Everyone knows they should be investing their money, but for one reason or another most people never take the plunge. In this blog you’ll learn everything you need to master the art of investing, so no more excuses!

Why Is Investing Important?

Retirement - Retirement is a part of all of our plans, but for the majority of us it seems so far away, that we might as well not think about it. The truth is, if you really want to eventually stop trading your time for money, now is the time to act. By maximising the tools available to us like Pensions and ISAs you can make life a lot easier for your future self.

Income - Are you someone that receives your pay cheque each month and feels like it’s just not enough? A little secret - There are multiple types of investments which can help to supplement your income and eventually even grow it more than your job. The idea is that the more sources of income you have, the less reliant you are on each one.

Inflation - Essentially, your money needs to be growing at a rate higher than inflation, otherwise it is actually losing value as time passes. That cash you have sitting in the bank right now won’t be able to buy you as much in the future. By investing it, you will preserve the value of your money in order to use it later in your life.

Investing really doesn’t need to be as complicated as you might think. It can be as simple as setting up automated systems once, and then not having to amend them for years. Starting with as little as £25 a month will allow you to build your confidence over time.

Who Should Be Investing?

You. Your Mum. Your Uncle. Perhaps even set up a fund for your doggo. The variable factor will be the type of investments as this would vary depending on the lifestyle each of you live.

The younger you are, the more risks you can take. In your youth you have less responsibility and more time to recover if things don’t work out. However as you get older, the moving parts in your life become more complex. Perhaps you build a family and take out a mortgage which would require a set amount of income to fall back on in case of emergencies. In this case you wouldn't be able to put as much of your capital at risk, in turn choosing less volatile investments.

What Is Investing?

Investing is the act of purchasing assets that will appreciate in value or produce an income over time.

There are almost always no guarantees when investing; risk and reward tend to be two sides of the same coin. Low risk investments are expected to produce a low return, whilst high risk investments usually bring a higher return.

Depending on the class of asset you choose, your generated returns will vary.

Growth - Some investments produce no income on a regular basis, so all returns are compounded within the asset and only realised once you sell it.

A growth stock like Tesla provides no dividends to its investors, but if you invested £1,000 in it 5 years ago, you'd be able to sell your holdings today for around £17,000.

Income - Alternatively an asset (anything that you own which grows in value) can focus on generating a more stable regular income, with less significance on growth of the actual asset value.

As of 2021, a one bed flat in Leicester City costs approximately £120,000 and would rent out for apprx. £750 per month. An investor could buy this flat with a 75% interest only mortgage, then rent it out for a rough profit of £300 a month after costs.

As an investor, you can be as hands on or hands off as you like. Previously, to employ a person to manage your investments, it would be quite costly, however these days there are many low cost methods of outsourcing management to avoid making investment decisions yourself.

4 Steps to Mastering the Art of Investing

Each step builds on the one before, so when you finish the first, go on to the second. If you can’t get to the fourth step, don’t worry. Most people never even get to the first step!

Here’s how it works:

1. Max Out Your Workplace Pension

A Pension can provide you with the most up front value out of all investment structures, and that’s before you even had any investment growth. That’s because anything you contribute to a Pension (within certain limits) gets tax relief on the way in.

Whilst pensions come in a number of shapes and sizes, the Workplace Pension is the first one to focus on as a beginner. Since 2012 it has become compulsory for employers to give their qualifying employees the option of opening a Workplace Pension. You are eligible for one if:

• You work in the UK (including seafarers residing in the UK)
• You aren’t already in a suitable workplace pension scheme
• You are at least 22 years old, but under State Pension age
• You earn more than £10,000 a year for the tax year 2021/22

Why Are Workplace Pensions So Valuable?

A Workplace Pension is a way to save for retirement that’s arranged by your employer. Usually contributions are taken directly from your wages, but payments are also made by your employer. This is the valuable part.

The amount that your employer contributes varies between each company, and usually depends on the amount you put in yourself. However, the important bit to note is that anything your employer pays into your pension is essentially free money. Yes, I said FREE MONEY.

Here Is How It Works

If your employer offers the most basic type of Workplace Pension, you’ll need to contribute 5% of your qualifying earnings, which means your employer has to top up your pension by 3%.

