Should You Be Investing More?

Should You Be Investing More?


Ever hear colleagues and friends talking about investing and felt like it’s about time you got involved? Easier said than done? Well fret not - if you’re no financial expert there is still plenty of time to become one. You just have to take an interest. For some advice on the matter we spoke to Richard Morris at Killik & Co to find out more.

Is there a time and stage in your life when you should start investing?
You can start investing at any age and with any level of income but first you need to be in a stable financial position. You can do this by clearing any ‘bad’ debt (credit cards, personal loans) and building a ‘rainy day fund’. Clearing expensive debt (such as credit card balances, unsecured personal loans) should be the priority because investment ‘gains’ are unlikely to outperform the APR on a credit card, so focus on paying that off monthly before you start investing.

Your rainy day fund should sit in cash in a savings  account. This will cover you for any unexpected expenses like redundancy, illness or property maintenance. Having this money readily available means you won’t need to sell  your investments in order to cover unexpected costs. We tend to recommend this cash pot is at least three months’ gross salary.

What's the best way to get started?
For those looking to invest smaller amounts initially, there are app-based services that will draw from your bank account and invest on your behalf into a selection of different funds, based on your individual circumstances. These are a solid introduction into the world of investing, and you can choose how much you can comfortably afford to save and invest month on month.

For those looking to invest larger amounts, it can be worth taking specialist investment advice from someone who will look at your wider circumstances and advise you on the most appropriate  investment approach. They will consider your income, additional assets (property, pension) and any known future expenditures like weddings, a property purchase or school fees.

What's the best way to learn more about investing?
There are plenty of websites to help you understand the basics of investing, including the Morningstar Investing Classroom. A simple Google search will offer you a number of different places to learn more. BBC Moneybox regularly discusses investment topics and will help you get comfortable with the way the markets operate. The Finimize newsletter translates financial news into bite-size updates that are sent to your inbox every morning.  The weekend newspaper Money sections tend to be a good place to further your understanding of personal investment without getting too technical.

There is plenty of information out there you can read and learn from. Follow the news, read the business pages of the daily papers and generally stay up to speed with the world. More detailed information on individual businesses or industries will be available from your adviser or publicly from titles such as the Financial Times, Investors Chronicle or CNBC.

Are there ways to invest that make it more foolproof?
Investment apps will invest your money on your behalf and do not require you to make investment decisions once your account has been opened. The app Silo offers you three different ways to save, including an intelligent algorithm that will calculate what you can comfortably afford to save and invest on your behalf each week. Nutmeg is an app that with a minimum initial investment of £500, will manage your portfolio according to your risk profile. Hargreaves Lansdown is a popular platform that lets you choose what to invest yourself. But investing is never foolproof: markets go up and down, and that is the nature of investing. Investing into funds, however, will mean your money is spread across a lot of different assets, so you will see less impact from the rises and falls of particular companies on your portfolio.

Is there a recommended percentage of your income you should invest?
The only investment pot everyone should have is a pension. Other investments can be done by those with surplus income but everyone should have a pension! If you are employed you are entitled to a stakeholder pension to which both you and your employer contribute – if you opt out of this it’s the equivalent to taking a voluntary pay cut! Over and above your pension the right amount to save is simply as  much as you can afford Investing via direct debit is a really good discipline – if you send money into your ISA or investment account each month in the same way you pay rent/mortgage and bills you will soon learn to live without the extra money you might otherwise have spent. Investing monthly also “smoothes” your investment returns – if markets fall then the money you invest each month buys more (markets are cheaper), and if markets rise then all the money you have already invested is worth more than it was.

There are four main asset classes: bonds, equities, property and alternative investments. How do you prioritise them?
The four main asset classes are:

1. Property – this is probably the most tangible of asset classes and the one people “think” they understand. Most people’s largest asset will be their home and it is by far the most common financial ambition for our younger clients. Property investment is typically into commercial property which is very different to the residential market. It can offer safer alternative to equites as the value of investment is linked to a physical assets which isn’t always true with stocks. 

