Are you missing out big time, because you don’t invest?
This whole blog, Much More With Less, is dedicated to making the most of your money.
That means not just frugal tips for spending less, but also ways to earn extra. Investing in the stock market is a tried-and-tested way to make your money work harder – if you’re willing to accept some risk in hope of higher returns. I’ve talked before about how my investments turned out, when I finally transferred some of my savings.
(Previous post on how investing isn’t just for men in braces)
Trouble is, the stats show that women invest less than men. I’ll point to the data on individual savings accounts (Isas), which show that more men than women hold investment Isas.
So for International Women’s Day, I’m banging the drum to encourage more women to start investing.
Due to the gender pay gap, and more women taking career breaks or working part-time, women are likely to have less spare cash floating around. This stores up problems for our financial future. For example, by the time women reach the age of 50, their average pension pot is only HALF the amount accumulated by men: £56,000 compared to £112,000, according to research by Aegon.
With less money coming in, women need to make sure the money we do have works even harder. Let’s make the most of investing!With less money coming in, women need to make sure the money we do have works even harder. Let's make the most of investing! #WomenRockMoney #IWD2018 #AskVanguardUK Click To Tweet
Seven signs you are ready to invest
Research has shown that women shy away from investing, concerned they don’t understand enough and put off by the risks and jargon.
Now I’m not suggesting you shove every penny into stocks and shares, leaving the cupboards bare and bills to pay. Investing is only suitable for money you can tie up for at least five years, and ideally more.
But if you have money to set aside for the future, here are seven signs you’re ready to start investing:
1. You pay into a work pension
If you’re an employee, not paying into your workplace pension is like turning down a pay rise. You get free money! When you contribute to a work pension, you get top ups not just from the tax man but also from your employer. So start by ticking “work pension” off your to do list
(Meanwhile I’ll be sulking in a corner because I’m self-employed, so don’t have a boss to add to my pension).
2. You have paid off expensive debt
Clear the decks of expensive debt before starting to invest. Think credit card balances and overdrafts with eye-watering interest rates. Don’t wait 25 years to pay off a mortgage though – with mortgage rates at historic lows, you might still want to start investing some spare cash after your monthly payments.
3. You have a cash emergency fund
No-one knows what the future holds – but we’re all likely to face some emergency or another. I didn’t bless the expense when a tree toppled over in our garden, or the washing machine gave up, but at least we had some savings to cover it.
Experts recommend salting away three to six months’ living expenses, but even the odd £1,000 helps in a crisis. So do keep some cash in a savings account. But as your balance gets bigger, think about how to earn extra. Investing could help your money grow more than current rubbish savings rates.
4. You have sorted out bad financial habits
Good money management is pretty simple. Spend less than you earn, pay your bills on time, make the most of any extra cash. It’s putting it all into practice that can be the tricky part!
If you’re on track with bills and payments, and can scrape together spare cash rather than relying on borrowing, you’re in a better position to start investing.
5. You have set some goals
Once you’ve stashed some emergency money, think about your financial goals. If you’re looking further than the next handbag or holiday – like saving towards university fees or so you can afford to retire – investing could really give your plans a boost.
6. You understand your investment options
Sadly, there’s no such thing as a free lunch. If someone tells you how to make a shedload of money with no chance of losing a penny – they’re lying. Want to earn more from investing? You’re going to have to take some risk, in the hope of higher returns. Not keen on seeing your balance bounce all over the place? Accept that your money won’t grow as much, if you’re taking less risk.
If losing any money at all will keep you awake at night – investing isn’t for you. If you rush to sell investments when prices fall lower than you paid, you will lose money. But if you can hang on in there even when your balance goes up and down, it’s worth considering. The good news is that the longer you can leave your money invested, the more chance you have of coming out on top.
7. You understand the impact of costs
Investments aren’t like savings accounts, where you can stash your money away for free.
With investments, you have to pay:
- charges for the platform where you open an account
- charges for your investments, whether the costs of buying and selling shares or ongoing charges if you use funds
- any charges for help from a financial adviser
When you’re focused on earning higher returns, paying the odd percentage point here or there doesn’t sound such a big deal. But as I always bang on, small changes really can add up. Cutting even 0.5% off your investment costs makes a big difference over time.
Say you’d scraped together £20,000 towards retirement. 25 years later, your investments may have gone up and down, but overall they’ve grown 7% a year. Cheers!
After paying costs of 1% a year, your £20,000 would have been transformed into nearly £85,840. Shave your costs to just 0.5% a year, and the same sum would have soared to more than £96,550.
By cutting just half a percentage point off your costs, you’ve gained more than £10,000 – that’s money well worth having! So keep a close eye on charges, if you want to hang on to more of your money.
How to get started
You’ll notice that there’s no sign about waiting to invest until you have billions in the bank. With some platforms, you can start investing with as little as £1. I have an account with Vanguard which can be opened with £100 a month, or a lump sum of £500.
Start investing before April 5, and you can take advantage of this year’s £20,000 individual savings account (Isa) allowance. Putting investments inside an Isa means they grow untouched by the tax man, so you keep more of your money.
The sooner you get started, the longer your money will have to grow! Here’s where to open an account.
More about investing for beginners
Get your questions answered in a Twitter chat
Got any questions? I’ll be taking part in a Twitter chat on Wednesday 21 March at 2.30pm all about being ready to invest – do come and join me! I’m on Twitter @MuchMore_Less (click to follow), so use the hashtag #AskVanguardUK for any burning issues or queries. Investing really can help make the most of your money, and more women should consider it.
Now over to you – do you feel ready to invest? Are you already an investor? If not, what’s holding you back? Do say in the comments, I’d love to hear.
This post is a collaboration with Vanguard.
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