In this recording of our Webinar, we're diving into the world of investment with a focus on getting started. If you've been part of our previous workshops and bootcamps, you're already familiar with the why, when, and mindset of investing. But today, we're breaking it down into simple steps to help you take that first leap into the exciting world of growing your money through investing.

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THE BIG PICTURE

The average 25-year-old woman is projected to retire with £100,000 less than a man. This alarming wealth gap shows us the need for women to take proactive steps to build their financial portfolios and secure their futures. Factors such as the gender pay gap and disparities in investment strategies contribute to this disparity, highlighting the importance of education and empowerment in finance.

Investing offers a means to achieve your financial goals by outpacing inflation and generating higher returns than traditional savings accounts. Moreover, through the power of compound growth, your investments can multiply over time, providing a pathway to long-term wealth accumulation.

when to get started?

Now, when should you start investing? It's crucial to have an emergency fund in place to cover unexpected expenses before committing to long-term investments. Addressing high-interest debt should also take precedence, as it can significantly impact your financial health.

Plus, clarifying your investment goals is essential. Whether you're saving for retirement or a short-term milestone, understanding your objectives will guide your investment strategy.

The reason it’s important to start investing early? Compound interest.
Compound interest, a powerful concept in investing, enables your money to work for you by reinvesting dividends and earnings, resulting in exponential growth over time. The initial years of investing may seem challenging, but as your portfolio grows, so does your wealth, reinforcing the importance of perseverance and strategic investment decisions.

To illustrate the impact of compound growth, consider the hypothetical scenario of two individuals, Emily and Olivia. Emily diligently saves £400 per month for 40 years, accumulating a total of £192,000 in a savings account with a 2% interest rate. By the end of the period, her investment grows to £293,000, demonstrating modest returns.

In contrast, Olivia, who also saves £400 monthly for 40 years, invests her money in the stock market, earning an average return of 7%. Despite depositing the same amount as Emily, Olivia's investment flourishes, reaching a remarkable £1 million at the end of the journey. This significant difference illustrates the importance of investing to enhance wealth accumulation, especially for retirement planning.

what on earth are robo-advisers?

So, let's dive into the practical steps of getting started. One popular option for novice investors is using robo-advisors. These platforms offer a hassle-free way to invest online, automating the investment process and providing access to diversified portfolios.

With robo-advisors, you can start investing with minimal amounts, making it accessible to everyone. While these platforms may not offer personalized advice, they provide a solid foundation for beginners to enter the investment market.

When selecting a robo-advisor, consider factors such as fees, minimum investment requirements, and regulatory compliance. While various options are available, ensure that the platform is regulated and offers investor protection.

Once you've chosen a robo-advisor, it's essential to consider tax-efficient investment vehicles such as pensions and stocks and shares ISAs. These products offer tax benefits, allowing your investments to grow more effectively over time.

tax-efficient investments

The government recognses the importance of fostering long-term saving and investing to ensure financial security. To support this goal, they offer various tax-efficient products designed to help individuals minimise their tax liabilities.

Pensions and retirement plans are among the most tax-efficient investment vehicles available. Not only do you receive tax relief on your pension contributions, but your investments also grow tax-free. This means that any gains you make from investments held within a pension or a stocks and shares ISA, including other types such as the lifetime ISA or junior ISA, are shielded from taxation. This tax advantage is invaluable, as it allows your investments to compound without being eroded by taxes.

When exploring investment platforms like Nutmeg or Wealthify, you'll have the opportunity to select the product that best aligns with your financial objectives. Whether you opt for a stocks and shares ISA or a pension, it's essential to consider the various allowances and tax implications associated with each option.

For instance, the current ISA allowance stands at £20,000 per year, with an additional £5,000 increment planned for UK investments next year. This flexibility allows you to allocate your investments strategically across different tax-efficient vehicles before considering a general investment account, where profits may be subject to taxation.

While the rules surrounding these products may not change frequently, it's essential to stay informed and up-to-date. Seeking guidance from financial advisors or utilizing reputable resources like Borrowing Money can provide valuable insights into the best investment options and platforms available.

