Okay, so this isn’t one of my regular beauty articles. But, in a way, it’s linked. This is about how to invest your savings so they grow. Which means, over time, you’ll be able to put that money towards something you love, whether that’s beauty products (see the link there), a house, a holiday or something else entirely. Also, fun fact, before I became a journalist in beauty I did work experience on the money desk at The Mirror newspaper twice, I even got a couple of articles published. But, am I good with my money? Not really! Especially when it comes to wisely investing the little disposable income I have. So below I’m going to share with you some advice from money expert Nikki Ramskill, who also goes by the moniker The Female Money Doctor.
You see, since going freelance at the start of the year I have been being overly cautious with the money I earn, because being freelance means that you don’t get paid regularly. You also don’t get benefits like holiday pay or a work pension. I’ve been squirreling away my money and sitting on it, whereas I used to spend it on clothes and literally sit on those.
Now, as you know, I’m currently based in Amsterdam at the moment so that adds a whole added layer of confusion when it comes to things like savings and tax. But, for those of you who are in the UK, and want to find smarter ways to invest your disposable income instead of just lining the pockets of the ASOS and Zara boards of directors, then you’re in the right place.
How to Invest Your Money: A Beginner’s Guide
First Things First, Get a Pension
If you work, you should be in one. Check with your HR department and make sure you are signed up. Employers HAVE to put money in on your behalf, so if you're not paying in, you're missing out on FREE MONEY!!
So yes, if you don't have a pension, get into one. If you are self employed, you can use a SIPP to get started, especially if you are high income earner.
What About an ISA?
ISA stands for Individual Saving Allowance. The ISA has been around since 1999 when Gordon Brown brought them in his first budget. Anyone can open an ISA (even children can have one), and this special savings account shields a portion of your money from the tax people. Payments into the account are made from your after-tax income. You don’t have to pay income tax and capital gains tax on the money when you withdraw it. There are lots of different types of ISAs and I have a blog post that summarises them here.
As long as you keep within your overall ISA allowance, which is £20,000 for 2019/2020, then you can open different types of ISAs, such as a savings one, a stocks and shares one, a lifetime ISA for buying a house, but you can only open one type of ISA in every tax year. So, you can’t have two savings ISAs in the same year, for example.
Stocks and shares ISAs are great for everyone and you can use your tax-free allowance to invest. If your stocks gain money, that is also tax-free! Don't bother wasting all your savings on an ISA, you won't earn much but learn how to invest and start using that yearly tax-free allowance!
Stocks and Shares: The Basics
Stocks are shares are fabulous inventions. When a company wants to raise money, they sell off a small part of themselves in the form of a share. People can buy these, and when the company does well, its value increases, and so does the share the person bought. It's like being a business-person but not needing to know any business! The down side is that when a company doesn't do well, their value goes down, so the shares do too. This is where people can be at risk of losing money.
Shares are only as valuable as the actions of other investors dictates. If everyone wants to buy, they go up. If everyone wants to sell, they go down. So many financial experts "claim" to know when these changes are likely to happen, so will buy when the shares are low, and sell when they are high. These people are called fund managers, and they are often trusted with large sums of money from people who are hoping they can make money for them (at huge cost!).
The problem is, NOBODY can time the market! No one has a crystal ball to see what will happen, not even experts. So the best way to invest in companies is to buy index trackers. These are collections of lots of companies stock for one monthly sum. You get more bang for your buck, and when one company doesn't do so well, you can bet another will be compensating for it. The fees are generally lower with this strategy too, plus you don't have to worry about constantly checking the business news. Win-win!
The Common Ways to Invest, Short- and Long-Term
Investing for the LONG-TERM serves the majority of people best. This means more than 5 years. The reason for this, is because stocks and shares go up and down in value all the time, so if you're hoping to make a "quick buck" using them, you are trading/gambling and you are risking loss of money.
Index tracker funds or exchange traded funds from Vanguard or Hargreaves Lansdown are good for long-term investing. The longer you can leave these investments, the better your money will withstand drops in the market and potential losses.
You can use index tracker funds to start investing from £25 per month.
Exchange traded funds need larger lump sums, but you need to watch out for fees when you buy them.
There are places you can invest for shorter terms, like property for example. You give the developer a lump sum of money and then after a year or two (when the houses or flats are built), you get your money back with a healthy return. This is NOT for the average investor or beginners. You need to go into these deals with eyes wide open and look at the details of the deals you're putting money into. Are they reputable? Do they have a track record? Unless you identify as a sophisticated investor and you know what you're doing, then it's best left well alone.
Invest and Be Appy
I love using Moneybox, this app allows you to invest pennies from rounding up every day transactions like that coffee on the way to work. You can also top-up this account with more money whenever you want.
Fees are more pricey with apps, but if you’re really resistant to learning about how to invest and you don't have much money, it could be a way forward. However, if you do have more money to invest every month then using companies like Vanguard or Hargreaves Lansdown would, in my opinion, be better. The fees are lower, and you have more flexibility. Still, Moneybox is fun to use, and I like how they are getting people into the investment market!
Plum is another app that allows you to invest money in the stock market. They have an array of funds to choose from including ethical funds that allow people to put money towards more green options. Plum takes small lump sums out of your account every few days to encourage you to save, and you can also opt to direct half of it towards investing. I love using this app to save money, and many members of my community love it too!