These days, it’s probably easier to start investing than it’s ever been, and you definitely don’t need to be wealthy to do it. If you already have some cash savings in case of emergencies, regularly investing even a modest sum each month makes a lot of sense – and now is the perfect time to start.
You probably know that investing is ‘riskier’ than keeping savings in cash, which is why you should build up a cash cushion first. But once that’s in place, you can match your investment choices to your appetite for risk, remembering that riskier investments also have higher growth potential, while lower risk usually means more modest potential for growth.
One of the simplest ways to begin investing is to set up a regular payment each month into a well-diversified and balanced portfolio. As this is key for potential growth it’s important you speak to us. Once set up, it’s tempting to check its performance day by day, but remember that market fluctuations are normal, and you’ll see the value of your investments go up and down. In fact, by investing regularly, you benefit from lower fund prices when the market goes down, and in the longer term, this can drive your potential growth.
The key point to remember is that investing should be for the medium to longer term. The longer you can invest, the more growth potential you could enjoy – and a longer time horizon also means you can afford to take more risk.
Remember, too, to consider the effects of tax on your investment returns. For most people, it makes sense to protect investments from tax by opening a stocks and shares ISA or investing in a pension – or both! Each comes with different rules about accessing your money, so if you don’t already understand how they work, make sure you read up on them or take some financial advice.
Of course, once you learn more about investing, it can become as complex as you want it to be. But rest assured that keeping things simple can still build a significant pot over the longer term – and you really don’t need big sums to start.
What is compound interest and how can it help me?
If you have vague memories of learning about compound interest in school, but not much idea about the impact it can have on your wealth, you’re definitely not alone. It’s one of those things that can easily fall between the cracks and end up forgotten in a dark corner of your mind!
If that’s the case for you, it’s well worth taking a moment or two to refresh your memory. Compounding can be powerful, and its effects may come as a welcome surprise.
So how does it work?
To keep things simple, imagine you deposit £1,000 in a savings account that pays 10% interest every year.
After one year, you have £1,100 in the account, and you decide to leave the whole sum untouched.
During the second year, you earn interest on your initial £1,000 AND the £100 interest, so by the end of that year, you earn £110 in interest. That takes the balance up to £1,210.
Again, you leave the whole sum untouched. By the end of the third year, you have £1,331… and so on.
This growth may look modest, but if you leave your initial £1,000 plus all the interest untouched for 30 years, you’ll eventually have £17,449.40 in the account – which definitely looks a lot more impressive!*
If, on the other hand, you withdraw the amount earned in interest each year and spend it, leaving just the initial £1,000 deposit in the account, the results will be much less spectacular.
After 30 years, your original deposit plus all the withdrawn interest would then amount to just £4,000.
That’s a difference between the two of very nearly £13,500 – a great illustration of how compound interest can help build your wealth.
In the real world, of course, the sums involved won’t be quite so simple – and sometimes, you do need to access your cash. But compounding remains one of the most powerful forces you can harness to build wealth for the future, so try and make sure it’s working hard for you.
*These figures are examples only and they are not guaranteed – they are not minimum and maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.
What’s the best way to educate young people about money and investing?
Every child is unique and their futures may follow very different paths, but managing money is a skill that everyone needs to develop whatever they end up doing with their lives. From spending wisely on a day-to-day basis to making sensible choices about saving and investing, learning sound principles of financial management at an early age benefits kids year in, year out. That’s why we’re committed to doing what we can to help.
As part of our commitment to our community, we work with schools throughout our local area in Congleton and Cheshire. For example, during 2022 we visited 14 schools – often more than once – and have reached an estimated 4,230 students through our school sessions and fun events.
We’ve even produced a book called Franklyn, No Ordinary Fox which we provide free to local schools. Written by Nick Jones and featuring beautiful illustrations by Ant Harding, it teaches children important lessons about saving for the future – a message that benefits individuals at any age. Whether you’re a child saving a little pocket money or an adult building up a deposit for a house – or even putting money aside for retirement – money management is important throughout life.
Encouraging young children to save is a sensible place to start, and it’s even possible to get them on the road to investing using products such as a Junior ISA or even a pension/retirement accout. If you need a little advice about where to start, just get in touch and we’ll be glad to help. You might find that today’s kids are more excited by savings apps than piggy banks – but either way, saving money should never go out of fashion.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. Equities do not provide the security of capital which is characteristic of a deposit with a bank or building society.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.