Martin Lewis offers advice on reinvesting in NS&I bonds
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While some argue that this is because people learn better from experience rather than education, it’s a reality that is scaring off a lot of potential investors. Kane Harrison, CEO and co-founder of micro-investing app Wombat Invest, spoke to Express.co.uk to share the knowledge his years of experience have taught him.
Choosing a platform
“Some platforms cater to sophisticated investors while others are more suitable for beginners,” he commented.
“If you’re new to investing and don’t have much money to invest, one key thing to consider is how much platforms charge: high costs eat into your returns, so make sure you are paying a charge that is appropriate for your requirements.
“You’re unlikely to need sophisticated tools or access to complicated trading strategies, so make sure you pay as little as possible.”
It’s important to find an investing platform that uses terminology you can understand (Image: GETTY)
“It used to be that you either had enough money to buy a share or you didn’t.
“And if you’re a beginner investor just starting out, that could be a problem: a single share in Amazon today costs more than $3,500. Google parent Alphabet trades at more than $2,500.”
Mr Harrison elaborated: “Even if you have enough money to buy a share of one of these companies, you’re hardly diversified – your investment fortunes are tied to the price of a single company.”
Fractional trading is exactly what it sounds like; buying small pieces of shares for a lower price than a single share.
“From as little as £10, you can gain exposure to the companies and brands you like without needing to save enough to buy a whole share.
“And because you can invest such small amounts, you can afford to spread your risk: an investor could, for instance, create a portfolio of more than 30 companies for roughly the same price as a single share in Facebook.”
Buying small amounts from a range of companies automatically diversifies one’s investment portfolio, which is highly recommended by some as it can lower the overall risk by having a finger in all of the pies.
Alternatively, buy funds
“Broadly speaking, funds are baskets of shares, bonds or other securities chosen by professional money managers or index providers.
“While there are some good active fund managers out there, the majority fail to consistently beat the market, which is why lots of investors are turning to ETFs and index funds.
Funds are generally a good first investment for beginners as they carry less risk (Image: GETTY)
“Choosing a fund can be daunting – there are literally thousands to choose from,” Mr Harrison said.
“If you simply want broad exposure to the major asset classes – like shares, bonds, property and commodities – you can buy ready-built portfolios that do all the work for you.
“You just need to choose one that has a track record of performing well and has a low annual fee (in this case, that generally means an ETF or index fund).”
Give it time
One of the most underestimated aspects of investing is the amount of patience and resilience it takes to not pull out investments when markets start to look negative.
“Remember, the strongest asset any investor has is time.
“The sooner you start investing, the more your money will be subject to the effect of compounding, thereby lifting the value of your investments by their dividends, appreciation and interest well into the future.”
Mr Harrison concluded: “By putting a regular amount of money away early, you’ll be able to see greater growth on your returns. This is because the money you make each year will in turn make more money, growing further and further.
“So start now, spread your risk, and keep doing it. It’ll pay off over the long term.”