Investing is something that I put off doing for SO long. Even when I knew that I wanted to start investing in the stock market, I held back for a further year. Why? Because I just didn’t know how to get started. I was overwhelmed with information, but eventually found out that investing doesn’t have to be overwhelming. It can be quite the opposite.
Gone are the days where those who invest are rich, privileged and male. You can be a woman in your 20s, a single parent, a freelancer- you can be just about anyone and still invest your money in stocks and shares.
YOU can invest, and please don’t let entrenched ideas about who can and cannot invest in the stock market deter you from doing so. Maybe I’m cynical, but I think that sometimes the information we receive about investing can be deliberately scaremongering, it discourages average earners from investing by circulating the idea that you will lose all of your money if you invest.
But that is not necessarily the case, if you are worried about the risk associated with investing, you can choose a low risk investment to balance this.
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How did I start investing?
To be honest, it started with me sitting down and really thinking about the future- what were my financial goals? I’m saving for a house deposit, and so I had to think about whether I was happy to sacrifice a bit of my savings each month for investing or not.
I decided I was happy to do so, and allocated £100 a month to investments.
I also had to be comfortable with the idea that, if everything went completely pear shaped, I could lose the money that I invested. I am comfortable with this level of risk, and live a relatively frugal lifestyle- I perceive money, as money that could easily be ‘lost’ on clothes or meals out, which I am investing in my future instead.
How did I decide who to invest with?
Back in June, I just wanted to get started. I read up on lots of different options available, and decided that a LifeStrategy Fund with Vanguard was the right option for me. Everyone’s financial situation is different, and I would encourage you do read up on the various options to decide on what suits your own financial situation the best.
A Vanguard LifeStrategy Fund was right for me because of the low fees (0.22%), and the stocks & shares ISA ‘wrapper.’ It is a ready-made fund portfolio which means that my portfolio is managed by a team of experts and I don’t have to make any decisions.
I was able to choose the fund that suited my attitude to risk, which in my case was the LifeStrategy 80% Equity- which is 80% equity, 20% bonds. This is at the ‘riskier’ end of the spectrum, and my decision to choose this fund is because I hope to keep the money in this fund for more than 10 years.
Equity is also known as ‘stocks and shares,’ and they carry no fixed interest. They are listed daily on the stock exchange and are generally considered ‘riskier’ than bonds due to the more severe fluctuations in price.
Bonds are essentially loans made by an investor to a borrower. Bonds are considered ‘safer’ than equity because it is more likely that you will receive your money back once the bond matures. When a company issues bonds to investors, it promises to pay back the money it borrowed plus any interest that has been accrued.
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You will have to work out what your attitude to risk is, and decide what percentage of ‘safer’ bonds you want against the percentage of ‘risker’ equity. This will depend on your circumstances and how close you are to retirement age. For me, when I start to move towards retirement age, I will most likely change the fund to around 40% equity, 60% bonds for more stability.
I mentioned earlier that investing can often be quite the opposite of overwhelming- I actually found the process of setting up my stocks and shares ISA to be pretty underwhelming. I didn’t suddenly feel the urge to put on a suit and start smoking cigars, I carried on walking to work in my trainers and jeans, and talking to people on Instagram about money.
I uploaded the relevant documents (proof of address, ID), linked my bank account and now, £100 a month goes out of my account by direct debit and goes into my stocks & shares ISA.
Yes, there are SO MANY other ways to invest (which I haven’t explored yet personally), but this was the most simple and hassle-free way for me to get started.
Is it better to contribute to your pension or invest in the stock market?
Whether you contribute to your pension or invest on your own terms, it’s important to remember that any money that you put into a pension is also invested. Yes, it’s invested into a wide range of asset classes to reduce risk, but it is invested all the same.
The money in your pension pot has the potential to rise and fall just like it would in a stocks & shares ISA.
When you contribute to your pension, you get tax relief which is a benefit, and due to this, it can be a good idea to contribute to the maximum percentage of your salary that your employer will match. So for example, if your employer will match your pension contribution up to 7%, it’s a good idea to also contribute 7% as this is essentially free money that you are getting from your employer.
The company I work for doesn’t have a great pension scheme and just pays the minimum requirement (currently 3%), so I pay 5% of my salary into the scheme and forget about it.
The reason I chose not to put more money into my pension is that you cannot withdraw the money until you reach retirement age, but with a stocks & shares ISA, you don’t have to wait until you retire to withdraw your money.
This is an important factor for me. If a want to start a new business in 5 years, or I urgently need to access to that money in the future, it’s there for me to withdraw.
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How do my investments look 6 months on?
When I was deciding how to start investing, one of the pieces of advice which kept cropping up time and time again, was to not check up on your investments regularly. So, I didn’t check mine. I have never logged back onto Vanguard to check up on my investments… until now.
I decided to log on and find out how my investments were doing for this article.
My investment journey started this June, so I have been investing for a total of 6 months, with £600 going into my stocks & shares ISA in this time.
The grand total after 6 months? £605.73.
Told you it was underwhelming! That’s a 1.71% return over the last 6 months BUT that interest rate is actually more than the savings account that I have, so I’m counting that as a win.
Investing is a long game, unless I desperately need this money in the future, I’m not going to be thinking about withdrawing this money for at least 20 years when I retire aged 47 (in my dreams!)
Investing works best when you can invest that money, and not think withdrawing it for at least 5 years, 10 years if you can. It’s not worth dwelling on the monthly (or even yearly!) ups and downs of your investment, because the stock market is constantly moving.
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What have I learnt?
1.The advice I read is right- don’t check up on your investments! Vanguard has a graph which tracks your investments month by month and some months I lost money, other months I gained money. It’s not worth worrying over.
2. That starting to invest was absolutely the right decision for me. Do I wish I started a year earlier? Yes. But I’m just glad I got started.
3. That investing isn’t as scary as it is made out to be. In fact, it’s not scary at all. For now I put my investments into the same category as my other bills- money that goes out of my bank account each month and gets forgotten about.
4. People will warn you about the ‘dangers’ of investing. They are always well intentioned- my parents suggested I put money in premium bonds instead of investing- but at the end of the day, you have to work out your own attitude to risk and what is best for your own financial future.
5. That I could potentially increase my risk level to 100% equity and still be comfortable with that at the age I am now, with at least 20 years between me and retirement. Watch this space!
When you start your research on how to start investing, it’s easy to read a few articles online which are full of jargon, and feel frustrated.
I’ve been there.
There is so much information, and it took me a year to decide what was right for me, to get comfortable with risk, and to get a basic understanding of what investing was really all about.
The route I chose was to just pick something, and take action. I knew that there was no time like the present to start investing, due to time being on my side and compound interest.
Sure, there are tons of other ways to invest, but for me, this is the simplest option at this time in my life. In the future, I hope to expand my portfolio, but until now, I’m just happy that I’ve started a portfolio.