Investing at every age
Yesterday my husband turned thirty: a milestone I celebrated but at which he nearly cried. So...
Top of the list of things that should not be discussed on a Saturday night after too many pints: pensions. As I found to my cost last weekend, it’s a bit of a mood killer.
However, the conversation also gave me some incredible insight into the thoughts of other millennials who, unlike myself, aren’t surrounded with financial information everyday and therefore have a number of misconceptions about investing.
So this week, I thought I would tackle some of the myths I heard as reasons for not investing, as I’m sure my fellow pub-goers are not the only ones thinking this way.
‘Successful investing is about managing risk, not avoiding it.’ — Benjamin Graham
Of course, having a large sum of money to start with is ideal. But, for most millennials, this simply isn’t the case, and that’s okay. One phrase that kept coming up was ‘you need money to make money’ and while yes, that’s true, you don’t need a lot of money. A modest amount of cash set aside at regular intervals can result in a nice nest egg upon retirement.
For example, the average full-time salary in the UK is £36,611*. Assuming you’re setting aside 5% each year, or £152.55 a month, over 30 years you’d have built up £186,106.58** (assuming an annual return of 7%).
Another good habit to get into is to increase your savings by the same percentage as any wage increase you get – as soon as you get one. What you haven’t had before, you won’t miss. And it’s an easy way to increase your savings and boost your return over the long term.
Investing is not without risk, but if you’re choosing where and how you invest then you have a say in how much risk you take with your money.
If you’re investing for retirement, perhaps you’re comfortable taking more risk, as 30 years gives plenty of time for market ups and downs to iron themselves out.
But even the very risk-averse have options as we’ve highlighted previously.
And perhaps the bigger risk is not investing at all and finding yourself retired and reliant on the government to pay you a state pension (currently just £168.60 per week – or £8,767.20 a year).
If you’re planning on accessing your money in less than five years than yes, investing may not be the best option, since you’re probably subjecting your money to some level of risk.
But you can still get your money back! You may not get back the original amount you invested, as the value of an investment can fall as well as rise, but you can get what is there back. It may take a few days for the money to get to your bank account but it is pretty quick.
Having an investment ISA doesn’t mean your money is locked away and, if using a Stocks & Shares ISA, the money doesn’t have to be earmarked for any one thing in particular.
Learn more about the difference between a Cash ISA and Stocks & Shares ISA
One reason I was slightly shocked to hear as a deterrent to investing was “it takes too much time,” or “I don’t want to have to keep checking my money.” While it’s important to keep tabs on your portfolio, for those starting out once or twice a year is probably enough. Checking the stock market immediately you wake up everyday is not necessary!
If you’re looking for a more hands-off approach, consider using a ‘buy and hold’ strategy, in other words: investing with a long term view. If you are nervous about managing and creating a balanced portfolio, you might also consider a multi-asset fund. Jupiter Merlin Balanced Portfolio is an option for those who aren’t completely comfortable holding only equities. With over 75%*** in stocks, you’ll benefit from the potentially higher return from equities with the added peace of mind of an experienced team and little bit extra diversification.
Need a refresher in multi-asset funds? Read our two minute guide to the asset classes.
This myth tends to stem from two arguments: “you can only invest with large lump sums” and “I’ll start in the future once I have x,y,z.” There’s no ‘right’ age to start investing, but the sooner the better. Investing small amounts regularly for longer periods allows you to take advantage of compound interest.
To use the example above, over a 30 year time period, you would have invested a total £54,918 to reach £186,106.58 savings. To reach the same amount over just 20 years, you’d have to save £357.26** a month – or £85,742.40 – to reach £186,106.26**.
*Source: Average Salary UK 2019, findcourses.co.uk
**Source: This is Money Savings Calculator
***Source: FE Analytics, asset weightings as at 31 Jan 2020