And no, this is not a Nike advert.
It is not about timing the market; it is about time IN the market.
Inertia and letting inflation eat away at your hard earned cash will cost you more.
The greatest tool you have is your mind so why don’t you exercise it and start learning about how to make your money work harder than you.
The Government likes to keep inflation at around 2% but thanks to all the quantitative easing going on (Bank of England continuously pressing the print button on printing money) has meant that inflation is running at about 5%.
That means for every £1 coin you earn, it is buying you less and eroding away your savings by 5% year on year.
Investing your money into different assets that give you a greater return than 5% will prevent this.
Obviously nothing is “risk free” and you will have to decide where to place your money but the most common asset classes that people tend to allocate their money to are:
Precious metals (gold)
Government debt (aka ‘bonds’)
There are a plethora of other asset classes out there but let’s just keep it nice and simple for now.
To assess your own risk tolerance, check out my previous blog post – How Risky Are You? – to find out how you should best set up your portfolio that still allows you to sleep at night.
Let me just say that you don’t need millions in the bank to start an investment portfolio, hell, not even thousands!
We all have to start somewhere and as Tesco so rightly says: “every little helps”.
Stock & Shares
I will cover each of the asset classes mentioned above in future blog posts but today I want to focus on investing in the stock market.
To get up to speed with investing, check out “Trading vs Investing” to avoid the pitfalls beginners succumb to.
To invest in public companies or a fund – a basket of the top performing companies – then this is done via an investing platform.
There are many out there so just to name a few…
This list is by no means exhaustive so……..where do you even begin?!
Well. For me it was very simply all about fees.
Never has it been more important to read the small print than now.
A lot of these platforms have a very clever marketing strategy and dupe you into thinking that using their services comes for free – but we ALL know nothing comes free in life, sadly.
So the best thing to do with a platform that catches your eye is to either contact them directly, scroll to the bottom of their page or search in their toolbar: “Fees”.
That page will be there somewhere, they just hide it well so most people don’t find it BUT not you, you’ll not fall for this trap.
They then deploy the smoke and mirrors as one final tactic to put you off looking further into it by making the page look really complicated and confusing. Clever, aren’t they.
You want to look for – ongoing charges figure – OCF.
That tends to be the overall fee the platform will charge you for investing money with them, including the running costs.
This should NOT be above 1% and if it is then you’re being….mugged off.
It sounds so small and innocuous but it is actually potent to your future wealth, especially when that compounds over many years without you realising.
Let me explain why.
Time for some dodgy maths
If you invest some money (let’s say £100) into “xyz” platform and you get a modest annual return of 4% on that by the end of the year that brings it to £104.
Now, just imagine your platform is charging you 2% for using their services.
Your annual return (profits) has gone from 4% to 2% after they have taken their slice of the pie.
Your annual return is now only £102.
But don’t forget that inflation is (on average) 2% so actually you haven’t made any profits at all:
£100 + 4% [annual return from the stock market] – 2% [platform fees] – 2% [inflation]
= £100 + 0%…..you have made nothing on your investment.
Can you see why fees are so important now?!
Platform of Choice
Thank god for competition. Slowly but surely the platform market is getting more competitive so in order to win customers these platforms keep dropping their prices but there are still some clear winners.
I am not a financial adviser so I am not going to suggest which ones you go for but I will certainly throw a few figures out there for you:
Hargreaves Lansdown – platform fee (different to OCF) = 0.45%
Vanguard – platform fee = 0.22%
Some roboadvisers (wealthify, nutmeg….usually ones you see advertised on the London Underground) = can be up to 0.75%
For goodness sake do something with your money, first of all.
Secondly, when looking for an investment platform search for their fees page and then find the cheapest one out there.
I personally go with Vanguard, as I haven’t found a cheaper one yet; however, I know that Legal & General are pretty damn close.
I will explain this cheeky little riddle: “Be fearful when people are greedy, and greedy when others are fearful”.
Why do we sigh?
It is the body’s natural way of expelling carbon dioxide when you have too much of it in your system. Fascinating….(and I am not being facetious).
This blog is for educational purposes only and should not be construed as financial advice. It is purely opinion-based.
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