How can you make the most of your money? This is the question that should be on everyone’s lips as the continuing period of high inflation and low interest rates means cash savings are earning little in the way of returns. With the tax year-end approaching, now is the time to think about your finances and how to make your money work harder for you.
As a result, we worked with Maike Currie, Investment Director at Fidelity International, to give some top tips for those gals thinking about starting to invest.
1. Cash isn’t always king
Keeping a portion of your money in cash is often important if you need it for immediate or short-term goals (for example, money for a house deposit) and for emergencies. However, if you are looking to grow your money over the long term, low interest rates and a high inflation rate mean that returns will be paltry and you may even see the value of your money decrease over the long term.
Indeed, the analysis carried out by Fidelity International found that those who invested in a stocks and shares ISA 15 years ago could have enjoyed gains of more than double what experienced by those that left their money in cash over the same period.
2. Decide your goals
Before you start to invest, think about why you are doing so; working out what your investment goals are, can be an important part of the process and will help when it comes to building your portfolio. Think about what you want to achieve and when you want to achieve it by. That way you can ascertain how much risk you are willing to take to achieve those goals.
3. Start as soon as possible
When it comes to investing, the more time you have the better. The earlier you start investing, the more time you have to reap the rewards of compound interest 0- the repeated addition of earning interest on both your original savings as well as the interest already earned on that starting amount.
4. Save as much as you can
A stocks and shares ISA is typically a popular vehicle for investment, largely because your investments can grow free of income tax or capital gains tax. But don’t feel like you need to put the whole £20K allowance in at once; just try to invest as much as you can each month. By drip-feeding your money into the market regularly via a direct debit, you will benefit from something known as ‘pound cost averaging’. This means you buy more units when prices are low and fewer when prices are high. Buying at a variety of prices and spreading ongoing investments over time helps cushion your portfolio from any dips in the stock market.
5. Don’t let volatility scare you
As the saying goes that investment is all about time in the market rather than timing the market. Volatility can and will happen. The trick is not to let this faze you. Short-term volatility is the price you pay for long term outperformance of equities over other asset classes. So, while it can be unnerving to see your investments dip, don’t let it tempt you to pull your money out before you can see the gains.
6. Variety is the spice of life
If 2017 and 2018 taught us anything it was that you never know what’s around the corner. Therefore, it’s good practice to future-proof your investments against the markets ups and downs. The best way to do this is through diversifying. Think: eggs and baskets. Make sure that your investment portfolio contains a range of asset classes such as bonds, equities, property as well as across geographical locations.