Financial Education: Part 1 – Before you Start Investing
In an uncertain world, in uncertain times, one thing for sure is that we are all going to have to take more personal control of our finances as financial self-reliance replaces state support; financial education and engagement are key and in a series of articles, Muckler will help those new to investing embark on a journey to financial independence.
Muckle is passionate about engaging people in long-term savings and investment – whether saving for a deposit on a property, for a lifestage event or planning for retirement, we all have financial goals and milestones, and they can all be more easily achieved if you embark upon a long term investment strategy.
Let’s not pretend it’s anything but tough – young people today are likely to be the first generation that will be poorer than their parents; saddled with student debt, facing the prohibitively high cost of accommodation and struggling with squeezed wages, it’s hard.
Some may benefit from the Bank of Mum and Dad, others may inherit property and more still may be the beneficiaries of recent attempts at the intergenerational redistribution of wealth; wherever you start your journey, a long-term investment strategy, benefitting from the ‘miracle’ of compound interest, can set you on the road to financial freedom.
‘a long-term investment strategy, benefitting from the ‘miracle’ of compound interest, can set you on the road to financial freedom’
Over time investing has been shown to deliver better returns than saving; little and often is rarely less productive than nothing and never.
In America there is growing momentum behind what is dubbed the FIRE movement – those seeking to be Financially Independent, Retired Early, and that is a cause that Muckle is committed to delivering in the UK; people coming together to share experience and knowledge in pursuit of financial independence.
There will be someone out there just like you – in similar circumstances, with the same personal preferences and in pursuit of the same objectives; what are they doing?
As a first time investor, you now have access to an unprecedented amount of information and number of social networks to support you; whether you want to be hands on making your own investment decisions, want to benefit from ‘pre-packed’ investment portfolios or want to leave the management of your investments to someone (adviser) or something (robo advisor) else, there will be a solution for you – as Muckler says ‘Do it Yourself, Do it With me, Do it For me – just don’t do nothing’
‘Do it Yourself, Do it With me, Do it For me – just don’t do nothing’
Those new to investing will face an array of choices ranging from their choice of investments – shares, funds, ETFs etc – to the way in which they access them – face to face, online, or mobile app; once you have made the decision to engage, there will be a solution that offers the right combination of risk, reward and cost that is right for you, and Muckle is here to help you find it.
In a series of articles aimed at those new to investing Muckle, and sister site DIY Investor, will take you through the basics, and starts here with a number of first principles to digest and then be used to inform and sanity check your investment journey.
If you are thinking about buying an investment but you are new to investing, take some time to familiarise yourself with the terminology; there is a link to a comprehensive glossary, but if there is anything you find missing, or would like explained, we would like to hear from you at firstname.lastname@example.org
Don’t invest more than you can afford: The first thing to think about is how much money do you have available to invest? Think about whether you are prepared to hold your investment for the long-term (years not weeks). If you might need to cash in your investment in a hurry, this restricts the type of investment you should be making.
Don’t forget the cash you have now might be needed in the future: Factor in things like long-term debts such as mortgages as well as short-term ones like credit cards.
Borrowing to invest is dangerous: Borrowing money to invest in high risk investments – such as cryptocurrency – could leave you in a much worse position – make sure you can survive the loss of your investment.
Could you survive the loss of your investment?: Remember when you make an investment there is almost always a chance you could some or lose all of your money – that chance is higher for some investments than others.
Keep some money for emergencies: You should have some readily accessible savings in a bank or building society before you think about investing. This makes sense because you might find you need sudden access to cash at a time when your investments are not doing so well – beware of being a forced seller and having to accept a lower price.
Think long-term where you can: Investing for the long-term lets you sleep easier at night when short-term movements in value go against you.
Think about your attitude to risk: One of the most important decisions you’ll need to make is how much risk you are willing to take. Risk is really all about two things – the chance of losing some or all of your money and the chance that, over the short-term, the value of your investment might change dramatically (volatility). Learn more about risk here
Hold a spread of investments: Don’t put all your eggs in one basket – holding a spread of different investments reduces the chance that a single outside factor will have a big impact on your wealth.
But don’t go overboard, factor in dealing charges: But remember, because of the charges associated with dealing in shares or other assets, it often does not make sense to invest small amounts of money this way.
What goal do you have for this money?: Think about what you hope to achieve from your investments? For instance, do you need an income now or are you saving for an event in the future?
Financial advisers are there to help: And evolving technology means that there are options there as well – if you favour a Hobnob and can stand the fees, you may wish to use a traditional financial adviser; alternatively, some robo advisors offer regulated financial advice whilst hybrid advice may see the rump of your investments managed electronically whilst you receive personalised advice in exceptional circumstances.
Whilst not ‘advice’ according to the strict definition, an increasing number of online platforms offer ‘automated investment management’ for those looking for a Do it For me solution.
In Part 2 we have a beginners’ guide to investing.