2. Equities – these are shares in publicly traded or privately owned companies so if the company is profitable or grows then you share in the success as a part owner of the business. Whilst this is the most volatile of the asset classes it is also capable of the highest returns and is the most varied in terms of choice. Managing the risk of buying and selling shares is the challenge with normally the biggest, most established business being the least volatile.

3. Bonds –these are loans made to businesses in return for an agreed rate of return. Often referred to as fixed income as the coupon paid is fixed (there are exceptions) until the redemption date. Although perhaps a simpler product with a more predictable life span investing in bonds still requires expert guidance as they are so sensitive to the wider macro-economic environment.

4. Alternatives – a capture-all term used for everything but the above and normally includes Commodities, Infrastructure funds, private equity  and absolute return funds. Investing in alternatives is a great way to diversify a portfolio or for when an investor is seeking an option with little or no correlation to equity markets – for example in a recession.

All four of these assets have their place in a diversified portfolio. Equites for growth, bonds for income, alternatives for diversification of returns.  If you own your own home then you will already have very significant exposure to the property asset class and might be best diversifying into other asset classes to begin with. 

When someone says ISAs are a wrapper, what does that actually mean?
An ISA is an individual savings account into which you can put up to £20k per year tax free.  It can hold cash or investments and should be where you invest your first pound at the start of every year.  Investments into ISA’s are made out of taxed income (unlike a pension where you receive tax relief on the money you invest) however once your money is inside the ISA “wrapper” it can grow tax free forever – both free from tax on the income your investments inside the ISA generate and free from capital gains tax when you sell.  When you think long term (compound interest is often called the Eight Wonder of the World) it makes you realise how valuable the tax relief from ISAs are – indeed the Sunday Papers are full of case studies of ISA Millionaires living tax free off their investment portfolios. Derivatives of your typical ISA include a Lifetime ISA (for 18-39 to use to save for their first home or save for retirement) and a Junior ISA (for anyone under the age of 18).

"The only investment pot everyone should have is a pension."

What advice would you give to someone looking to invest in their 20s or 30s?
20s are for learning, 30s, 40s and 50s are for earning. It is likely that the finances of someone in their 20s and early 30s will be simpler than those of someone older especially once children, property ownership and retirement planning start to become a factor.  40s and 50s tends to be when salaries are at the highest and although many live with cost centres (children, mortgages) it is still a good time to save for the future and think about when work might come to an end. Making use of a company pension is important as is organising your financial circumstances.

What advice would you give on saving for your children?
We’d recommend a Global Equites Fund which is a long term investment with the greatest chance of growing, is globally diverse and offers exposure to the different currencies around the world.  A Junior ISA is also advisable as it is a long-term savings account that you can open on behalf of your child - any money invested in a Junior ISA will have the benefit of growing tax free for many years. .  Your child will only have access to this when they are 18 years old.

How do you invest for long-term growth?
As an asset class, equities have historically outperformed others in terms of long-term growth. But, by investing as much as you can for as long as you can, your money benefits from the magic of compounding. Over the long term, this ‘return on return’ will deliver growth on your portfolio beyond your contributions. 

Is now a good time to invest?
Market performance changes regularly, so it is best to adopt a long-term approach – a minimum of five years. Investing shouldn’t be about instant gratification, and it is important to bear this in mind when you get started.


"20s are for learning, 30s, 40s and 50s are for earning. "

Can you tell how risky an investment is likely to be?
History is the best indicator of future performance, and the most reliable indicator as to how asset classes could perform. Beyond that, predicting the performance of an investment is best left to research experts, so seek professional advice. 

Can investment risk be managed?
There is always a certain level of risk when it comes to investing, but different asset classes are more or less ‘risky’ than others. Working with an expert will mean you can seek reassurance in periods of unrest. By using an investment app to begin with, you will get used to the rise and fall of the value of your portfolio, and better understand the causes of these fluctuations.

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