‘Investing’ is a word that brings to mind pinstripe suits, smoky boardrooms, or slimy Jordan Belfort-types carrying out scams on a massive scale. Well, it is for me anyway. Until very recently I thought that it was the preserve of people with far more confidence – and money – than I had.
But recently I have realised that I should be making my money working harder just to make sure I wasn’t losing out. With inflation remaining well above 10 per cent, any cash I have in savings is technically depreciating in value every day.
Today, investing is something you can do during your lunch break with little more than a smartphone app and a small amount of spare cash. In 2022, at the beginning of a recession with stock markets not exactly racing up, it may seem a very bad to time to take the plunge.
But if you have the spare money, which granted is an enrmous if right now, it’s actually a very good time because many investments have gone down in value meaning you could get more for you money than if you invested at the top of the market and you’ve got a long-term view. In this column, I’ll be taking you through my efforts to beat inflation with a small amount of cash to show you how I fare.
It might surprise you to know that even though I’m a financial journalist, I’m not confident about riding the stock market. I’ve had a stocks and shares ISA for a while but the returns have been muted at best. It’s where I put money I received for birthdays and other one-offs but I’ve never made any choices about what to invest in. I’ve also saved a little cash from my monthly pay into a Lifetime ISA, if only to help fund the purchase of a house.
But when it comes to deciding on a whole portfolio of investments, let alone picking out individual companies to back, I feel completely overwhelmed. I have a few shares in National Grid bought for me by my grandparents which I was born. These earn a steady dividend – that’s cash that is paid out to investors every six months earning me the tidy sum of £30 a year – but little excitement beyond that. This week, I’ll be taking the first step into the investment world with just £25 to my name. My first decision to make, however, is which trading platform to use.
Though it is possible to start buying stocks and shares directly, most people need a company to do it for them to reduce the costs. Investment platforms are places where you can buy and trade different products for relatively cheap, and the good news is that in 2022 there are a myriad different platforms that allow you and I – what are known as “retail investors” in the industry – to back companies we like the sound of. The days of phoning up a pinstriped broker to place your deals are long gone.
You may be familiar with some of the websites: Robinhood, the platform at the centre of the Gamestop stock controversy, or the largest traditional UK platform, Hargreaves Lansdown, which had nearly 700,000 users by the end of 2021, and more than quarter of a million clients signing into its app daily. Earlier this year AJ Bell, another leading platform, launched an app called Dodl that offers commissions-free trading, targeted at younger investors.
There are a few questions to ask before selecting a platform. First off: which investments would you like to target: shares, funds, trackers?*** (see below if you don’t know what any of these things mean – and don’t worry, I didn’t have the foggiest until I had to for my job, either).
Another point to consider is how much you want to pay (in my case: as little as possible). All platforms include some sort of charge for using their services: while some have a flat fee based on the amount of products you are buying and selling, others charge according to how many times you trade (ie buy or sell). Other users can be billed a percentage of the value of their holdings – this tends to favour people with large sums to invest – or only when they withdraw their funds into their bank accounts.
One of the cheapest apps available is Freetrade, which does not charge any trading or platform fees. It only offers access to a limited range of stocks – mostly larger UK and US companies – but offers more options to those who upgrade to a Plus account for £9.99.
Other platforms will offer you automatic advice. These apps, also known as “robo-investing” platforms, can be helpful to investors who are new to the financial world, and offer pre-picked investments for you to choose from (you just answer a few simple questions re your risk appetite and what type of things you want to invest in, and it offers you some options). In other words, these apps have experts that decide what to do with your money on your behalf.
Among these is Moneyfarm, which you need £500 to open and which offers fees starting at 0.75 per cent for portfolios actively managed by its investment experts, or 0.45 per cent for its automatic product; and Nutmeg, where fees starting at 0.75 per cent for its actively managed funds, plus fund costs at an average of 0.21 per cent.
It is also to consider why you are investing, as some apps offer products tailored for particular uses. Pensionbee, as the name suggests, is focused on saving for your retirement, and has a selection of ethical or Sharia-compliant funds. If you’re focused on building up your savings, then Plum might suit: it plugs into your bank account to analyse your spending habits and scrape off any extras into a pot that you can use to invest in ready-made stock portfolios.
If you’re feeling a bit more comfortable with investing, you might like a “full-service” app like the one offered by Fidelity. You will have access to the full range of funds: stocks, shares, bonds and other assets. Though it’s not the cheapest platform out there, Fidelity’s fees are reasonable – starting at 0.67 per cent for its cheapest funds – but it does require a £1,000 lump sum in order to open an investing account.
If you’re not sure about the answers any of these questions, a great place to start can virtual trades. Apps like Trading212 let users practice their investments for as long as they like in order to learn the ropes without losing (or gaining) anything.
As for me, I’m going with Etoro. It allows me to open an account with just £10 – good news for my small budget – and gives me access to a pretty wide range of investment options. It doesn’t charge any commission or fees on trading, and is authorised and regulated by the Financial Conduct Authority, which means my deposits are protected to some extent. It also has a feature called “CopyPortfolio” which lets any user copy the portfolio of users who are getting the best returns. It means that if you want to follow my picks, you can! Though you might want to give me a few weeks before you turn to me to make your millions….
Laurie will report back next week with the first picks for his portfolio.
Glossary of terms
STOCKS
When companies need a bit more money to expand or otherwise fuel their growth, they can ask investors to put in a certain amount of money in return for a small slice of the entire company. These slices are called “stocks”, and are bought and sold on stock exchanges around the world.
DIVIDENDS
Some companies have “dividend-paying stocks”, which will pay investors a small slice of their profits depending on how many stocks are held. Dividends are useful when you are investing your money for a consistent, long-term return – or “yield” – as opposed to trying to make money quickly.
BONDS
Another way that companies can raise money is to issue an IOU to investors in the form of a bond. In return for the loan, the company will pay back the investor a steady stream of money, known as a “yield”. Bonds are also issued by governments to fund their spending.
FUND
A pool of money that is brought together for a specific purpose. These are run by investment banks or other companies, and you can add your cash into the pool in order to have a proportionate share of the proceeds – or losses – when they happen.
TRACKER FUNDS
Trackers: this is when a computer mimics an index – say the London Stock Exchange – so your investment goes up or down in line with the performance of the index. Trackers don’t involve an expensive tesla-driving fund manager, so the fees are much lower, and you are able to keep a bigger chunk of your profits. Usually their performance outperforms funds that do have a fund manager (known as actively managed funds)