As an example, imagine you were earning £25,000 annually. Your minimum annual contribution would be £938 (5% of qualifying earnings and includes the 20% income tax that would usually be taken), and your employer’s contribution would total £562.80 (3% of qualifying earnings) for the year. This adds up to £1,500.80.

So What Is the Alternative?

Well if you didn’t want to contribute to a Workplace Pension you could take that £938 as income. After basic rate tax this would leave you with £750.40 in your pocket.

However if you instead put that money towards your retirement, you effectively get a 100% return on that decision before you’ve even had any investment growth. This is what I mean by free money.

You Might Be Eligible for Even Higher Employer Contributions

Some employers offer even more appealing benefits to their employees for being so loyal. If you’re lucky your employer will match your pension contribution to a higher level.

The average employer contribution in the UK is 4.5%. In the finance or insurance industry the average is 9.5%. A friend of mine was an employee at Boots where they doubled her contribution up to 6%!

Important Things to Note

• Your pension benefits can only be accessed without penalty after age 55 (57 from 2028), so you’ll need to wait a little while to buy that yacht!
• Your employer will usually invest your pension in a simple diversified mutual fund, but they often give employees the option to choose their own investments. Make sure to double check this with HR!

If you’re unsure about Pensions and would like to receive some professional advice, you can book in a FREE consultation with a Qualified Financial Adviser by emailing admin@riverheadfinancial.co.uk.

2. Pay Off Any High Interest Debt

The idea of debt is quite scary.

It means you owe money that you're yet to earn, and it can feel like a heavy weight on your shoulders. Life doesn't treat us all equally and sometimes people are forced to make decisions out of desperation or social pressure that might not always be in their best interest.

Why Is Paying off Debt Important?

Most people have debt in their life, and it isn't always a bad thing. Student loans and mortgages are often types of debt that we accept as they allow us to move forward in our lives. These loans are means tested, and so the repayments usually fall within our affordability.

There are however other forms of debt that can have a negative impact on your life if not paid off fast. These are things like:

• Credit Card Debt
• Car Loans
• Personal Loans
• Payday Loans

This debt is usually accompanied by a high interest rate with little room for negotiation or relief. It can be a struggle to save as the interest eats up your income, it can impact your credit report which makes it difficult to get mortgages or other loans in the future, and most of all it can impact your mental health negatively.

How Should You Pay It Off?

The first step towards paying off your debt is by addressing it head on. Many of us are serial avoiders or deniers. We put off problems and make excuses instead of just getting things done.

You need to be real with yourself.

1. Go and figure out exactly what you owe, and how much interest you pay.
2. Reduce your spending to a minimum, and start paying the debt off with the highest interest loan first.
3. It's also worth calling your loan provider to try to negotiate a lower rate. If you're planning to make larger repayments, you can try to compare the rate you're getting with introductory rates that are available with other providers. This can sometimes push your current provider to lower your existing rate.

Paying off debt isn't a fancy or complex process, but the most important step is taking action. Make decisions to pay it off as fast as possible, even if it means sacrificing some luxuries. Once you've done this, the focus is on living within your means so that you don't fall into the same debt trap again.

Create a budget, and track your progress on a monthly basis. Keep yourself accountable and don't be afraid to ask for help. Try to pay off any credit card payments in full where possible.

3. Invest in ISAs

Once you’re debt free, you can start allocating your excess cash towards your future. You should always aim to do this in the most tax efficient way possible, which is where Individual Savings Accounts (ISAs) come into play.

An ISA is a tax wrapper which effectively allows you to grow your investments tax free. Usually you’d have to pay capital gains tax on your investment growth, or income tax on your interest, but if these assets are within an ISA you won’t be liable for either.

I’m going to avoid talking about Cash ISAs because ain’t nobody got time for 1% interest a year on their savings. Instead we’ll jump straight into Stocks and Shares or Investment ISAs.

