For someone who writes about money, the #EmbraceEquity’ theme of International Women’s Day 2023 is an absolute gift.
Because equity doesn’t just mean treating people fairly, taking account of their different circumstances.
In the personal finance world, it also means the value people own in companies.
I’m always keen to encourage any woman with spare cash to embrace equity – by investing in the stock market.
Women still get hit by the gender pay gap, which then causes a gender pension gap, because surprise surprise if you earn less you can’t save so much for retirement. Add in a chunk of no pay or low pay while caring for children or older relatives, and women end up even worse off.
So it’s particularly important for women to make the money they do have work harder, by embracing equity and investing. Fundamentally, over the long term, you’ve got a much better chance of earning higher returns by investing rather than just sticking your money in a savings account.
Preparing to invest
Perhaps you’re all set to #embraceequity, poised to take the plunge into investing but don’t quite know where to start.
You’ve prepared financially:
- Cleared expensive debt
- Started paying into a pension, especially if it’s pension at work where your employer will add contributions too
- Set aside some emergency savings
- Identified some spare money you can afford to set aside for a good five years or more
You’ve grasped the fundamentals about investing:
- Spreading your money across a mix of different investments is less risky than betting the farm on a single share
- Unlike using a savings account, you have to pay to invest. The most common charges include fees for having an account, fees for any funds you hold in the account, and fees when buying shares or funds.
- High charges will eat away at your returns. Even seemingly small differences of 1% or 0.5% a year will add up over time.
- Investing inside a individual savings account (Isa) will protect your money from the taxman. You can stash away up to £20,000 each tax year in Isas, if you’re lucky enough to have that much spare cash.
- You don’t have to be rich to invest. You can open an account with as little as £1 on some platforms, and others accept regular investment starting from the £25, £50 or £100 a month mark.
But even with all the preparation, putting the theory into practice can seem hard.
Personally, I anguished for years over the ‘right’ place to invest, and I don’t recommend that to anyone. There’s no such thing as the perfect investment. Better to get started investing smaller sums into something vaguely sensible, and then learn as you go along.
Where to invest
The big choice is whether you want to do it yourself or get someone to do it for you.
Let me explain.
One way to invest is to buy shares in individual companies, where you choose to buy stakes in the likes of Next, BP or Lloyds Bank in the UK, or say Apple. Microsoft or Tesla further afield.
Don’t fancy picking individual shares? You can invest in funds, where someone else does the choosing, and spreads investors’ money across a variety of different companies, countries and assets. A single global equity tracker fund can contain stakes in hundreds if not thousands of businesses, which is well and truly diversified.
Don’t fancy picking your own funds? You can pay someone else to pick for you, for example by using an independent financial adviser, or a ‘robo adviser’ website.
Different platforms cater to different people, from providing more choice than you can shake a stick at to doing it all for you.
DIY options: investment platforms with loads of choice
If you fancy doing your own picking and choosing, obvious candidates include investment platform such as Hargreaves Lansdown, Interactive Investor, A.J. Bell, Fidelity Personal Investing and Charles Stanley.
Trouble is, the enormous variety of choice can feel overwhelming. Shares, unit trusts, investment trusts, ETFs – there’s more choice than you can shake a stick at, with sustainable and ethical options too. As a short cut, these platforms often produce lists of funds recommended for beginner investors, as suggestions to get started.
In terms of costs, you’ll have to allow not just for the cost of your investments, but also for charges such as having an account with the platform and trading fees for any buying and selling. If you’re just started out, it’s probably cheapest to use a platform that charges account fees based on a percentage of the amount you have invested. However, once your balance grows, you may get a better deal from a platform that charges a flat fee each month.
One alternative to the wide-ranging investment platforms is to open an account with Vanguard Investor. The platform charges are cheap at 0.15% a year, but you can only choose Vanguard funds rather than investments from anyone else.
DIY options: trading apps with less choice
There’s also the new breed of trading apps such as Trading 212, Freetrade and Invest Engine, that tempt investors with low minimum investments, free accounts and free trading.
However, they may offer a restricted choice of investments and encourage users to consider riskier options.
These trading apps may promote ‘free’ accounts and trading, but just be aware that you’re likely to pay a bit more when buying investments, and receive a bit less when selling them. (Jargon fan? The difference between the selling price and the buying price is known as the ‘spread’).
Do It For You options: robo advisers
Don’t let the idea of choosing your own investments put you off! Or the cost of going to a financial adviser!
One easy option if you want to get started is to use a ‘digital wealth manager’ aka a ‘robo adviser’.
Previous post: What are robo advisers?
These websites typically ask you a few questions about your financial goals and attitudes to risk, then suggest a portfolio and manage it for you. It can be all done and dusted in a few minutes, including downloading an app and entering your bank details.
Options include Nutmeg, Moneybox, Wealthify, Plum and evestor. I’ve written here comparing the performance of my own stakes in Nutmeg and Wealthify to using Vanguard’s LifeStrategy funds, and have a five (!) year update due later in March.
Fees for robo advisers tend to be simpler and more transparent, often quoting a single percentage that combines the account, fund and transaction fees. You’re likely to pay less than using a financial adviser, but more than using an investment platform, for the convenience of a whizzy app and letting someone else manage your money.
Where to find out more
If you’re keen to do more research, rather than just diving in, the Lang Cat has a great ISA guide that compares costs, including handy dandy heat maps depending on your balance. Monevator has also crunched the numbers to identify the cheapest investment platforms, it’s just less colourful.
Now – over to you. If you invest, which platform or app did you choose? If you don’t invest, what’s holding you back?
Do share in the comments, I’d love to hear.