Express Debate – How To Invest Money Wisely
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You won’t build your fortune overnight by doing this but that’s actually a good thing. The safest way to build your wealth is by investing regular sums year after year, leaving you nicely set for your retirement.
It’s like the old fable about the tortoise and the hare. Slow and steady wins the race when it comes to investing, says Darius McDermott, managing director at FundCalibre.co.uk.
Too many investors go charging around, hoping to make short-term gains from volatile assets such as Bitcoin and foreign exchange trading.
In practice, they typically lose more often than they win, because trading in this way is too high risk for most people.
Fear and greed are you biggest enemies, McDermott says. Fear of missing out, and the greed that comes from trying to make quick money. “Shun both, and take the slow route to building the wealth you need to retire in comfort,” he says.
Building serious wealth takes time and patience (Image: Getty)
Shares can be volatile in the short term but will outperform overtime (Image: Getty)
McDermott recommends setting up a direct debit to invest a regular monthly sum inside your tax-free Stocks and Shares Isa allowance. “It’s a good habit to start and you can increase the amount you invest every time you get a pay rise.”
If you begin right at the start of your working life you could end up saving for 40 years or more. “Over such a lengthy period, even small monthly amounts can add up to a good-sized retirement pot,” he says.
Shares should deliver a far superior return to cash over the longer run but are more volatile in the short term.
McDermott says for most people, investing in a spread of investment funds is a lot safer than buying individual stocks. “If markets crash don’t panic, sit tight, leave your money invested and wait for the recovery,” he says.
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Start by investing in the UK economy (Image: Getty)
McDermott says the following five investment funds could be a good place to start. You could invest £50 a month in each via an investment platform, putting away £250 in total.
LF Gresham House UK Micro Cap invests in the UK’s smallest companies and its experienced fund manager has delivered impressive returns.
VT Downing Unique Opportunities targets UK companies that should deliver sustainable long-term growth, rather than flash-in-the-pan success.
AXA Framlington American Growth gives you access to some of the most exciting companies on the thriving US stock market.
LF Montanaro Better World invests in small and medium-sized businesses whose products or services make a positive impact on the world.
Finally, Nomura Global Dynamic Bond invests in fixed-income investments such as bonds which are less riskier than shares, reducing your portfolio’s volatility.
Diversify by investing overseas as well as in the UK (Image: Getty)
These fund ideas are worth considering but will not suit everybody and Svenja Keller, head of wealth planning at wealth manager Killik, said you can make your own “DIY” investment decisions using online trading platforms or investment apps.
“If you pick your investments yourself, conduct thorough research on all of the available options,” she says.
If you have strong values, ethical investments, also called environmental, social and governance (ESG), may suit you better.
However, if you lack the confidence to make your own financial decisions, consider paying for independent financial advice, Keller said. “It may be more expensive than using an investment app, but allows you to ask important questions.”