Here’s some scary news: according to the Skipton building society, a quarter of British adults have no savings at all.
And here’s some depressing news: 49% of British adults don’t have savings anywhere safe.
In the current year, 2018, Only 35% of men and 21% of women are investing.
That is the really gloomy bit for me, because if you aren’t investing then your savings aren’t being saved. Investing seems to be a scary topic, something incredibly foreboding, but with inflation rates as they are, the sad truth is that if you aren’t investing your cash savings are slowly being devalued, eaten away in effect. That’s a glum future and I want to help you avoid that.
Before we go any further, I’m not a financial expert - I’m just a regular person, like you, and I’ve been able to invest. Do what I did and google like mad when you’re making any decisions about your money. I’m offering an informed perspective, not a cast-iron, risk free guarantee of success. So be wise with your own money. I just want to show that it doesn’t have to be as scary as it often seems.
Why aren't people saving?
If I speculate why people aren’t investing their savings, I think the main barrier is perceived complexity. You think of stock tracking charts, incomprehensible shorthand DAX ^ 0.02, derivatives or get distracted by how amazing a film The Big Short is. It’s really great. You likely have the impression that investing is for experts, not you. I really want to change that impression, because investing will make a huge difference to your life and future.
You don’t understand all the ins and outs of banking, but you have an account, yes? Maybe a savings account, hopefully an ISA at the least so that you aren’t paying tax on those savings. You looked at banks, at the interest rates offered and went with one you trusted. Investing is only one step further than that and well within the reach of most people. If you’ve found your way to our blog, maybe you’re already being more frugal and have stopped worrying about how much will be left in your account by payday: you’ve been underspending and have a healthy financial cushion, in the event that your darn cat goes and develops cystitis again costing you £126, hypothetically.
With an established cushion in place, what we’d call an emergency fund, it makes sense to make the most of the rest: to put it somewhere where it gains interest faster than it loses value due to inflation. If you’ve ever checked your pension forecasts, it might have looked foreboding, but once you start tackling it, it gets less scary.
I’ll write about standard investing accounts another time, but first let’s discuss the easiest ways, the entry to investing that you can do if you don’t want to worry about the complexities. Happily, there are lots of options:
Automated investing is growing yearly, and products like Nutmeg pioneered them. It’s as simple as making an account, deciding your level of risk, if you want more active management and then letting them work with your money. In their Stocks and Shares ISA, your money is invested tax free, you don’t have to consider fees as they’re incorporated. You can set it and forget it, stress free… ish.
Being upfront with you, when I took the plunge and invested in Nutmeg, it was the end of the financial year, and I was running out of time to make a decision. If I didn't put the money in an ISA I'd lost the ability to keep it tax-free that year. I saw the sub-inflation rates in Cash ISAs but investing still seemed too out of reach. Nutmeg's adverts on the Tube were very well-tailored to me, a nervous person who had never invested before in her life, and didn't really know what to do. I put my money in, with quite some trepidation, and initially selected a 5/10 risk setting for my money.
As you can see, after I dipped my toe in in April 2017, just inside the 2016/17 financial year, I immediately lost money. I was not happy, but I was also unaccustomed to investing. The fact is, I didn’t lose any money: I held the same number of assets in the fund, but their value fell. If I then sold my assets, I would have lost money, but I held on and by June I was £50 up, or 1% up. Look at those 16 months of data and you’ll see lots of highs, then drops, then increases. You can see the Market correction of February 2018 and its current status of 7.4% up. Over the long term, my money was protected and grew in value, staying protected from inflation. I’ve gained a lot of knowledge and confidence since then and my other accounts outperform this, but it was a good start for me.
Other options are Wealthify, Schwab and the more complex and restricted Abundance.
Peer to Peer lending
Another great alternative is peer to peer lending in an innovative finance ISA, or IFISA. As it’s an ISA, it’s tax-protected which is great when you’re starting to invest. Whilst initially very limited, both Ratesetter and Zopa offer these. I personally use and recommend Ratesetter, due to the safety offered by their provision fund - a protection against people or businesses defaulting on those loans. With Ratesetter, you select the market you’re happy to loan to and let the site do its work. The longer you’re happy to let your money sit, the higher the interest, though the rates are excitingly dynamic and you can set your own rates (albeit if you insist on 19%... it could be a long while until you’re taken up ;) ). I was nervous initially, but have had great experiences, and if it’s intimidating you can do just what we did: use their referral scheme, invest £1,000 for one year and get £100 on top of the interest earned on your money. Sticking to the Rolling Market, you can usually pick up 3%, making for an in year profit of £130 or 13%. I used this offer myself, following a UK finance blogger I love and have stuck with Ratesetter ever since. I don’t keep a huge amount in there, but for a diversifying option and easy entry into investing, it’s been a great choice. If you use our referral link then you’ll be helping us at Havenwards out, giving £100 to you and £50 (or 5 months hosting) for us.
Patience is Powerful
These options are wonderful at demystifying investing, which in turn can get more people making the most of their savings and thereby securing their future. Investment carries risk of course, but far less than you likely think and it’s essentially an issue only if you’re time pressured. If I desperately needed money in April 2018, I’d have been a little under - with an emergency fund in place, I can leave funds where they are to grow over £400 at the time of writing. As ever with Havenwards, patience is powerful.