When determining the most suitable investment product for your needs, consider factors such as your investment timeline, risk tolerance, and financial goals. For long-term objectives like retirement savings, pensions or SIPs may offer greater benefits, whereas stocks and shares ISAs provide more flexibility for shorter-term goals.

Upon selecting a platform, such as Nutmeg, you'll typically undergo a brief risk assessment to gauge your risk tolerance and investment objectives. While this process may seem daunting, it's designed to ensure that your investment strategy aligns with your financial circumstances and goals.

Ultimately, by choosing tax-efficient investment products and platforms tailored to your needs, you can lay a solid foundation for long-term financial success and security

risk and reward

Whenever you sign up to an investing platform, you’ll have to go through a a process which will help determine what risk you’re ready to take on. This is usually quite a simple quiz. After completing the risk assessment, you might also be asked about your investment preferences. For instance, do you lean towards sustainable investments? Based on your responses, robo-advisors will tailor an investment portfolio allocation to suit your goals.

Let's say your goal is to retire in the South of France at 70, care for your children, and have enough money for travel. This practical objective needs to be translated into a suitable investment portfolio. But don't worry, robo-advisors excel at this task, connecting your aspirations with investment strategies.

If you're already investing, especially through a workplace pension, reviewing your portfolio is wise. Take the time to understand where your money is invested, the types of funds involved, and the associated fees. Even if you're unfamiliar with all the details, gathering this information is a valuable step towards financial awareness.

It's worth noting that the risk assessment process with robo-advisors is automated, utilizing algorithms rather than human advisors. This approach streamlines the creation of your initial investment portfolio.

Speaking of risk, it's a common concern for many investors. The fear of losing money or uncertainty about whom to trust can be daunting. However, it's essential to view risk as an opportunity rather than a deterrent. By understanding the relationship between risk and reward, you can make informed decisions about your investments.

Risk-awareness is key. Different investment options offer varying levels of risk and potential return. For example, while cash investments are low risk, they also offer minimal returns. On the other hand, investing in the stock market carries higher risk but offers the potential for greater returns.

By reframing risk as an opportunity, you can approach investing with confidence. Remember, higher risk often correlates with higher potential returns.

Now, let's discuss funding your investment account. Before diving in, assess your budget and determine how much you can comfortably invest. If you're already contributing to a workplace pension, consider allocating additional funds to a stocks and shares ISA for shorter-term goals.

When funding your account, you have the option of making a lump-sum investment or setting up regular contributions. The latter strategy, known as pound-cost averaging, spreads your investments over time. This approach helps mitigate the impact of market fluctuations, allowing you to purchase more shares when prices are low and fewer when they're high.

Ultimately, by embracing risk as an opportunity, understanding your investment options, and adopting a disciplined approach to funding your account, you can set yourself on the path to financial success.

YOUR PORTFOLIO

It's WISE to consider investing early, but rushing to invest a lump sum without careful planning may not be the best approach. Instead of dumping all your funds into the market at once, it's worth considering a staggered approach over several months. This strategy helps mitigate the risk of investing a large sum just before a market downturn, whether it's an inheritance or a hefty bonus.

Let's zoom out for a moment and take a broader view of the market. While day-to-day fluctuations can be nerve-wracking, looking at the historical performance of major indices like the S&P 500 provides valuable perspective. Over the span of a century, the market has endured periods of decline (bear markets) followed by recoveries and periods of growth (bull markets). Understanding these long-term trends can help investors maintain perspective during volatile times.

Now, let's talk about fees. When you invest through platforms like Nutmeg, Moneybox, or Wealthify, you're not investing for free. These platforms charge annual fees based on a percentage of your invested amount. While these fees may seem small, they can add up over time and eat into your investment returns. It's crucial to compare fees across different platforms and aim for those below 1% to avoid excessive costs.

Robo-advisors, though slightly more expensive than DIY investing, offer cost-effective solutions by pooling investments from many individuals and creating diversified portfolios. This approach allows for efficient trading and minimizes individual transaction costs.

