Join The Revolution!
Today’s contributed post talks about how investing in stocks and shares is becoming more and more accessible. Gone are the days where you have to have huge sums of money and a fund manager to do it for you. Now it is possible to invest from the comfort of your own home!
I firmly stand on the side of DIY investing, and once you know the basics, investing is actually very rewarding – both in feeling accomplished in understanding how to do it, and of course financially.
In fact, the 2015 Barclays Equity Gilt Study showed that over a 10 year period, the chance that money invested in stocks and shares will beat the value of cash savings over the same time period was a whopping 91%. If you wait 8 more years, this increases to 99%!
From this statistic, we can see that stocks and shares are fabulous at improving the value of your well-earned savings but only if you leave the money invested. The reason why people get burned is because they take the money out before its ready to be used, usually out of fear. Its like when the contestants on GBBO take their cakes out too early, and they are left with a soggy bottom and an inedible mess (that’s Great British Bake Off for those who don’t know).
So grab a cuppa and enjoy!
Do you invest?
More women than ever are branching out into the proactive side of money management. One of the reasons behind this is a wave of new technologies coming through that are making investing in stocks and shares easier than ever. Its an exciting time to be investing! Come and join the revolution!!
No longer do we have to rely on using wealth management firms, expensive fund managers and complicated algorithmic trading platforms that require a degree and a s*** load of time to implement. I don’t know about you, but I don’t have time for that.
We now recognise that if we dream of living comfortably in retirement or easily funding a house purchase, then we need to make our savings work much harder for us. With big investors like Warren Buffet backing index funds, its no surprise that they have emerged over the last few years as a strong staple for anyone aiming at a more balanced overall portfolio.
But what are their main benefits, and are there any hidden drawbacks?
What Is An Index Fund?
Index funds or trackers can seem like a bit of a mystery, because it’s basically an abstract idea rather than a physical investment you can touch, such as investing in property. A fund is a collection of shares of lots of different businesses. When you invest in a business, you are buying a small portion of it (a share). The money is used to grow the business.
If you invest in one business, and put say, your life savings in it, you are putting your money at EXTREME risk. If that one business goes bust, guess what – you lose your money. Index trackers get around this but bundling together a collection of lots of businesses. You then get the benefit of the average of the companies, rather than all the risk of just one.
Examples include the HSBC FTSE 100 – a collection of the top 100 best performing companies in the UK stock market, the Dow Jones Industrial Average, which collects together thirty of the most blue-chip stocks into a single offer, (with the selection made by the editors of the Wall Street Journal) and the Standard and Poor’s 500 in the US market.
What are the Advantages of Index Funds?
Buying into funds saves you considerable time and effort, not to mention money! Take the FTSE 100 for example. In order to buy every share, you would need to spend at least £100 as a minimum one-off on each one, or £25 per month on each one.
£100 x 100 companies = £10,000 ONE OFF PAYMENT.
£25 x 100 companies = £2,500 PER MONTH.
On the other hand, buy into the HSBC FTSE 100 fund (or its equivalent created by a different company or bank) and you only need £25 per month in a regular investment, or £100 as a one off minimum. You’ll get a share of every company in the fund. That’s a whole lot of buying power! Of course, there’s slightly more to it than that, and if you want to learn, I go into more detail in this 5-day beginner’s guide to investing mini-series.
How Can I Invest?
Index funds have changed the face of traditional investing, because it is now accessible to many more people than before due to the reduction of costs involved to run the funds (as in, barely any).
I use Hargreaves Lansdown (which isn’t a recommendation, its just what I prefer). Its an online brokerage company where you can take your pick of a lot of different funds in a DIY portfolio, or buy something ready-made.
There are now also plenty of apps we can take advantage of to make it even easier!
- Nutmeg – an app that allows you to invest from £100 per month. You set your “risk level” and goals, and nutmeg does the rest. Its low cost, and while it isn’t DIY in the truest sense, it may be more suitable if you don’t want to get involved in learning what to do.
- MoneyBox – an app that invests your “pennies”. What it does is whenever you buy something, moneybox rounds up the transaction to the nearest £1 and every week, the total pennies are collected together, allowing you to invest it onto the app in a set fund that you pick at the start. Again, its a fund that is “done for you”, but its easy-peasy to use, and pretty fun to see your money grow from your pennies!
- Plum – this “auto-bot” app reads your bank account and automatically saves money for you. There is a basic savings account which you don’t earn interest on, but there is an investing savings account using a peer-to-peer lending platform called RateSetter that can earn your money 2-3% per month. They are bringing out stocks and shares investing too, so watch this space for more updates!
Is There a Downside?
Overall returns tend to be steadier and less dramatic than individual stock investments, so investing in index trackers is certainly not a get rich quick kind of scheme. Once you’re in, you’re in though; for the long haul. This however is balanced out for us with the benefits of not having to proactively manage multiple accounts (saving time and stress), reduced costs, and less risk due to diversification.
When picking shares for diversification though, we have to be careful. Some index funds are not as diverse as they could be, and have a lot of businesses in mostly one sector, like the financial industry for example. This could potentially set you up for losses if something like the 2009 financial crisis comes round again. The best thing is to have a portfolio that spreads over a number of different sectors.
Many women find investing in the stock market difficult, because they want to know where their money is going. If you don’t like the idea of your money going to sectors like pharmaceuticals and tobacco, then you may not be keen. This is completely understandable, but rest assured, there ARE ethical investments out there – watch this space for more info!
The other thing to bear in mind is education – make sure you learn first before diving in. It will save you money and time, not to mention worry at getting it wrong!
The great thing is though, for the majority of us who want a simple approach to making their money work harder, they are still the best option and save a huge amount of headache!
So there we go! I hope you enjoyed this piece and have learnt a lot from it. Come on over to my private Facebook group and ask questions, or feel free to comment below.
See you soon!
Interested to read more? Check out this post!
Come and Join the Money-Medics!
Every week I'll send you something inspiring, useful and fun related to our favourite m-word.....MONEY! I look forward to "meeting" you. Love, Dr Nikki x