The thought of investing can seem daunting, and it’s not something we are taught at school.
Most of us are brought up to save, as our parents get us a piggy bank to put our pocket money into, or open a Junior savings account. Rarely do parents explain what the stock market is, or how Mutual Funds work.
This is largely a generational issue, as trading in stocks or investing in businesses was much more complicated and inaccessible before the internet.
However in 2018, investing couldn’t be easier and with platforms such as Hargreaves Lansdown you can keep a real time check on the price of your assets and cash in/out within a matter of seconds.
Here are 4 reasons to start investing now!
1. The sooner you start Investing the better
Compound interest is a beautiful thing! Or as Albert Einstein said, it’s ‘the greatest mathematical discovery of all time’! So what is it exactly?
Well, let’s say for example you invest £1,000 in a Mutual Fund and over the year it accumulates interest at 8% (Which is quite a conservative amount), this means you now have £1,080. If you then leave your investment for another year and it goes up another 8%, your savings are now worth a total £1166.40.
This may not seem like much. But now let’s imagine you were 18 years old when you invested the £1,000 in a fund achieving 8% a year. If you leave the the money invested until you are 60 it would be worth £27,239.34!
Sounds good right? Well, you can make it even better by continuing to add to the investment for even bigger returns. For example, this time let’s pretend you invested £1,000 when you are 18, however you continued to add in an extra £1,000 each year.
By the time you are 60 you would have paid in £32,000 of your own capital. However thanks to compound interest, your total investment is now worth £321,940.06 !
My only regret is not investing sooner (I didn’t start until 27), so what are you waiting for!
2. You don’t need as much capital as you think
As the example I gave above demonstrates, you don’t need a lot of start up capital to see good returns on an investment.
Many brokers have low minimum investment limits for Mutual funds. For example, Hargreaves Lansdown who I use, let you invest from as little as £100 for one off payments, or £50 if you set up a monthly Direct Debit.
There are even some apps that let you invest your spare change, such as Moneybox. Which rounds all your purchases up to the nearest pound and invests the difference. For example, if you purchase a coffee for £2.20 Moneybox will round it up to £3 and let you invest the 80p difference in a company of your choosing.
3. The banks are cutting you a bad deal
The highest rate savings accounts at the bank only pay you around 2% a year, which is nothing when compared to what you can make on the right investment.
It’s of course important to have some small savings in the bank (I keep around two months salary in there), just to cover any unforeseen expenses (e.g. a new washing machine). But when it comes to your long term saving plans you should really invest that money as you will get a much better return.
I like to use the 5 year rule. This is basically, money i’m planning on spending within the next 5 years goes into a savings account, whereas money i’m not planning on using for over 5 years goes into my investment account. The logic being 5 years is long enough to ride out any dips in the market. And having back up money in the bank is key, as you don’t want to be forced to sell an investment when it’s down, just because you need the money.
4. It’s fun!
Putting money into an investment is really exciting, I still remember the buzz I got off purchasing my first shares in a company. I’d be constantly checking my phone (much to the dismay of my girlfriend!) to see if they had gone up or down. Feeling nervous when they dropped and ecstatic when they went up!
I’m please to say i’m not so obsessed with checking them all the time now, as you realise that they are always going to go up and down, and all what matters is where they are when it’s time to sell. But I do keep a close eye on the technicals and the related industry news, to ensure i’m up to date and aware of changes in the market.
It’s much more fun than just putting money in the bank, where you know exactly how much your going to get over the year. And that’s going to be a maximum of 2%.
So go on a get investing!
Need help saving? Have a read of our article ‘7 Ways You Can Reduce Spending and Save’, for some handy suggestions.