Growing your savings takes time – you really can’t start too soon
There’s an old saying that goes: “The best time to plant a tree was 20 years ago. The second best time is now”. It’s a great analogy for investing – the earlier you start the better, so don’t put it off because you think you are too late. Getting into the habit of regular saving can make a real difference to your finances later in life.
KNOWING WHEN THE TIME IS RIGHT
Life and having fun will always get in the way of saving. But when your life and career are on a stable footing, there will be limited excuses for not investing, because it is such an important thing to do.
You can start by saving within Isas. Then you can begin investing in assets that, over the long term, should generate higher returns than cash. Thanks to the flexibility of the new Isa, cash and investments can now be combined and mixed.
If you can, and especially if your employer will make contributions, start a pension as early as possible. It really is time in the market that’s important here, and giving your investment a long time to grow will give you a great chance of building up a sizeable retirement pot.
There is an adage that, if you want to retire at 65 on a half-decent salary, and you start saving in your 20s, you need to save 20 per cent of your income. It’s 30 per cent if you begin in your 30s, and 40 per cent in your 40s. Starting early can really help.
If you are in your 40s and don’t have a pension, please don’t let me put you off. Even if you can’t save 40 per cent of your income, something is better than nothing. It is highly unlikely that anyone under the age of 45 will be able to rely on a state pension, so the choice is to either work until you drop, or save what you can.
HOW TO GET STARTED
The world of investing can be daunting, so I’d strongly advise that you do some thorough research – you don’t want to get swayed by promises of high performance, only to find disappointing returns.
Don’t assume that all investments are built equal. Many people fall into the trap of investing all of their savings into one fund. Perhaps they are lured in by a star fund manager, or a fund at the top of a ratings table. Understand what you’re investing in, and spread out investments to protect your money.
Depending on how you’re investing, you might need an initial pot of capital to begin. If you’re a DIY investor (i.e. buying stocks in individual companies), there may not be a minimum amount. Some providers ask for a minimum of £1,000 with an ongoing monthly contribution. And then there are providers of “wealth management services” at the other end of the spectrum, which won’t take customers with less than £1m.
Fees really matter, and sometimes the slickest offerings charge the most, so watch out. Make sure that you understand the fees and ongoing costs – they make a bigger difference than you could imagine.
When’s the best time to start investing? The answer is as it has always been: right now.
Nick Hungerford is chief executive of Nutmeg. www.nutmeg.com