People often ask, 'what advice would you give your younger self?' This may sound odd and boring for someone like me, who at age 12 borrowed £100 from my aunt so I could invest. But I would advise my younger self to invest more and sooner.
If your money works harder, you don't have to. It's as simple as that. It sounds cheesy. But it's true.
Let me take an example from the website Benzinga. "The real value of time can be seen in the experience of two investors. Elizabeth starts when she's young. She contributes $2,000 a year for eight straight years from age 19 to 27.
Even though she stops adding money at 27, she keeps her $16,000 invested. By the time she's 65, her $16,000 grew to more than $427,000.
Lulu starts at age 30. She lands a good job and begins investing for her eventual retirement. She diligently puts $2,000 a year into her account for the next 36 years. By age 65, she's contributed a total of $72,000 and her investments grew to a little under $375,000.
Lulu invested four times more money than Elizabeth, but she ends up with less because she missed the opportunity to compound gains on 11 years of growth and contributions. (This example assumes a constant 8% return, which isn't real world.) The lesson here is that all things being equal, you will be ahead by starting to invest early in your life rather than later."
It's worse. CNBC reported, "S&P Dow Jones Indices has studied active managers for many years. Last year, they noted that after 10 years, 85% of large fund managers underperform their benchmark (usually the S&P 500), and after 15 years, that underperformance reaches 92% of managers."
There are many examples like this. The problem is most of the websites then try to sell you a fund. The problem with that approach is, as the Financial Times wrote recently, "Active managers fail to beat the market again."
For a student of mine, I went through his portfolio. I showed him the fees on one of his 'UK Growth Funds' was £1,000 every five years, on every £10,000 he invested. He was shocked. He'd never read the fine print.
Worse, I showed him how the fund manager's top 10 holdings, including a tobacco company – British American Tobacco – hardly a growth company that his fund manager promised.
I then showed him the fund had not performed either! So let's be our own experts. But many of my readers message me saying they've never bought a stock, don't know where to start.
Well, you have bought a stock. Your pension is invested in funds that have bought stocks. Many reputable online brokers will open a SIPP or ISA for you (so it's tax-free).
Please speak to a reputable online broker like Barclays or Halifax and ask them to show you how to buy a few hundred pounds of, say, Amazon or Apple or Microsoft stock. That's your starting point.
