Investing for beginners can seem very daunting but it doesn’t need to be this way. In fact, investing is incredibly easy if you spend a bit of time learning the ropes. Just a few minutes here and there could shave decades off your working life and set you financially free.
Let’s Look At Five Frequently Asked Questions
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1) Where To Put My Emergency Fund?
We regularly get asked this as if we have got a secret investment opportunity that somehow gives safe and yet enormous investment returns with instant liquidity. Liquidity refers to how easily assets can be converted into cash at its intrinsic value.
This means the value determined through fundamental analysis without reference to its market value. Or more simply what it should be worth even if the actual price is different.
So, property is very illiquid, as it can take several months to sell, and you may have to sell below its “real” value. And with stocks and shares you might be able to sell quickly but you may be forced to sell below its intrinsic value.
An emergency fund must be accessible and not prone to sudden value declines. This means the only place to store an emergency fund is in cash, whether that be in physical cash or a bank.
All is not lost as you can take advantage of some savings accounts and even higher interest regular savers on the proviso that you have instant penalty free access.
Unfortunately, an emergency fund is just one of those things we must all have despite inflation destroying its value.
In time your other assets will dwarf it, so the fact your emergency fund is doing nothing won’t be such a big problem.
2) What Is The Minimum Money Needed To Invest?
You can generally start as low as £25. But often it’s not the forced minimum you need to be concerned about- It’s the minimum required to have a diversified portfolio that you need to be aware of.
If investing just in stocks, we traditionally would have said £6k in order to get basic diversification but with new “free” platforms, you can practically start with nothing.Of course, we never encourage beginners to start with a purely stocks-based portfolio due to the risks.
If you go down the fund route, which we always encourage, most traditional investment platforms have a minimum monthly investment of £25 and a monthly trade cost of about £1. But it’s better to do more than £25 if you can to reduce the impact of the regular trading fee.
You might be thinking“I’ll go with the free platforms”; but be aware they are limited in the service they offer and the investment choice.
3) Which Is The Best Investment Platform?
This must be the most frequent question along with “what platform do we use?” The truth is there is no single best platform and what we use is probably not right for you, as there are so many different variables. It also depends on what account you are using such as ISA, SIPP and so on.
Perhaps we can summarise the platforms into categories and you can choose the one best suited to you:
- “Free” but no frills
- Try Freetrade or Trading212.com – The investing part, not CFDs
- Low Cost Percentage Based Fee with decent service offering – For small pots
- AJ Bell
- Low Cost Fixed Fee with decent service offering – For Bigger pots
- Interactive Investor
- Dirt Cheap Vanguard Funds Only
- Vanguard
- Cheap Robo Investing Platform i.e. do it all for me
- Nutmeg
Some people mention trading sites such as Plus500 or etoro but these are not investment platforms.These are trading platforms where you trade CFDs. We don’t currently gamble in CFDs and something like 80% of those who do, lose money.
4) What Will Happen After Brexit?
Long term we will probably flourish and that is whether we are in the EU or Out. We’ve never understood all the negativity. The best approach is to just decide and get on with it. Indecisiveness is the only problem.
Personally, we both think we will be better off out long term but Britain is a great country and has been for thousands of years- This will continue either way.Leaving without a deal would probably see short term issues as we need to arrange so many things that we as a nation haven’t been responsible for, for decades.
And of course, some companies would want to adjust their operations. Perhaps to get better access to Europe and perhaps better access to the UK.Whatever you do, make sure you have a global diversified portfolio and laugh at everyone else worrying over nothing.
5) Should I Invest in Vanguard LifeStrategy and another Vanguard fund?
We have regularly promoted the Vanguard LifeStrategy fund as a great fund for beginners because it is dirt cheap, and has enormous world diversification but with a UK focus.
But we often get asked whether they should buy this fund or that fund to go with it. This could be the Vanguard S&P500 as an example.One of the main reasons to buy the LifeStrategy fund is because it’s a one stop shop. You don’t need anything else.
In our opinion the only reason to buy another fund is if you wanted to adjust the allocation. For instance, if you thought the LifeStrategy fund was too UK focused you could indeed buy some more S&P500 to alter this.
Just be careful that you are not altering it with the intention of increasing diversification, as in reality, you could be lowering it.
What other money or investing questions need answering? Let us know in the comments section!
