You’ve probably realised that the first concept of growing wealth is to make your money work harder for you. That means it has to do more than sit in the bank accumulating a basic interest rate (currently 1.5% or less) * – that’s negligible growth by any means. It is important to consider how your money can go backwards over time through two main drains:
One way to do this is through investing. Investing is essentially the process of committing money towards something which results in a profit. There are tangible investments – things which you can touch such as land, buildings, gold and jewellery, art, cars, coins and artefacts, rare wines and whiskies, and cold hard cash. And there are intangible assets, such as shares and bonds. Bitcoin (although called a coin) is an intangible asset as it is virtual money – not real cash in your hand.
For tangible investments, there’s the overriding presumption that the item will appreciate in value and can be sold for more at the end than what you bought it for. For intangible investments, this depends on the buying prices of units at any particular minute of the day, so the value constantly fluctuates due to many factors such as politics, currency, consumer demand and market sentiment.
In simplest terms, to get ahead in investing you aim to buy low and sell high. But none of us can see the future, or else we’d all have bought shares in Facebook in 2008. So an element of speculation exists – judging when to invest, and more importantly, into what.
If you are willing to dip in a toe on your own, you can buy shares using an online broker. This includes online banking and robo-advice. You can do your research online, pick a broker, and they usually offer a good online dashboard where you can keep up to date on how your money is performing, make withdrawals or pay in as suits you. This is impersonal, automated investing with you in control and responsible for the performance of your portfolio.
The pros to doing it yourself: you’re in the driving seat. Whatever happens, you can be confident that it’s a choice you’ve made. If you don’t like it, you can trade whenever and wherever you like by going online and choosing another option. Usually the costs are very low, so whatever profit you make is largely kept by you.
And the cons?: The range of choices is pretty overwhelming. And there is the constant nag of ‘is this is the best I can achieve for my money?’, or ‘is there a better option out there?’ The likelihood that you’re getting the best performance for your money is going to be low, unless you’re an expert on funds and market performance and have time to watch values fluctuate all day long.
Or, you can appoint a professional advisor to do this for you. Like anything else, when you don’t have the skills or experience yourself, you call on an expert. They have the expertise and access to a vast range of domestic and international funds and products, handpicked to suit your personal situation and what you want to achieve . Which means you pass all the hard work to someone else who has the expertise to research the best conceivable plan for you, and you can get on with the things in life that you need to be doing.
Before you do anything…
Check that you’ve got the basics covered first:
- Do you have any debts? If yes, pay those off first before you do anything else. These are expensive and no matter how good your investment performance may be, debts will still take you backwards overall
- Once your debts are paid off, save a small pot of money into a standard bank account paying the highest rate of interest you can find. This is your contingency fund – your ‘rainy day money’ – for any unexpected expenses which might pop up. It means that you’ve got the funds on standby and don’t need to borrow (which would take you back to step 1), or disinvest from any new investments you set up. We recommend that your contingency fund has around 3 months’ worth of your normal salary in it.
- Anything which you save over your contingency fund should be put into a separate, easy access bank account, again paying as much interest as you can find. This is your investment pot. This is just a temporary home for these monies until your investment is in place. Sometimes this can take several weeks so again, you want it to earn the maximum amount of interest that it can until the investment is placed.
- Once you have your contingency fund in place, you can then pay any extra monies you have each month direct into the investment, through a monthly direct debit. This means that rather than adding monies to your bank account, it goes into your investments instead.
This is a very basic summary of getting started in the world of investing. There is much more to consider before knowing what is right for you. It’s extremely important that you consider your affordability (how much you can put away each month), your attitude to risk (what level of speculation risk you are comfortable with and willing to take), your pension provision (important at any time, not just in retirement), and your income protection arrangements. These should all be taken into consideration as part of your investment strategy.
And always remember that investing is a long term commitment: at least 10 years. You can consider shorter- to medium-term investments, but be realistic about what you are happy to commit to and for how long. The markets will fluctuate constantly throughout that time and sometimes the investments will spike to a really amazing level, and sometimes they fall – sometimes below what you put in to start with. The idea is that over time, these ups and downs will balance out and ultimately give you a higher value overall than what you started with.
Investing is an exciting step into growing your wealth and making your money work harder for you. The right advice will make all the difference to your dreams and aspirations.
*Marcus by Goldman Sachs currently pays 1.5% for their online account and at the time of writing is the highest-earning instance access bank account of which we are aware on the market
As you would expect when taking professional advice, our financial advice services are provided at a modest fee. All fees are taken into account with any recommendations which we may make to you, to ensure the best overall financial plan to suit your objectives. For more information on fees, please see our fees blog.