As well as health, improving finances is often one of our new year resolutions, particularly improving the saving and investing habit. Investing can seem daunting at first, but here are nine tips for investing success in 2020 – some simple habits to help you gain confidence and build a better financial future for you and your family.
1 Rainy day savings
Make sure you have enough money set aside for a rainy day. Having at three to six months of your living costs set aside in savings means that you can cope with any nasty surprises like losing your job. You should set aside enough to pay your mortgage or rent, bills and food etc. If you have children, you should set aside a bit more. Having a rainy-day fund gives you security and a bit more elbow room when things don’t go to plan.
2 Sunny day savings
Once you’ve got the rainy days sorted out and have enough cash to cover at least three months of expenses, you can think about sunny days. Investing now for sunny days a long time in the future should be your focus, but it’s also nice to squirrel away cash for holidays and other luxuries you might want to enjoy in the next year or two without having to resort to a credit card. For short-term savings, it’s best to stick to savings accounts.
3 Pay yourself first
Before you start investing, be clear about your financials goals and how you’re going to achieve them, then pay yourself a percentage of your salary. Decide the amount and set up a standing order to come out on payday – you’re far less likely to miss it or notice it that way. Don’t forget to change the amount if you get a pay rise – and if it’s a particularly good one, consider increasing the percentage too!
4 Think long term
Keep an open mind. Brexit, Trump and other events will cause the stock markets to rise and fall. That can be stressful, but it’s important to remember that over the long term, and despite plenty of highs and lows, the stock market has been the best place for long-term investors to build wealth.
5 Don’t trust your instinct
When it comes to investing, it’s best not to trust your instincts. We can end up doing exactly the wrong thing at the wrong time because fear or greed has kicked in. We all want to buy low and sell high, but when we panic our emotions can lead us to sell when markets are in free fall and buy when they’re rising. Keep a level head by focusing on the long-term goal and ignoring short-term factors.
6 Buy little and often
One way to keep a level head and emotion out of your decisions is to invest the same amount each weak or month, no matter how the market is behaving. It will teach you a non-emotional approach as you’ll buy when markets are low, high and everything in between. Remember that investing in the stock market has historically generated a good return on your money. If you’d invested some money in the UK stock market 50 years ago, you would have made 20 times your money by today – try doing that in a savings account!
7 Don’t stash too much cash
Holding savings in cash for emergencies and shorter-term needs makes sense, but cash can be a poor investment in the long term as inflation erodes away its purchasing power, particularly when interest rates are low as they are in today. It’s impossible to predict the future, but over the long term, the stock market has delivered better returns than cash. Here’s a link to an 18-year long experiment that demonstrates the significant difference between cash and stock-market investments.
8 Every day and penny counts
Whatever you’re saving or investing for, start today. You’ll feel better and crucially you’ll benefit from the magic of compound returns. For example, if you save £1000 at 7.5%, after 10 years you’ll have doubled your money, but after 20 years your £1000 would have grown to almost £4000 – so every day and penny counts. If you invest in the stock market, the returns would be even better as demonstrated by the Rupert article.
9 Find the right platform
Whether you’re a seasoned investor or an investing novice, our platform calculator can help you find the right platform for your needs, giving you information on pricing, resources like recommended fund lists and portfolios. If even that is too much for you to get your head round, check out the robo calculator which will direct you towards robos that can make the investing decisions for you. Still confused? take a look at our guides to learn more about investing.
Photo by Jamie Street on Unsplash
