The uncertain future of government pensions means it’s more important than ever to start saving for the future, and to start saving earlier. It is easier said than done, however. Low starter salaries, a poor job market, and widespread pay freezes mean that it’s difficult to make ends meet when you’re just starting your career.
If you don’t have a lot of money to put into savings, it might be worth considering building an investment portfolio instead. Investing gives your money the chance to grow, with very little input from you, and your portfolio could become a source of income for years to come.
Making your money work for you is an essential part of wealth management, ensuring financial security in the future. These tips should help you to get started.
Before you start speaking to brokers, it’s important to be clear on what you want from your money, and what you expect from your investments. Sticking to, and understanding, your objective will help you to keep a clear eye on the goal and will make you less likely to take risks.
Investing isn’t just for rich people. Contributing a small amount of money to a high interest ISA account is a good way to start making your money work, especially if you slowly raise the percentage as your investment grows. For example, if you put £1,000 into an account with a 5% annual return, you could have £26,500 by the time you turn 40.
Don’t put all your eggs in one basket.
It can be tempting to buy lots of stocks belonging to your favourite company: whether it’s a social media start up or a local craft brewery. If you really want to make your money work for you, it’s best to diversify from the word go by buying a range of stocks in different industries. You also need to leave your emotions at the door: if your favourite stock is performing poorly, you may need to cut your losses.
Talk to the experts
The idea of cherry picking stocks yourself may be attractive, but if you don’t have much experience in trading then it is also a sure-fire way to lose money. The best way to start your portfolio is to speak to an expert first: they will be able to offer you advice, or an existing stock package to invest in. This will cost a small fee, but it’s worth it to help your investment grow.
Play the long game
Forget a five year plan, when it comes to investing in stocks it’s better to think ten years into the future. Being patient is essential if you want to get a return on your investment. As Forbes note, it can take years of lagging before a great stock lives up to its full potential.
Remember the ‘rule of 72’
If you’re not sure what bank accounts to invest in, a quick rule of thumb is the ‘rule of 72’. Take the annual rate of return, divide it by 72, and you’ll find out how long it takes to double your money: so a 2% interest rate would take 36 years to double, and a 14% interest rate would take five years.
Take advantage of other investment opportunities
If your company offers a pension scheme, it’s worth contributing: especially if your employer matches your contribution pound for pound. It may not be as glamorous as the world of trading stocks, but it will still provide a good source of retirement income and will be a welcome addition to your existing portfolio. The same goes for house buying, investing in wine, and cash ISAs – learning to factor in these types of assets is an important element of overall wealth management.
Are you in the process of building a portfolio? What advice do you have?
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Catherine Halsey is a blogger and freelance writer who is keenly interested in personal finance. She has learned that when it comes to investment portfolios, the sooner you start planning for the future the better.