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How to invest your money – How much, where and how

by Sam
Antibes
One of the beaches where I worked hard on my tan.

Months earlier I had to borrow money to buy food and pay rent, now I was sitting here with a tan and £6.5k in my current account. But what was I supposed to do with all this?

I’d just returned from a year’s internship working in France. Alongside careful budgeting through the year, I’d received the final tranche of a grant (promised at the start of the internship) on my arrival home.

I knew I should invest but just didn’t know where to start. I started Googling for help but the more I looked the more confused I became. Property? Stocks and shares? Forex bots?

In the end, I felt so overwhelmed I decided the best action was to look into it another time.

Over the following 12 months, the money slowly dwindled on a cocktail of partying, clothes a month travelling and living expenses. It turned out ‘looking into it another time’ was a decision after all.

Since we were not taught money management or investing in school, it’s difficult to know what to do with our money. After a lot of trial, error and a huge amount of reading (and asking questions) I’m now a lot more confident on how to manage my money.

Here’s how I would recommend managing your finances:

Start with an emergency fund – The only thing we can expect is the unexpected.

Calculate an average month’s expenses, now depending on your risk tolerance multiply this from 3 to 12 months.

This acts as a cushion available if unforeseen circumstances hit such as unemployment or ill health.

Build this before investing so if bad times hit, you’re not forced to pull out investments at catastrophic times (bottom of markets).

Keep this in cash in a readily available separate account. I personally use Santander’s current account (3% interest – tax-free up to the first £1,000 in interest).

ALERT! Discover exactly how to set-up your emergency fund in this free bonus video (details highest interest bank account).

Maximise ‘free money’ from your employer

Coins
That’s right, this is a stock photo of some coins. Buy hey, it fits the context and makes this easier to read.

With the introduction of auto-enrolment, all employers now have to offer a pension (currently being staged in – up to 2018)

I maximise this by investing up to my employer’s maximum contribution (e.g. if they match up to 4% I put in 4%).

Once you’ve got this far (further than most people!) you’ll then want to:

Consider the time and energy you want to spend

Investing in Startups, Property or Spread betting/CFD trading can offer meteoric returns but these should all be treated as a business since they require self-education, economic awareness, on-going time, accountancy & solicitor fees and large amounts of admin work.

If you’re prepared to put in the work, I strongly recommend you take this route.

Yet, if like most you don’t want to spend the time to develop this skill. An automatic investment every month into a mixture of world equities and precious metals would be the recommended route.

Start with an online broker

If you choose this method, you’ll need start by signing up with an online broker (who you buy the investments through).

Note: Broker fees vary with some so high they make it near impossible to make a positive return once you’ve paid their fee (and that’s before the fund fee). Thankfully with the internet, we now have many low-cost providers.

So, who do I choose?

If you’re going to be investing a lump sum Hargreaves and Lansdown would make a good fit. If you invest every month (the recommended approach to benefit from pound cost averaging) I suggest Cavendish Online (a wing of Fidelity with the lowest fee’s I can find). Ensure you wrap your investment in an ISA (available on both platforms once signed up).

Okay, so what do I invest in?

A combination of world equities (stocks and shares) and precious metals (which tend to hold or increase in value when equities drop).

Whilst it doesn’t promise uber returns it can offer a steady year on year return, the fee’s on the funds are also very competitive.

Since every reader of this blog has a different situation (investable amount, different retirement age and goals) and FCA regulations I can’t recommend an exact portfolio (even if I could it maybe applicable to one but not another).

As an exercise (not intended as a real-world solution) here’s an example portfolio – based on a £100 investment:

  • £10 Cash
  • £30 Fundsmith
  • £30 Scottish Mortgage Investment Trust PLC
  • £30 Gold

What are you waiting for?

Exponential interest chart

Finally, before I close I must iterate the biggest favour anyone under 30 has is the extra time they have to compound their money.

If you invest £5,000 the day your child is born and achieve a 10% annual return. When your child reaches 55 (with no further investment added), guess how much they’d have sitting in that same account?

£25,000?

£30,000?

£50,000?

Nope – £945,000

Or on a more personal note, had I invested that £6.5k seven years ago (and achieved 10% per year) it would now have more than doubled to £12,666.66!

Fired up and ready to go? Let us know in the comments below…

Disclaimer: At the time of writing I hold investments in Gold, Fundsmith and Scottish Mortgage Investment Trust PLC.

ALERT! Discover exactly how to set-up your emergency fund in this free bonus video (details highest interest bank account).

Sam Jefferies

Sam Jefferies

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Reader Interactions

Comments

  1. Great article!

    I’ve always been ok with keeping an emergency fund. I split my savings across a few different readily accessible bank accounts on pay day, and only touch them if I need to, or am saving up for something in particular.

    I’m going to start looking into some of those online brokers you have suggested.

    • Great to hear Connar, I do the same approach (splitting across on pay day), I may write an article on this!

      Thanks for your comment!

      Sam

  2. Making a transition to a Santander 321 account has been a fab move I made recently- cash back for bills is the best! Reading about shares and investing still feels like such a grown-up thing to do.

    It does interest me but would love to find out more about what the options are- perhaps with a flowchart to help me make decisions? This was a really helpful and easily digestible guide- thank you for sharing!

    • Thanks Hannah! Yes the cashback is another great bonus!

      You’re welcome, will have a think about a way to help people make decisions – this is a great idea.

      Sam

  3. I agree with the Santander account – we actually use it as both our current and savings account to maximise the cash back (especially as we also have a Santander mortgage) and savings to get the best interest rate.

    A comment for a future article perhaps Sam – I’d be interested to know in ethical investments. For example, I would be wary of investing in precious metals as the working conditions are awful.

    • Hey Jess,

      Good shout with Santander, the cash back can provide a big benefit too.

      R.E. Ethical investments, funds do exist which aim to satisfy this, interesting point I will have to look into the working conditions myself.

      Sam

  4. Nice post!! A real hardwork can be seen in this post. It was so good to read it. Thank you so much for sharing this post.

    Regards
    Harsh

    • Hey mate,

      They look very interesting and with a competitive price too. The only downside is they offer a limited selection of funds in comparison to other online brokers.

      I’d be interested to hear how you get on with them if you do proceed.

      Sam

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