There’s a lot of attention on meme stocks and cryptocurrencies at the moment and that fear of missing out is fertile ground for scammers and con artists. Just recently I took a call from a Russian-sounding guy who called himself Steve and tried to convince me he was regulated by a higher authority than the FCA (who God?!).
You’ve no doubt had emails from Nigerian princes and the like in the past, offering a substantial and life-changing amount of money in return for your help getting it out of the country. The common denominator about these scams is that they’re always the ones to contact you and not the other way around. Wise investment opportunities are the ones that you go looking for and not the ones that come knocking at your door.
If you have no bad debt, and you’ve got some money set aside for emergencies (at least three months’ worth of living expenses), it’s worth exploring investing.
Should I invest?
Before we talk about the different ways you can make your money work for you through investing, let’s get serious and think about what might happen if you invest and lose money. Does that make your stomach clench?
To invest wisely you need to understand the following four factors that can cause you to lose money and try to prevent them from happening to you.
- You risked money hoping that certain stocks or other investments would go up over time, and they haven’t done well.
- You put all your disposable cash into a single stock or investment. You pretty much screwed up.
- You had unrealistic expectations about your investments thinking they would make you get rich quick. Investment is for at least five years. In the short term, markets can fluctuate, but in the long run there is an upward trend – you get rich slow.
- Your investment might have gone up, but it didn’t go up enough to cover the fees (yes there are always fees, people don’t work for free).
To invest wisely, live by these simple rules:
- Don’t put all your eggs in one basket.
- Make sure you have cash for emergencies. If you need your money in the next two to three years, don’t invest.
- Diversify your investments, so even if one part of your portfolio doesn’t perform well, it doesn’t drag your entire portfolio down.
- Investing in a mix of investments is a better idea than going all in on a single stock.
- Look for low-fee investments and buy them from low-cost investment platforms. Even though fees may not appear that significant, they add up quickly and can drag on investment growth. We recommend exchange-traded funds (ETFs) or index-tracking funds, as the fees are considerably lower than actively managed funds.
Where to invest
Beginner investors often make the mistake of deciding what they want to invest in such as the latest cryptocurrency, without deciding what sort of account they’ll be putting their investments in.
Investing is about reaching your goals and taking only enough risk that allows you to do this. Taxes eat into the money you make. A staggering amount of money can be saved by investing the maximum amount possible through in tax-incentivised accounts like ISAs or pensions. They allow your investments to grow tax-free, or let you defer paying taxes on any money you invest until retirement.
No matter how brilliant your investment ideas may be, if you’re not taking full advantage of these government-sponsored accounts, you’re missing out on the government’s contributions to your savings. Never look a gift horse in the mouth and say no to free money. The same goes for your employer’s contributions into your pension. Get as much into your ISAs and pensions and maximise that free money.
Here are some rules of thumb:
- Keep your fees low.
- Maximise your ISA and pension allowances (make sure the government and employer contribute to your ISA and pension).
- Reduce risk by diversifying your equity.
- Put together a healthy mix of different asset classes such as equity, bonds, cash and alternative investment such as commodities.
- Pick a strategy and stick with it through good and bad times. Especially the bad times – don’t sell when stock markets are plummeting.
How to invest
There are three main ways to invest and for ease, we call them Do it with me, Do it yourself and Do it for me.
Financial advice (do it with me)
Financial advisers fall into the Do it with me camp because they will advise on the investments and then you instruct them to invest. But their job is not just to invest for you – that’s a tiny part of it – advisers do all the financial planning and make sure you stay on track with your financial goals.
Advisers are required by law to charge a fee, so if you’re young or your portfolio is modest, this might seem like overkill. That’s because the fee will be commensurate with the amount of work they have to do and not with the size of your portfolio. However, if you have a large pot, have inherited or received a windfall of some kind, it’s worth getting financial planning advice and stopping the tax man from creaming it off in all sorts of taxes. To find an adviser you can use services like vouchedfor and unbiased.
Digital/discretionary investment providers (do it for me)
When you engage a financial adviser, he’ll recommend what investments you should make, and it will be your job to confirm and tell them to go ahead. If the idea of having to do this makes you want to stick pins in your eyes, then you might want to go down the Do it for me route.
This is when you engage someone to manage your money and they go ahead and make the decisions for you without consulting on every transaction – it’s called discretionary management. It means they can act quickly and invest on your behalf as they don’t have to wait for you to confirm. Traditionally, this kind of service was the preserve of very wealthy people, but the onset of digital investment providers means there’s a plethora of digital investment providers through which you can invest from as little as a pound. You can use our robo calculator to help you find the right digital discretionary provider for your circumstances.
Do it yourself
Of course, lots of people like to do their own research and there are plenty of DIY platforms through which you can invest. Some have recommended fund lists or recommended portfolios and most have plenty of research and guidance to help you along the way. If you’d like to give it a try, use our calculators to help you find the right platform for your needs.
Photo by James Lee on Unsplash
Photo by Natalie Rhea on Unsplash