Are you tired of the depressingly low interest rates offered by your bank's savings account? Are you looking for different ways to make your money grow? Well, I have a solution for you.
The Bank of England has put back plans for an increase in interest rates for later this year, keeping the UK interest rates at 0.5%. Savings account are no longer lucrative and this emphasises the need to find alternatives. Currently, an investment of £1000 at 0.5% per annum would give you a heart-breaking £5 after one year. But what if I told you that you could receive up to £50 a month with a £1000 investment?
Tell me how...
The alternative option to a normal savings account is an Individual Savings Account (ISA). An ISA is a tax-free way of saving or investing money. The interesting part is that you can invest in stocks and shares through an ISA, and not pay any taxes on the returns you make. Sounds incredible, doesn't it?
Now the question is with who should you invest your money with? There are numerous factors to consider before investing. In my opinion, the most important one is management fees. Most people tend to believe that investment returns are more important but this is not necessarily true. Returns are uncertain but managements fees are certain. As an investor, I would focus more on managing the costs and less on the unpredictable returns. The greatest risk of investing money does not come from market turbulences, but from management fees. Small investors are generally at risk of having their money eaten up by costly fund managers and brokers. This is why I would strongly encourage you to invest your money in a low cost fund if you are a new investor.
Where should I invest my money?
From my research and past investment experience, I would strongly encourage investing with Vanguard for the following reasons:
1. You can invest directly with Vanguard without going through a broker which saves you from paying brokerage fees (in other words more money).
2. The charges are significantly below industry average, varying between 0.07% to 0.80% (e.g. an investment of £1000 in the Vanguard LifeStrategy 80% Equity fund (with a 0.22% charge) would incur a £2.20 fee only)
3. Vanguard provides strong returns. For the period May 2016 to April 2017, Vanguard's 80% LifeStrategy fund offered a return of 23.52% to investors. Based on an investment of £1000, this would imply a return of £235 in one year. Yes, £235.
Vanguard offers a variety of funds to meet investor needs. However I would suggest new investors to opt for the LifeStrategy funds as they are a safe bet. Vanguard offers 5 types of LifeStrategy funds which have a varying amount of equity allocation (20%, 40%, 60%, 80% and 100%). For instance, the Vanguard LifeStrategy 80% Equity Fund will invest 80% of your investment investment in equities. The remaining will generally be kept in low risk, low return bonds. The reason for the varying amounts of equity allocation is to account for the varying risk tolerances of investors which is due to the volatile nature of equities.
Which LifeStrategy fund should I invest in?
There is no right or wrong fund to invest in, it is only a question of how much risk you are ready to take. I personally choose my investments based on the age principle which is the following equation:
Equity allocation = 100 - Age
Therefore if I was 40, my equity allocation would be 60% and I would go for the Vanguard LifeStrategy 60% Equity Fund. It sounds like a simple concept but you would be surprised to learn that most investment advisors use this concept for their clients.
What you should know before investing
There are a few things to be aware before investing in stocks and shares.
1. You should invest money that you are ready to lose, i.e., do not invest all your money which could potentially jeopardize your day-to-day life.
2. Invest money for the long-term (10 years+) and do not panic if the value of your investments fall in the short term. Past performance indicates that investments always increase over the very long term.
3. Pay close attention to the management fees to avoid your returns being consumed by the fund managers.
If I have convinced you to start investing your money then check the Vanguard website here. You can start investing with a minimum of £100 per month.
The Bank of England has put back plans for an increase in interest rates for later this year, keeping the UK interest rates at 0.5%. Savings account are no longer lucrative and this emphasises the need to find alternatives. Currently, an investment of £1000 at 0.5% per annum would give you a heart-breaking £5 after one year. But what if I told you that you could receive up to £50 a month with a £1000 investment?
 |
Picture from Blogger.com
|
Tell me how...
The alternative option to a normal savings account is an Individual Savings Account (ISA). An ISA is a tax-free way of saving or investing money. The interesting part is that you can invest in stocks and shares through an ISA, and not pay any taxes on the returns you make. Sounds incredible, doesn't it?
Now the question is with who should you invest your money with? There are numerous factors to consider before investing. In my opinion, the most important one is management fees. Most people tend to believe that investment returns are more important but this is not necessarily true. Returns are uncertain but managements fees are certain. As an investor, I would focus more on managing the costs and less on the unpredictable returns. The greatest risk of investing money does not come from market turbulences, but from management fees. Small investors are generally at risk of having their money eaten up by costly fund managers and brokers. This is why I would strongly encourage you to invest your money in a low cost fund if you are a new investor.
Where should I invest my money?
From my research and past investment experience, I would strongly encourage investing with Vanguard for the following reasons:
1. You can invest directly with Vanguard without going through a broker which saves you from paying brokerage fees (in other words more money).
2. The charges are significantly below industry average, varying between 0.07% to 0.80% (e.g. an investment of £1000 in the Vanguard LifeStrategy 80% Equity fund (with a 0.22% charge) would incur a £2.20 fee only)
3. Vanguard provides strong returns. For the period May 2016 to April 2017, Vanguard's 80% LifeStrategy fund offered a return of 23.52% to investors. Based on an investment of £1000, this would imply a return of £235 in one year. Yes, £235.
Vanguard offers a variety of funds to meet investor needs. However I would suggest new investors to opt for the LifeStrategy funds as they are a safe bet. Vanguard offers 5 types of LifeStrategy funds which have a varying amount of equity allocation (20%, 40%, 60%, 80% and 100%). For instance, the Vanguard LifeStrategy 80% Equity Fund will invest 80% of your investment investment in equities. The remaining will generally be kept in low risk, low return bonds. The reason for the varying amounts of equity allocation is to account for the varying risk tolerances of investors which is due to the volatile nature of equities.
Which LifeStrategy fund should I invest in?
There is no right or wrong fund to invest in, it is only a question of how much risk you are ready to take. I personally choose my investments based on the age principle which is the following equation:
Equity allocation = 100 - Age
Therefore if I was 40, my equity allocation would be 60% and I would go for the Vanguard LifeStrategy 60% Equity Fund. It sounds like a simple concept but you would be surprised to learn that most investment advisors use this concept for their clients.
What you should know before investing
There are a few things to be aware before investing in stocks and shares.
1. You should invest money that you are ready to lose, i.e., do not invest all your money which could potentially jeopardize your day-to-day life.
2. Invest money for the long-term (10 years+) and do not panic if the value of your investments fall in the short term. Past performance indicates that investments always increase over the very long term.
3. Pay close attention to the management fees to avoid your returns being consumed by the fund managers.
If I have convinced you to start investing your money then check the Vanguard website here. You can start investing with a minimum of £100 per month.
Comments
Post a Comment