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Do you invest in the stock market? Gone are the days where you have to have huge sums of money and a fund manager to do it for you.
It might look confusing, but that is nothing that a bit of knowledge can’t sort out. Investing is actually very rewarding – both in feeling accomplished in understanding how to do it, and of course financially for your longterm future.
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 and follow some basic rules. Investing is not without risk, but then most things in life aren’t.
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).
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 and cheaper than ever.
But it’s still not enough (yet).
According to HSBC UK, just 12% of women currently invest, vs. 19% of men.
Why is this a problem?
Because women on average live longer than men, yet our pensions are not matching this. Due to reduced income through the gender pay gap, and taking the greater share of childcare responsibilities, women are losing out on all fronts.
But investing doesn’t have to be hard, or expensive! We can do something about this.
We need to recognise that if we dream of living comfortably in a happy retirement, then we need to make our savings work much harder for us by investing them, NOT saving them.
With big investors like Warren Buffet backing index funds, its no surprise that they are a strong foundation for anyone aiming at a more balanced overall investment 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).
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 by 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.
There are multiple options out there, and they can be themed around different countries, sectors (like technology), or can be ethically based, and this is where the immense buying power of women can truly come into it’s own.
What are the Advantages of Index Funds?
Buying into funds saves you considerable time and effort, not to mention money!
When buying in a bundle, you also protect your money from any companies who’s share price starts to decline. When one isn’t working so well, another will be. Spreading your money around is helping to weather these changes.
Buying in a fund also means you don’t have to review your investments too often if you don’t want to. Every 6 or 12 months should be sufficient (and can actually be better, because it means you won’t be tempted to tinker with it too often!).
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.
I have used Hargreaves Lansdown in the past, and I have also used Vanguard (which isn’t a recommendation, its just what I preferred at the time for my own personal circumstances). These are online broker platforms where you can take your pick of a lot of different funds in a DIY portfolio, or buy something ready-made. It’s like picking tescos or sainsburys to do your click and collect shop. They offer similar things, but will have their own pros and cons, particularly when it comes to fees.
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 and Chip – these “auto-bot” apps read your bank account and automatically save and invest money for you in pre-set portfolios like MoneyBox does.
You don’t have to do this on your own. If the idea of investing makes you feel really uncomfortable, why not have a chat with a money coach or a financial planner/adviser for support? While a money coach can’t do it for you, they can help guide you with how to research and learn about investing. A financial adviser can literally take the decision making off your hands, meaning you don’t have the worry of managing it yourself. Of course, this all comes at a cost, but you need to do what’s right for you in the long-run.
Is There a Downside?
Overall returns on your money 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 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 (spreading your money around).
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. To balance this out, you could pick another fund in a different sector, like technology or healthcare, or even pick a fund that is balanced across all sectors. The world is literally your oyster!
You do have to factor in how you tolerate “risk”. Like all things in life, there is risk involved when investing money, but only you can know what that looks like for you. Don’t let risk be the factor that puts you off.
Investing doesn’t have to be hardwork. Many women assume that investing is not for them because it seems complicated and saving money feels a lot safer. You perhaps might assume you need lots of money which simply isn’t the truth.
You might also have concerns that your money is being used for industries that harm people and the planet, but it is totally within your power to do something about it. Women have huge spending power! We can choose where our money goes. You don’t have to accept the status quo. And this is what I mean when I say that women will change the world, because we will, when we’re all educated in how to invest for our long term wealth.
I firmly believe that the future of investing is Female.
Until next time,
Interested to read more? Check out this post!