While I'm not a financial advisor and this is just my opinion, I've invested a lot of time and money over the last few years learning and implementing basic investing strategies.
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Here are the 5 reasons everyone should invest, followed by 5 tips to get started.
1. If you are employed in the UK you already invest without realising it.
If you have a workplace pension, then you are most likely investing. The majority of people I speak to don't know where their pension is invested or how much they get charged by the company managing it. This is a huge issue that could cost you thousands or even hundreds of thousands over your working life.
If you are young and only have a small pension pot then there's time to find out and do something about it. If you are closer to retirement, it's just as important to know this. The chances are it's invested in the large UK or American companies and actively managed by someone (which could be an issue).
I contribute to a pension but manage it myself via a SIPP. (As you will see later on, this isn't hard to do). This gives me more control and transparency with far lower fees.
2. If you don't, you will lose money.
If you save your money in a bank account, then you are losing money. Each year as things get more expensive, your money becomes less valuable. (Cadbury's Freddos now cost 25p, 10 years ago they were 10p 🤯 ).
Keeping some money in a bank account isn't a bad option because it's quick and easy to access. But if you have more than you need for a rainy day, it might be worth looking to invest the rest, so you don't lose buying power.
3. You can choose to work rather than having no choice.
If at 18 you invested £300 per month through an ISA or SIPP with a 7% return for 40 years you'd have £700,000+ with a yearly income of £50,000+ for the rest of your life without touching the £700,000.
Depending on your living costs, this means you could retire when you are around 50 - 60 years old with £50,000 per year to live off.
You might think saving £300 per month isn't possible or you might not be 18. The earlier you start the better, but it's never too late.
If you use this compound calculator, you can play with the time frame you have and the money you can invest.
The horrible reality for most people is they have no choice but to work all their life doing something they don't enjoy. Then retire having to watch what they spend.
If you have learned a skill that someone's willing to pay you more for and you invest a significant portion of it, you could find yourself able to retire a lot earlier (if you wanted to).
4. It's not hard and doesn't have to be risky.
The majority of people (me included until a few years ago) think investing is risky and only for smart people or gamblers.
This just isn't true. There are a lot of very risky investments that are best left to experts. But there are equally a couple of strategies such as investing in low-cost index funds over long periods of time that aren't. (Low-cost index fund - complicated name for a low fund that allows you to buy small amounts of a lot of companies spreading your risk).
Don't take my word for it - here's what Warren Buffet, the best investor of all time has to say about them.
If you are interested, I love talking about this stuff, so drop me a message (again I'm not a financial advisor but happy to share what I do and have learned).
5. Take care of your family.
Over your working life, the chances that you will have ups and downs in your earned income is pretty likely. With the recent pandemic, most people and companies have been affected financially. With a bad recession, the chances someone you know is impacted is also pretty likely.
With enough of the right investments, you can reduce the impacts these times have on you and your family. Having investment income supporting your earned income gives you two ways to make money. So if you can't work for any reason, your investments can still provide for you and your family.
Money isn't everything but looking after your family is (for most people).
Top 5 tips to getting started:
1. Automate your investments.
See your investments in the same way you see all your other bills. You pay your phone bill each month without thinking about it, why not treat your investments the same way?
If you wait to invest what's left over each month, you're likely to overspend one month and stop investing.
2. Have fun and work out how much you could make.
Using a compound calculator you can work out how much you could save and invest over time. This will give you an idea of where your investments could be in the future.
These are just prediction, and in reality, they could be very different. But based on the last 90 years' average, the S&P 500 has returned 9.8% per year. If you use 7% return and a time frame of upwards of 20 years, the odds are in your favour, in my opinion.
Play around with what you can afford to invest and the length of time. Here's a few examples:
*Based on a 7% return after fees. These would be in an ISA or SIPP so you won't need to pay tax as it compounds.
30 years - £100 per month - £123,000 (You'd have invested £36,000)
30 years - £1000 per month - £1.2m (You'd have invested 360k)
30 years - £5,000 per month - £4.1m (You'd have invested £1.2m)
I've put in a 30 year time frame, but you can make this a lot less. The longer the time frame, the better the compounding effect works. If you have retired or are retiring soon, I'd recommend speaking with an IFA as this strategy may not be right for you.
Again these are just predictions based on history (which might not repeat itself), but it can be fun to see what you need to save to hit your desired goals.
3. Make a plan.
Most people work hard all their life and then find themselves with little or no savings to live a comfortable retirement. With minimal effort, I think anyone can become a millionaire and financially free later on in life with this plan.
I appreciate not everyone wants to have a lot of money. But equally, I'm sure most people need enough to cover their living costs and support their family.
Whatever it is you want financially, make a plan to hit it. Outline how much you want and by when. Then work back using the compound calculator to see how much you need to invest.
Time will pass regardless of whether you help yourself and make a plan. You will also likely work hard during that period. So you may as well create a 'set and forget' investment plan.
4. Learn about it.
I've spend three years reading multiple books, blogs and podcast from world-leading investors on this topic. Like you do, I work hard for my money and don't want to lose it. While you can quickly learn the basics, the more you learn, the more confident you will be with this strategy when your investments go down.
During the pandemic, my investments dropped by over 20%. If I didn't understand much about it, I'd have likely sold them all and locked in my loses.
Thankfully I didn't sell and instead brought more to increase my investments while the price was lower. Just two months on and I'm back on track. (They could still drop drastically again later this year, but I'm confident long term it will give me around a 7% return).
Just reading one book will give you enough confidence to stick with the plan.
You can listen to one of my favourite books on this topic for free using Audible (if you are a new member) - The Little Book of Common Sense Investing
I'd also recommend a book called Money Master the Game (it's a pretty big book, but if you are serious about your financial future, I'd recommend it).
5. Stick to it however small.
If you currently aren't able to save and invest much each month, then it might not be exciting. £100,000 saved over 30 years by putting in £100 per month, might be uninspiring. However, stick with it and make it exciting by working out how to invest more. Can you reduce how much you eat out and put in an extra £100 per month? Are you due a promotion at work and could you invest the increase rather than spend it? Could you cut lawns on Sundays and invest the extra money you make? Can you learn a new skill that will allow you to get paid more money?
Work out an amount of money in 10, 20 or 30 years that would inspire you and help take care of your family. Then find a way to make and invest the amount of money you need to achieve it.
The main thing, however big or small, is sticking to it. If you don't, 10 years will pass, and you will be in the same position as now. Maybe you will be making more money, but you will have spent it.
Conclusion
I'm no expert and highly recommend you read enough around the topic to get confident in your strategy. If not, when things go wrong you will stop and even worse, sell your investments at a bad time and lose money. To be clear, I'm not talking about investing in single companies but instead, groups of companies through low cost index funds via an ISA or SIPP.
If you want to chat about what I do, send me a message, and I'll happily explain. (This isn't something I'm selling, it's just something I'm passionate and love talking about).
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