Stock and Shares – having mentioned them to quite a few people the usual response is, “Oh I’m not really sure about that, prefer to hold cash”. I get it 100% – I wouldn’t be pouring my money into something I didn’t understand either. However, if that’s you, you’re missing out on the opportunity to make money two ways.
Now I’m sure most of us were told that we should save some money for a rainy day. Whether we do or not is another matter, however let’s assume we do. So we go to work, earn money and save some money. As long as we have something set aside we should be alright surely? Possibly, but looking at the bigger picture we need to think about how our money will work for us over time.
If we want to be smart with our money and reach our goals – we need to get the most bang for our buck.
I have always set something aside from my salary even when earning a low income. Without any other financial safety net to fall back on it was essential to have some kind of emergency fund if that rainy day came.
Learning more about money increased my awareness of inflation. We all feel the effects, even if we don’t know it by name.
Inflation= general increase in prices and fall in the purchasing value of money.
Older Millennials, like myself, will remember a time when a Snickers bar (my childhood go to chocolate bar) was 27p. Fast forward 15 years and that same bar is around 60p! Not only is that more than double the cost but the bar has shrunk in size (double blow!). This is inflation in action.
If we look at cash, £500 spent today will buy more than £500 spent in years to come.
If we assume inflation is around 2%, any interest on savings would need to be at least 2% to maintain its purchasing value (i.e. buy the same amount in future that it could buy today). You need an even higher interest rate to achieve a real return on your money.
Nonetheless cash does have its benefits – it’s ready to use, therefore despite it not working so hard in the current climate, it serves a purpose. Be sure to hold some as your emergency fund.
Stocks & Shares
You can own a share of an individual company or invest in a fund that spreads its investments over multiple organisations (mutual fund).
I was late getting involved in stocks and shares. I’d never explored how and hadn’t appreciated how they could help boost my financial position. As the saying goes, better late than never as the returns so far have well and truly exceeded inflation.
The journey with your investments won’t all be one way. There will be downs as well as ups (as many who held portfolios during the Great Recession would testify). With the downs things may seem to get worse before they get better. The key is making regular investments.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” ― Warren Buffett
Think of purchases in down periods as a bargain sale in which you can pick up more units for less. Then enjoy the gains on these cheaper units when the market recovers. This is the complete opposite of what the most people do (buying when prices are high and selling low).
Time to get multiple baskets
As the saying goes don’t put your eggs in one basket. Building wealth should involve different types of assets (e.g. cash, stocks/shares, property, business).
The average millionaire is said to have 7 streams of income. Why not have the same protection? As we all know jobs can go, value of currency can fall (think Brexit impact on GBP), interest rates can tumble…. you get the drift.
Make investing part of your financial journey.
For those in the UK you have the benefit of your stocks and shares ISA where gains are tax free. If you are still holding all your money in cash, take the leap into investing. You don’t need huge amounts to get started. Start diversifying your income today!
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