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The Basic (Bitch) Guide to Investing
With women proving more skilled in investing but less likely to take the risk, isn’t it time we started beating the boys at their own game?
No! Don’t look away! It might sound frightening, but you should know that women are better investors than men. Sure, we take less risks and want to know how things work before jumping in, but when we do? We often strike gold.
And as a woman who has personally interviewed Nick Leeson, the man who brought down Barings Bank in the 1990s, I can say with confidence that you are likely to be a better investor than him. You might not assume that’s the case, because most media coverage of investment is both about men and aimed at men. But just Google former fund management ‘star’ Neil Woodford and see what has happened. Go on, do it now. See what I mean about needing more women?
But why invest at all, I hear you ask? Why not just put everything into a savings account? Because over time your savings can reduce in value thanks to inflation (currently two per cent). Inflation means that prices rise – the price of food, petrol, clothes and more – meaning you can afford to buy less and less with the same amount of cash because your wages aren’t rising at the same rate
So, imagine you put £10,000 in your savings account five years ago. The amount of interest you make is unlikely to have beaten inflation in those five years. Now, in 2019, your £10,000 has grown a little with interest, but it’s losing value because of inflation. Whereas an investment in a diversified stocks and bonds portfolio, over the long term, is more likely to beat inflation.
OK, fine, I’ll prove it. Look at any graph of the FTSE 100 – the performance of the biggest companies in the UK – over the long term. Even if you had invested £100 in 1989 and stayed invested for 30 years – you sat tight through the financial crisis, and yes, through Brexit woes – your money still would have beaten inflation in that period because, over the long-term, markets do tend to go up. Your £100 would have gone up by 297 per cent, and some more because of compound interest (but that’s a whole other article). Basically your £100 would be… well, I don’t have a calculator to hand, but a lot more. Hallelujah.
However, there are no guarantees. I have to say this – you can lose money, or all your money. You must invest in line with a) how much risk you are willing to, and can afford to, take and b) how much time you have to invest.
This is a good time to note that you are more than likely an investor already, though you may not have realised it. If you have a workplace pension, or if you own a house, you’re already in the game. But perhaps you want to do more of it?
Before you crack on, the first rule is to make sure you pay off any high-interest debt. Second, build up your cash savings until you have a comfortable reserve. Third, remember that you should invest for the long term, so think about whether you will need that money back before 2024 at the earliest.
The easiest way to invest is through a Stocks and Shares Individual Savings Account (ISA). Look at a market comparison website for all the companies that offer these products – some of them have different terms, like what fees you need to pay, the kind of interest rate you’ll get, or how long, if at all, your money will be locked in. You can invest a maximum of £20,000 per year in one ISA or a combination of ISAs. Any interest you earn on top of your money, or any revenue from your investments, is also tax free. (This doesn’t really make much difference until you’re investing and saving a hell of a lot. You will realise most of these ‘benefits’ are less for people like us, more for Tory voters.)
You may have also heard of companies like Moneybox and Nutmeg. There are dozens of these investment apps, and some of them allow you to invest with as little as £1. Most of them are clear about how much they cost, and they make sure you’re invested in line with your risk level. The portfolios mostly focus on shares of big, well-known companies. But don’t bother checking up on your app every five minutes – as I’ve said, just let it be, and go get on with your life for the next five years.
Now, time for the ‘what not do to’ part. Peer-to-peer lending schemes, like crowdfunding, are not covered by the Financial Services Compensation Scheme if it all goes wrong. Neither are Innovative Finance ISAs. So, beginner investors shouldn’t touch them with a bargepole.
Another one to avoid for now is picking stocks yourself. Perhaps you’ve met people who choose their own stocks, or buy shares in companies, and wax lyrical about it. They fancy a bit of Apple or hope to be sneezed on by Facebook’s magic dust. Or they bet money on start-up companies that sound cool, but you’ve never heard of them. Remember Monica in Friends investing in mythical company ‘XYZ’ because it sounded ‘sexy’? Well, she lost it all and had to go work in a diner wearing flame-retardant boobs. No one wants that.
If you’re just getting started, try out an ISA or one of those other platforms I mentioned. See how it goes and then build from there. And when you’re a millionaire in 30 years’ time, remember to buy me a G&T. Fresh lime, please. No ice.
Artwork by Esme Rose Marsh