Who should you trust with your money? Where is it safe to put it?
It can be so hard knowing what to do for the best, right?!
If you’re anything like me, you’ve had years of people telling you that the ‘state pension won’t be worth anything by the time I get it’.
And you may well have ended up with a distrust of corporations, thanks to your parent’s horror stories about endowments and pension schemes that didn’t perform as promised.
This is the REAL problem.
No-one can promise what your money will be worth in 10 or 20 years’ time – except if you keep it in a savings account (or under the mattress), earning no interest and being eaten away by inflation – and this leaves you stuck between a rock and a hard place.
On one hand, you want to grow your wealth and benefit from that 7th wonder of the world, compounded growth…
BUT on the other hand, you’d hate for another Philip Green to take your life savings and disappear off into the sunset.
So when you’re choosing what to invest in for future growth, how do you minimise the risk of it all going wrong AND maximise the chances of becoming seriously wealthy as you get older?
You are going to need to make a choice.
As a business owner, you won’t get an employee pension. You don’t need to be part of NEST – you need to take responsibility for your own financial arrangements, either on your own or with the help of a qualified adviser.
So what do you need to know to make some sensible choices?
Let’s look at the typical pathway to selecting an investment (or more than one), to actually grow your wealth further!
Firstly, look to diversify. Don’t put all your eggs in one basket!
Yes, you could pick the next Microsoft – but equally, you could pick the next Betamax video (and we all know how that went).
There’s a lot of chat about Bitcoin right now. But just like any other single stock is a risky place for your long-term savings, it exposes you to the possibility of wiping out everything in one go (which will feel just as bad as if you’d been physically robbed!).
For the best outcome, aim to invest in at least 65-100 different companies (more if possible). So that if one fails, you don’t lose all your money.
And ensure your shares are NOT just UK based, but include some from other places too. Because when one market goes up, another often goes down.
The easiest way to do this is to use a collective investment.
These are funds that contain a wide range of shares, bonds, exposure to rental property etc – and effectively you buy shares in the fund.
The fund will either be actively managed, with a fund manager choosing what will be inside, or will be a passive index tracker.
Index trackers follow the movement of a specific index (like the FTSE100), by buying shares in a range of popular companies (largely controlled by computer).
And they’re available with different combinations of components. So you can take more or less risk with your money, depending on your personal preference – and you can choose funds that are Ethically and Sustainability focused, or even Sharia complaint funds.
Once you’ve selected the fund that meets your risk appetite, you need to decide how you are going to hold your investment. Which means you need to choose a wrapper for your fund.
Although you can hold them in a simple investment account, this means you’ll be paying more tax than you need to, either now or in years to come.
Most people either use a pension or ISA wrapper for their investments. So which is right for you?
A pension will give you tax relief on your contributions.
Every £100 you put in to a pension has £25 added free by HMRC. BUT you can’t have the money until you’re 55 (honestly, anything that says otherwise is a scam!). You’ll also be liable for tax on some of the money, when the time comes to take an income from it.
An ISA has no upfront tax relief – but any money you take from it is tax-free in the future.
So you can use an ISA to top-up your pension or earned income, without paying any more tax.
You can also take this money out before you are 55 – although like all investments, because the market is volatile over the short-term, it’s always advisable to leave the money in for at least 5-10 years before you look to withdraw it.
And you know how the statutory wording goes…past performance is not a reliable indicator of future growth, and you may get out less than you put in.
But if you look at the past from 1925 to 2018, there is a general upwards trend over the long term!
Once you’ve decided, the next step is to set up your regular monthly payment into your investment product. Start as early as you can (the perfect time is NOW!).
Even if you start with just a small amount – £100 or so – that you pay regularly every month.
Because the sooner you start, the longer your money has to grow!
This also means you can take advantage of fluctuations in unit price, buying more when the price is low and less when prices are higher. Which over the long term, is more successful than trying to time the market and invest when prices are low.
Like the old saying goes: It’s not about timing the market, it’s about time IN the market…
Just £100 a month invested in a fund growing at 7% a year – quite typical for an index tracker – is likely to get you around £123,000 in 30 years’ time.
And if you invested £240 a month into a pension for your child, until they were 18 – and then they continue paying in £180 a month – they could retire with a pot worth around a £1 MILLION.
It’s to do with compounding and re-investing of dividends. Which means you can build quite a sizeable sum, over time.
Now don’t panic if your pension pot is empty! You’re really (really) not alone and there are still loads of options open to you.
It’s often something that gets pushed to the back burner as we get on with growing our business and paying off our debts. And then we start to look at this bank account with money in and know it’s time to start to do something with it.
To open a pension or Stocks and Share ISA, you can go online and use a reputable self-managed platform.
Or you can get help from a qualified Financial Adviser – like me! – to make 100% sure you have the right product, at the right risk level, for your needs.
Whichever path you choose, remember this is money you need to tie up for at LEAST 5 years.
This is long-term growth. Not get rich quick!
If you’d love to feel totally clear and confident about investing and growing your money – my signature Wealth Builder Experience is the perfect solution.
Working together over 6 months, we’ll create your Wealth Plan, balancing what you need and want today with investing and growing your money for your future dreams and goals.
From setting up your pension and investing in stocks and shares (like we’ve talked about today), to sorting out your will and paying off your mortgage – this is about KNOWING you’re totally in control of your money.
It’s a high-level VIP experience with my total support, guiding you step-by-step so you can create everything you want in your life, without ever worrying how you’ll pay for it!
So if The Wealth Builder Experience sounds interesting, just click here to drop me a message and find out more about how it all works.
And I hope today’s blog has given you some clarity about your next steps, with where to put your money…
Here’s to getting started TODAY (honestly, you’ll never regret investing too early…but you’ll definitely regret not doing it sooner, another 10 years from now!).
Until next time,
Claire