Having your own money is a crucial step on the way to empowerment for a woman, or in fact as an individual of any gender. Making sure your nest-egg is growing at its optimum rate is key, yet many women shun investing in favour of ‘safer’ cash savings.
Being cautious is one thing, but depriving yourself of the greater returns available through long-term investment is entirely another. Women have traditionally been put off investing by a lack of knowledge and the (false) notion that, being female, it is somehow beyond us. Plus there are always zillions of reasons not to invest. Today they are uncertainty over Brexit and fears of a global slowdown. Tomorrow it could be something else. However, investing small amounts regularly over the long term (10 to 20 years) normally irons out the chance of losing money and increases the probability of making a decent return. Ahead of International Women’s Day tomorrow, I’d like to share a very basic way of starting to invest that everybody can use.
You’ll have to pay a small amount to invest so always keep an eye on fees. You will need an online account called a platform. Read my recent blog on the cheapest platforms which currently are Halifax, Interactive Investor and Barclays. You’ll need to transfer money from your bank account which can be done on a monthly or one-off basis. (Many of these platforms have a monthly minimum of just £25).
If there’s an option for an Isa account, choose that. You can put away up to £20,000 a year in the Isa and shelter it from further tax. This is handy 20 years down the line when you’ve made megabucks and want to cash in the investment – you won’t have to pay capital gains tax.
Once the platform account is set up, you’ll need to select the actual investment. It’s less risky to invest in an investment fund, a collection of shares from different companies, rather than in just one firm like Apple or Lloyds Bank. This is where it gets difficult: there are thousands to choose from. For beginners though, the cheapest and simplest are called tracker funds. These are run by computers and merely follow (‘track’) the ups and downs of a stock market index such as the UK’s FTSE 100 which includes the UK’s largest 100 firms.
For novices, it’s probably best to stick with a UK index to start, and possibly the FTSE 100 or the FTSE Allshare which includes even more companies. Noted tracker funds are those run by Vanguard, Fidelity and Legal & General. There is little to tell between the funds so always choose on price. You can easily see how your money is doing because the index level is reported every day (or in fact every minute when the stock market is open) online, in newspapers and on the radio.
Like the weather, it’s not always sunny for the stock market. There will be highs and lows, sometimes in the same week. But, over the long term, remember that these do get smoothed out. And it’s not all about the growth in share prices. You’ll get annual dividends too, generally an average of 3.5% for the FTSE 100 although this can vary – last year was higher. Considering that the cost of living is increasing at (currently) 1.8%, you’re losing money in cash if your savings rate is less than that. How much more can you make in shares? It's time to find out.
For more tips on being an investment wonder woman, see our SMM guides to investing for beginners or watch our video on Isa basics.