Considering your investment preferences, you might also be interested in aligning your portfolio with your personal values. Ethical investing, ESG (environmental, social, and governance) investing, and socially responsible investing (SRI) are popular approaches. While robo-advisors typically offer sustainable portfolios, it's essential to understand that not all investments may align perfectly with your values due to greenwashing. Nonetheless, supporting sustainable companies through investment can have a positive impact over time.

When investing through a robo-advisor, you'll typically choose from a selection of pre-constructed portfolios based on your risk profile. While you may not have direct control over individual funds within the portfolio, you can still align your investments with your values and preferences.

Portfolio construction involves balancing different asset classes such as cash, stocks, and bonds. Your portfolio's asset allocation depends on factors like your risk tolerance and investment horizon. For instance, conservative investors may have a higher allocation to cash and bonds, while growth-oriented investors may lean towards stocks. As you approach retirement, it's common to shift towards a more conservative portfolio with a higher proportion of bonds for stability.

In addition to traditional asset classes like cash and stocks, property is another avenue for investment. Whether investing directly in property or through property funds, it's a tangible asset class that can provide diversification to your portfolio.

avenues for investments

You have various avenues for investment, such as bonds, which essentially function as loans to companies or governments. When you invest in bonds, you're essentially lending money for a specified period and receiving interest, known as a coupon, in return. This method offers a predictable return, even though bonds are influenced by inflation. Another traditional asset class is stocks, where you can directly invest in companies like Amazon, Microsoft, and Apple or through funds.

Investing in individual stocks can be risky, as demonstrated by the Lehman Brothers bankruptcy in 2008. Instead of relying solely on individual assets, diversifying your investments through funds can provide a more stable and varied portfolio. For instance, the S&P 500 offers exposure to the performance of 500 leading US companies. Investing in such funds through robo-advisors or platforms offers a simpler and more diversified approach compared to selecting individual stocks.

Ensuring tax efficiency is also crucial, and this can be achieved through retirement products like ISAs. Crafting a well-balanced portfolio involves determining the allocation between stocks, bonds, and cash, utilizing funds to achieve diversification, and optimizing tax efficiency.

While monitoring investments is important, it's essential to avoid impulsive decisions driven by market fluctuations or external noise. Maintaining discipline and focusing on long-term goals can help resist the temptation of over-trading or reacting emotionally to market movements.

Robo-advisors offer easy tracking of investments, typically through user-friendly interfaces displaying portfolio performance and benchmark comparisons. They also facilitate adjustments based on changes in risk tolerance, investment horizon, or financial circumstances. Rebalancing is crucial to maintain the desired asset allocation over time.

For those seeking more control or flexibility, DIY platforms allow for hands-on selection of investments, albeit requiring more research and involvement. These platforms often offer lower costs, especially for larger investments.

However, it's important to be cautious when venturing into self-directed trading, as it can involve higher risks, especially without proper understanding or guidance. Collaborating with a financial advisor or utilizing ready-made portfolios from banks can provide additional support and guidance.

In essence, adopting a disciplined, diversified, and long-term approach to investing, while simplifying strategies and minimizing costs, can help maximize returns and navigate market fluctuations effectively.

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PARTNER:

Thank you to our partner PensionBee. With PensionBee you can combine, contribute and withdraw online. Take control of your pension, so that you can enjoy a happy retirement and join over 240,000 customers saving with PensionBee. When investing, your capital is at risk.

RESOURCES:

• Pension Calculator: https://www.pensionbee.com/pension-calculator 

• Boring Money compare platforms: https://www.boringmoney.co.uk/compare/ 

• Vestpod’s worksheet (make a copy or download it)

• Road to Wealth podcast series about financial advice

• Listen to PensionBee’s monthly podcast, The Pension Confident Podcast to better understand the world of personal finance and pensions. Listen or watch the full episodes on YouTube. And if you’re a PensionBee customer, you can listen in the PensionBee app! When investing, your capital is at risk.