Gamestop. Deliveroo. NFTs. If you’ve read the news in recent months, you’d be forgiven for thinking that investing is all about thrill-seeking — an opportunity to strike gold and get rich quick. However, last month the Financial Conduct Authority issued a warning that younger investors lacking the knowledge and experience were taking too much risk, cautioning that high risk investments “may not always be suitable for the consumers’ needs”.
As trendy and tempting as investing advice on social media may seem, FOMO (fear of missing out) shouldn’t cloud your logic, and it certainly shouldn’t inform your investment strategy.
Investing is key to building financial security. When you invest over a long period of time, you want your money to outpace inflation (the price of goods and services are going up every year), and benefit from compound growth. While it’s important to have ‘rainy day’ cash savings, playing it safe by stashing your money away in low-interest rate savings accounts is actually risky because your money will lose value over time.
It is great to see more people wanting to get into investing but I am concerned that the popularity of high-risk investing and “meme stocks” (when the price of a stock goes up or down because of social activity rather than the company’s performance) sends the wrong message, especially to women. The commotion around high-risk investments can make women feel excluded, anxious, and unsure of where and how to start.
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But that doesn’t mean that women don’t invest. Women who were able to save money during the pandemic have been keen to diversify from cash savings and get into investing. I’ve seen this first hand at Vestpod: we’ve had a huge surge in interest in our investing workshops and an increasing number of women are engaging with our educational content.
In my experience, women are happy to take calculated risks once they understand the relationship between risk and returns (when you take more risk, you expect higher returns), diversification (not putting all your eggs in one basket) and that time in the market beats timing the market. A Warwick Business School study found that women “outperform men at investing” by 1.8 per cent because they trade less often and are not drawn to speculative stocks.
The benefits of long-term investing are clear, but what isn’t clear is how to start, especially if you don’t have a financial adviser. So here are six practical tips to help build up your confidence and kick-start your investing journey.
1. Start small and invest regularly. Savings apps and robo-advisers automatically stash away a regular amount of money, and invest it in the stock market based on your preferred level of risk and when you need the money. No one can predict market performance, but investing regularly (it’s called pound cost averaging) can help smooth out your returns and ride out market bumps.
2. Try not to be emotional. Avoid checking up on your investments on a daily basis to resist making rash decisions. Remember: you’re not a day trader!
3. Be mindful of the fees. Investing is never free, and when the platform manages your investments for you, the services tend to cost more. You can also switch to a more hands-on self-investment platform – a more active approach compared to mainly automated and passive robo-advisers – to reduce your costs. You’ll have more flexibility, but you’ll also need to do more research. Trading often is expensive, and you’ll need to keep tax implications in mind.
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4. Ignore ‘hot’ investment advice from friends and influencers. Rather than owning just a handful of stocks, you’re better off looking at funds (a collection of stocks and/or bonds rather than individual investments) to reduce your risk of losing money and improve your potential investment returns.
5. Think about your goals and decide how much you need to save in cash, and how much you’re willing to invest. Whether you’re saving for a home or early retirement, it helps to write down what you want to get out of your long-term investments and how much risk you are able to take with each goal (if you have more time, you usually can take more risk). This will, in turn, inform your investment strategy and how long you stay invested for. You can then choose the best product for those needs which usually comes in the form of tax-efficient investment wrappers, such as pensions and ISAs.
6. If investing in line with your values is important to you, look into values-based ESG (environment, social and governance) investing. Virtually all investing platforms offer you the opportunity to invest in ESG funds.
Building long-term wealth requires an understanding that investing and gambling are very different disciplines. Refrain from jumping onto the next en vogue investment and accept that sometimes, it’s best to adopt a rather boring investment strategy. Arm yourself with a cool head, a decent grasp of how the stock market works, and, most importantly, ample confidence — and get started with investing.
Emilie Bellet is the founder of Vestpod and author of You’re Not Broke, You’re Pre Rich. Listen to Emilie’s podcast The Wallet for weekly money conversations