Need to Knows

• You need to be a UK resident and over aged 18 to open one
• You can only contribute up to £20,000 each tax year
• You can take out the cash at any time without penalty
• You can buy Stocks, Funds or ETFs depending on which platform you choose

ISAs are a lot more flexible than Pensions because you can access your money at any time without penalty. This means you don’t need to wait until you have grey hairs to splash that cash. However unlike Pensions, ISAs provide no initial tax relief, so the money you put in has already had the tax taken out of it.

What Can You Invest In?

When it comes to Investment ISAs, you can almost drown in the sea of different options available. To make the choice easier for you, I’ve grouped the types of platforms into two categories.

Hands Off - On one side you’ll find Robo-Advisers which are tailored for people who like to be super hands off. These platforms would ask you to complete a risk questionnaire, then place you in a generic low cost portfolio of index funds which has exposure to companies all around the world. By investing with them you give up control of your assets, meaning they automatically make changes to the portfolio when they feel it’s necessary. This is a good way to start investing when you have little knowledge of markets but want exposure to stocks.

Options to consider:

• Nutmeg
• Evestor
• Wealthify

Do It Yourself - On the other side you’ll find platforms with a large range of options that allow you to tailor your portfolio however you like. You’ll often be able to choose from Mutual Funds, ETFs and Individual Stocks from all around the world, however building a portfolio from scratch is no easy task. You must spend time doing your own research to build conviction in your investments, otherwise you’ll panic as soon as you see some red on your trading app.

Check out my last blog on How To Handle The Market Meltdown to learn the importance of building conviction and managing your emotions when investing.

Options to consider:

• Hargreaves Lansdown
• AJ Bell
• Interactive Investor

Important Things to Note

• You don’t need to lump all your money into investments in one go. Instead you can buy small amounts of the assets you want each month, and build your portfolio over time.
• Never invest money that you need in the near future. If you’re planning to use the cash for something within the next 3 years, put it in something more secure. It might not yield very high returns, but at least you won’t run the risk of seeing your portfolio drop in value right before you need to pull the money out.
• There are almost always fees involved when investing, so make sure to double check that you’re okay with paying the proposed charges.

If you’re not comfortable making these decisions by yourself, get some professional advice. It may cost a little more, but at least your cash won’t be stuck on the sidelines losing value to inflation with every day that passes. You can book in a FREE consultation with a Qualified Financial Adviser by emailing admin@riverheadfinancial.co.uk.

4. Invest in Property and Crypto

Once you’ve filled your ISA allowance for the current tax year (£20,000), you’re ready to look at some more complex investments.

You’ve now allocated money to a Pension and an Investment ISA, meaning you’ve built a strong exposure to the stock market. You own a piece of multiple companies all over the world, so now it’s time to diversify into some other assets.

Property

We all know someone who’s built up a portfolio of properties and made it to the dreamland of financial and lifestyle freedom. It’s a great way to produce stable returns over a long period of time.

Before jumping straight into refurbs, flips or serviced accommodation, try to dip your toes in the water with a simple buy to let. This is where you buy a property and rent it out to a tenant on a long term basis. Your annual returns might not rocket your bank account to the moon, but you will experience the ups and downs of owning a property whilst growing your wealth.

Your returns come in the form of rental income AND capital appreciation. So whilst you’ll receive cash in your pocket each month from a tenant, you’ll also benefit from the value of the property rising over time.

Some of the downsides of Property Investing:

• Risk - There are no guarantees when investing.
• Costs - Buying a property is expensive.
• Taxes - You’ll most likely need to pay some sort of tax on your income and also on any gains you make upon sale on the asset.

If you’re interested in investing in property with a completely hands off approach, I’d recommend arranging a call with Vistaara FS. Email chet@vistaarafs.co.uk and let him know you came across from WealthyMinds to find out more!

Crypto

If a Crypto Bro hasn’t dragged you down the Blockchain rabbit hole yet, it’s time to take the plunge!

After seeing the potential of this technology, investors all around the world have been piling their cash into Crypto projects over the last few years. The big two currencies are Bitcoin and Ethereum, but many other projects have grown in popularity recently.

Crypto is a very new asset when compared to things like Stocks and Property and so there isn’t a standardised guide to get exposure to the market. This means you really need to spend a lot of time in the trenches trying to get your head around how it all works before you can settle on your optimal strategy.