You must have heard of investing a thousand times over. It’s all over us and we hear it day in day out. But your perspective to investing will determine how much you get out if it and how confident you deal with it.
As you know, I am an accountant by profession. That means, I hear about different types of investing everyday as I meet different business people wanting to invest in one thing or the other.
That is where my own limitation came to play. Even though I was very good at managing my everyday finances and saving for the unforeseen, the thought of investing was never anything I felt was around my zone of comfort. This was mostly because I saw business people with lots of money available to invest talking about different investment options, I could only think that I must have to be one of such to be able to invest like them. So, I always related investing to having a lot of money to do it since I didn’t meet any everyday people around talking about investing and doing it. I even spoke to an financial adviser once and he told me he only worked with people with a certain amount for their portfolio. I knew I could go out and buy shares on the stock market by myself but your thoughts are as good as mine, that terrified me as the research and analysis involved in order to get the right company isn’t an easy job.
What about watching the price of stocks for these companies go up and down? My stomach couldn’t take it. But still, I also knew about other aspects of investing like crowdfunding, for non-stock market companies. These are even more risky but then the risk wasn’t the point for these. It was just the fact that, if I were not some rich venture capitalists, with a certain minimum portfolio in the millions, I couldn’t invest unless I went through a crowdfunding platform.
But then, I met a normal everyday woman like me who talked of investing in the stock market so easily. I couldn’t help but wonder, so I told myself, I will get to the bottom of this. I got to work, combing the internet for information on investing for normal everyday people. In the process, I purchased a book on recommendation from Amazon – Learn How Investing Works – Grow Your Money by Bola Sokunbi which changed everything for me. I realised, investing on the stock market is not that terrifying and I didn’t need to have a lot of money to do so. I also learned I didn’t even have to spend a lot of time going through the financial statements of companies to decide whether they were suitable or not. I didn’t even have to go through an expensive financial adviser to start. It was all down to lack of education. Financial education is key to achieving our financial goals and we can achieve our short, medium and long-term financial goals with limited stress if only we have the right information.
It is never too late or too early to start. In fact, if you are younger, it is the perfect thing for you as your investments will have enough time to grow and there will be an allowance to catch up for any mistakes made on your investing journey. If you are older like me, I am in my 40s now, don’t fret, remember, you just need to start and you will be surprised. I have now started my investing journey and I am loving it. That is why I am on a mission to help other women like me, discover their own power and take absolute control of their finances in every area without fear like it did for me. If you are 45 years old now and starting investing £150 a month for the next 20 years at a growth rate of 5%, by the time you retire at 65, you would have £61118. If you had the money in cash in a bank account, at 0.01%, you get £36003.
A beginner’s guide to investing – start saving for your future goals
If you are a woman who has always had the desire to invest some of her money but have no clue where to start, then you are in the right place. To begin investing, you do not need to have any experience. Just start where you are and learn as you progress. You can begin with as little as £10 per month. Surprised?
Like I said earlier, not investing for me was all down to fear, as I didn’t have so much money to invest and was scared of losing the little, I had. So, it was safer to save the money in the bank where it was safe even though I got no interest paid on my money with the 0.01% interest rates on savings we have these days. At least one thing was certain, I was sure to get back what I put in. But think about this, as the days go by inflation is rising higher and higher. What is inflation, you may ask, you will find all you need to know about inflation in this post Here. So, you realise that even though you get the money amount you put in the bank, its value has gone down by the amount of inflation. I now realise that I am at a higher risk of now investing than I am investing.
Here is where I started
If you are an anxious investor like me, online robo investment platforms like Plum and Nutmeg are the best places to start. Why is this so? These platforms will ask you a series of questions centred around your investment goal, how much you want to invest every month, and they will help you determine your risk appetite which is the most important thing when it comes to investing. When you finish answering these questions, the algorithm of the platform will work out an investment portfolio recommendation to suit your needs. The great thing about these platforms is that they put together a large amount of investment information from across the globe. As a result, your risk is spread across different areas of the stock market as opposed to you stressing about the stock of a particular company. When this recommendation is done, if you are happy with the result, then purchasing the investment for your portfolio is a click of the mouse. All you have to do is purchase the package.
Investment platforms charge annual fees for using their platform and their services. Using a financial adviser means you pay their fees for working on building your portfolio as well as the platform fees and these can add up. With the robo investment platforms, the fees are relatively cheaper. Each platform has their own requirements for an initial investment lump sum up to £500. You can also set up a direct debit for the money to be taken from your account automatically to put into your investment portfolio every month so that you “drip feed” money over time as opposed to depositing one lump sum. That is how investing is made simple for people if all income levels. You just need to pick what level you are comfortable with, whether it’s £20 a month or £1000 a month, you can invest in the same fund and achieve your individual financial goal.
