wealth Isn’t Just for the Wealthy
In the UK, money is the #1 cause of stress—ranking above physical health, work, or family.
When people begin investing, they see immediate emotional benefits compared to non-investors. In fact, investors are 16 percentage points happier, and 23 percentage points more positive about their well-being.
However, only 37% of Brits hold market-based investments. So why aren’t more people taking steps to invest? Today’s infographic from BlackRock outlines the barriers people face, and how wealthtech can help address these issues at scale.
The Wealth Problem
A variety of hurdles keep people from taking control of their finances.
- Lack of Resources: 59% of Brits feel they don’t have enough money to invest.
- Lack of Knowledge: 39% say a lack of knowledge holds them back.
- Fear of Failure: 34% are afraid of losing everything if they invest.
All of these factors culminate in insufficient investing. In fact, 50% of the €26 trillion European wealth market is currently in uninvested cash, earning zero interest.
What’s the Current Solution?
Traditionally, investment advisers helped tackle these issues. However, investors have faced challenges accessing professional advice in recent years.
A shortage of UK advisers is a main contributing factor:
- There are only 26,700 advisers, who can service an average of 100 clients each.
- This leaves over 51 million adults without professional advice.
Among available advisers, many impose investment minimums or fees that create barriers for lower-income populations. Financial advisers charge an average of £150/hour, and half of all surveyed advisers turned away clients with less than £50,000 to invest.
With so many hurdles to overcome, how can Brits take charge of their investments?
A Modern Solution
Wealth technology—or simply wealthtech—helps address these issues at scale, offering four main digital-first solutions:
- Helps investors build better portfolios.
Gone are the days of rudimentary spreadsheets. With the help of algorithms and machine learning, investors can now automatically build sophisticated portfolios. - Helps advisors scale their services.
The automation of time-consuming processes allows advisers to service more clients. - Reaches more people.
Wealthtech is accessible for all, not just the wealthy. For example, micro-investing apps allow investors to make small, regular contributions without paying a commission. - Modernises infrastructure.
Wealthtech updates old legacy systems with more streamlined, automated systems. As a result, paper-based processes are replaced with mobile transactions that can be done with the click of a button.
These benefits can be applied across various branches of wealth management.
The Wealthtech Ecosystem
Investors can choose one of three main paths, based on their level of knowledge and interest.
“Do It Yourself” Investing
Confident investors who enjoy managing their own money can trade securities through self-directed online platforms.
“Do It For Me” Investing
Novice investors can use platforms that execute trades on their behalf, such as micro-investing or robo-advisers.
“Do It With Me” Investing
For investors in the middle of this spectrum, certain platforms offer a hybrid of digital transactions and professional advice.
With a wide variety of solutions available, investing has never been easier.
Inclusive Wealth-Building
It’s clear Brits are open to the shift: 64% say new technology would help them be more involved in their investments.
As wealthtech evolves, it will be seamlessly integrated into daily life as part of a holistic financial services offering. Traditional barriers will be broken down, empowering individuals to take charge of their financial future.
Investor Education
Visualized: A Step-by-Step Guide to Tax-Loss Harvesting
In Canada, tax-loss harvesting allows investors to turn losses into tax savings. This graphic breaks down how it works in four simple steps.
A Step-by-Step Guide to Tax-Loss Harvesting
Market ups and downs can be unnerving, but the good news is that tax-loss harvesting allows investors in Canada to capture tax savings when their portfolio drops in value.
While it sounds complicated, a tax-loss harvesting strategy is actually fairly straightforward. An investor can use capital losses to offset capital gains found elsewhere in their portfolio, leading to a lower tax bill. While there are important conditions to keep in mind, investors can use this strategy to enhance portfolio returns over time by reinvesting these tax savings.
This graphic from Fidelity Investments shows how tax-loss harvesting works and why it may improve tax efficiency in an investor’s portfolio.
Breaking It Down
Consider a person who invested $50,000 in a mutual fund held in a non-registered account that has dropped by $10,000 in value. To help minimize losses, they took the following steps in a tax-loss harvesting strategy.
For the sake of this example, taxes are based on the maximum federal rate and the average maximum provincial tax rate.
- Sold investment with a $10,000 loss
- Invested $40,000 into a different mutual fund
- Used the $10,000 capital loss to offset capital gains realized elsewhere in the non-registered portfolio
- Achieved up to $2,550 in tax savings
The investor realized as much as $2,550 in tax savings by utilizing a $10,000 loss against a $10,000 capital gain. Without tax-loss harvesting, this $10,000 capital gain would be taxed at a 50% capital gains inclusion rate ($10,000 X 50% = $5,000). This $5,000 in applicable gains is then taxed at a 51% combined federal and provincial tax rate ($5,000 X 51% = $2,550 in taxes owed).
In contrast, by using tax-loss harvesting, the investor would have achieved up to $2,550 in tax savings.
What’s more, you can reinvest your tax savings over each year—which may help boost portfolio returns over time if the new investment increases in value.
Tax-Loss Harvesting Tips
With a tax-loss harvesting strategy, here are some key tips and considerations to keep in mind:
- Investment Timeline: A capital loss can be used to offset capital gains not only in the current year, but in the three years prior and/or any year indefinitely in the future.
- New Investment Type: After selling an investment that’s dropped in value, it’s important to buy a different investment to avoid triggering the ‘superficial loss rule’. Investors can aim to choose an investment with similar long-term returns.
- Plan for Year-End: In order to achieve a capital loss, plan to sell an investment at least two to three days before the year’s final trading day so the investment settles before year-end.
Together, these tips can help investors strategically execute a tax-loss harvesting strategy.
Tax Made Easier
During volatile markets, investors can seize the opportunity to turn losses into tax savings using tax-loss harvesting as a key tool to help generate higher after-tax returns.
Explore Fidelity’s tax calculator to discover tax-saving opportunities.
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