6 top tips for new investors
By Mike Narouei, Content Producer at Boring Money
3 Oct, 2017
Starting out in the world of investing can be an exciting new adventure. There's something exhilarating about picking how you want to invest, and just a touch of soul-searching when working out your risk tolerance! But for many new investors it can be more than a little daunting. Here's our 6 top tips to help you take the plunge.
Tip One: Don’t be recklessly cautious!
Women (https://www.boringmoney.co.uk/learn/articles/6-top-tips-for-new-investors/#)typically hate the idea of investment risk more than guys. But this means we tend to hug cash which does guarantee one thing – over the long-term, our money isn’t working as hard for us as it could be. If you can set savings aside for at least 5 years do consider the stock market. Did you know that over any 10 year period since the stock market began, stocks have done better than cash 9 times out of 10?
It doesn’t have to be all or nothing. Could you start with £25 a month, save £300 into the stock market this year and just see how it feels? That way you can put a cap on potential losses which can be reassuring. If you have 20 years until retirement and you are sitting in cash because that first step feels too huge, I think you’re shooting yourself in the foot.
Tip Two: Little and often
Some of the online investment providers will let you start from £25 a month. Most ask for a direct debit of £50 a month as a minimum. If we assume yearly returns of about 4% over a 10 year period which feels reasonable to me, that monthly £50 could turn into about £7,400. Could you spare £100 a month? That could look more like £15,000 after 10 years.
By ‘drip feeding’ in to markets you are also smoothing out the risks of jumping in just as things slide south. You’ll never buy in at the best time. But neither will you buy in at the worst time.
Tip Three: Do it for the kids?
If you want to set aside money for kids or grandchildren, then Junior ISAs (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/junior-isa/) are a largely tax-free savings account which can be linked to the stock market. This money is set aside until their 18th birthday at which point the children can access it, or the money can also get rolled over into an adult ISA. Our nervousness means that most of the Junior ISA savings sit in cash although the long timeframes suggest that shares will do better. Did you know you can also get friends or relatives to pay into these which can be great at Christmas and save your house from piles of incoming plastic too!
Tip Four: Don’t be greedy
Avoid the temptation to run this into gambling by trying to pick the next ‘hot’ stock. We all hear stories from cabbies or people down the pub about a share which “can’t go wrong.” This makes me nervous. Good investing is much more boring than this! We have to spread our bets around and diversify. Which means choosing a fund or a robo adviser or another option which offers a large mixed bag of investments (see below). A fund is like an investment ready meal – a collection of about 50 shares or investments. Someone else has prepped a balanced meal for you and you don’t need to select and blend the individual ingredients. A robo adviser (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/robo-adviser/) is basically an online quiz which steers you into a ready-made investment portfolio.
Tip Five: Pensions are not just for retirees!
Not enough people know that the Government gives us free money if we save into a pension (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/state-pension/). Basic rate taxpayers will get an extra £20 for every £80 they pay in. Higher rate tax payers get more. We’re being incentivised to take charge and save for our futures. The strings? You can’t get your hands on it till you’re at least 55. And there are annual caps on the freebies! If you work, make sure you have a workplace pension and ask your boss how much they pay into this as well. I like these new structures, contributions come from you, but also your employer and the Government.
Tip Six: How to start? Five ideas for newcomers.
Live on your mobile? Have a look at Nutmeg (https://www.boringmoney.co.uk/isas-pensions/nutmeg/)– a ‘robo adviser’ which will build a portfolio for you after a short quiz. Simple.
Keen for a low-cost solution? Try Vanguard (https://www.boringmoney.co.uk/isas-pensions/vanguard-investor/)and pick one of their cheap ‘ready meals’ in the low-costs LifeStrategy fund range . No frills but solid.
Junior ISA (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/junior-isa/)– Hargreaves Lansdown (https://www.boringmoney.co.uk/isas-pensions/hargreaves-lansdown/) can look daunting at first but is the biggest name for stocks and shares JISAs and is a safe pair of hands with some suggested portfolios of funds; Fidelity (https://www.boringmoney.co.uk/isas-pensions/fidelity/)is an alternative big brand provider.
Want to get your head around this – Charles Stanley Direct (https://www.boringmoney.co.uk/isas-pensions/charles-stanley-direct/) offers good research and a low-cost option although you will need to do a bit of reading first-up. Bit boffin-y but decently priced with OK choice.
Want a big UK brand? Aviva (https://www.boringmoney.co.uk/isas-pensions/aviva/)has a simple way to set up an online pension and really helps the less confident to sort it all out online. For those who want to play it as safe as the markets allow.