Index Funds
If you are a total novice to stock market investing like I was, you would start out with a really cheap, no stress option of investing called investing in index funds.
These are tracker funds that track the performance of the biggest markets such as the FTSE 500, FTSE 100, etc. Platforms like Vanguard have provided ready made tracker funds and all you have to do is understand your risk appetite and choose what fund you want to invest in. These funds allow investors to have a mixture of global shares all nicely put together with bonds. Bonds are government borrowings. The government borrows your money and pays an interest amount on it. The returns on bonds are not as high as for shares but they are more secure and reliable. Therefore, a fund with a combination of shares and bonds gives you a kind of stable mix.
If you become a little savvier, you could use funds supermarkets to select your own funds. Funds supermarkets include platforms like Hargreaves.
Note that the objective of using funds is that they are all “risk adjusted” ready made solutions which all help take the mystery out of investing at very low charges. Now you see, investing is not that scary after all. That means, as a woman, you can start investing for yourself, your kids and your family as a whole without any fear. Women make the best investors when they get to it. Don’t get left behind. Start your investment journey today.
If you are a more experienced investor or you have a little more money to put into your investment, you can choose an actively managed fund and go with an experienced fund manager who will sit down with you and go through your goals and objectives and then pick the best quality shares for your portfolio. Because you will be using the services of an expert human, the fees are expected to be higher. Note that using a fund manager is not a guarantee that your results will be better, remember they give you advise based on what they belief is suitable.
Savvy and confident investors make their own research and put their own portfolio themselves. They buy and sell shares from their portfolio using online investment platforms. These are higher risk and the fees are higher too as you have to pay for each transaction undertaken (buying or selling).
Investing is for the long term
Note that in order to see the benefit of your investment, you must give your investments time to yield the fruits expected of them. The stock market goes up and down everyday but there is an average yield and you can only experience that with time. If you take out your investment too soon, you won’t see the benefits of your investments. Therefore, ensure you are investing money you don’t need in the short term so that you can lock your money away to grow (five to ten years at the least).
Build an emergency fund first before you start investing so that you don’t feel the pressure to sell your investment at the wrong time when the markets are down.
What accounts are the best for investing?
Before you buy a fund or a share, your money in the first instance needs to be in an account where you keep the money before it is used to invest in the funds/shares.
There are different types of investment accounts, ranging from general investment accounts whose proceeds are taxable to tax efficient investment accounts where the yield on your investment is completely tax free. If you are like me, you want to pay as little tax as you can. The less tax you pay, the faster your investments will grow, because when you invest for growth, you benefit from the power of compounding. The more you compound, the more your money grows.
What types of investment accounts are tax free?
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Workplace Pensions
If you have a job, this is where you should start. The first type of tax efficient investing for retirement is through the work place pension. The beauty of this is that, you don’t have to lift a finger. Your employer does all the hard work, pays for the platform, the advisers. You do not have any input on choosing the fund. The best part, when you contribute, the government gives you tax relief on this contribution as the money contributed is before tax is deducted and in addition, your employer also contributes into the pot based on a minimum amount set by the government. For this year, the government has obliged employers to contribute a minimum of 3% of your qualifying wages. So it you are too terrified of investing, while you do some research to understand investing better before you start, ensure you are participating in your employer’s pension scheme.
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The Self-Invested Personal Pensions (SIPPS)
A SIPP is a type of personal pension with a ‘tax wrapper’ that allows you to save, invest and build up a pot of money for your retirement. The money in this type of account wraps around your savings or investments so that they are protected from tax as long as the money stays in that account. SIPPS also offer more flexibility in the investments you choose.
As a UK adult, you can pay up to £40000 a tax year, tax free into a SIPP. In order to encourage us to save for our retirement, the government offers income tax relief on the money we invest in our pensions. As long as the money is invested, it grows tax free.
Drawback: The money that is saved in a pension is locked until you are at least 55 years old. From the age of 55, you can take out a lump sum of 25%, completely tax free. The remaining money will be subject to income tax on further withdrawals.
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Stocks and Shares ISA
An ISA (Individual Savings Account), is a tax free savings account, that means, when you put your money in it, it grows tax free, there is no tax on the investment growth (no capital gains tax) or dividend tax on any income produced by your investment. It is also a government incentive and in a tax year, you can save and invest up to £20000 in a stocks and shares ISA. ISAs are flexible and you can take the money out at any time you want.
The robo advisers as well as the investment supermarkets we discussed earlier on all offer ISAs.
Wrap – up
Now that you know all the basics of investing, do some more research to learn more but don’t get hung up on it. It’s never been easier to start investing. Tools like Plum are here to help you save and invest at the same time. It’s never been easier.
To your investing success.
