Latest / A Little Bit Richer / Take Your First Investment Steps
Transcript
- 0:01Kia: Hey. It is Kia. The world of investments can sometimes
- 0:04Kia: seem like a really murky, confusing place. There's a lot
- 0:07Kia: of loud voices on the internet talking about stuff like Bitcoin
- 0:09Kia: and NFTs, and it can really make investments seem like
- 0:13Kia: an extremely risky thing. That's only for the chosen few.
- 0:16Kia: If you have some money that you'd like to see
- 0:18Kia: grow, then this episode should be able to help you
- 0:20Kia: understand what to consider and be wary of. There are
- 0:24Kia: different levels of risk and you don't have to be
- 0:26Kia: a tech pro to get investing. With me to get
- 0:29Kia: into all of this is Timi Merriman- Johnson. Timi is
- 0:32Kia: the founder of Mr MoneyJar, a financial education company, and
- 0:35Kia: he's also a podcast star and author. So Timi, let's
- 0:40Kia: get into it. Can you give me a very entry
- 0:43Kia: level explanation on what investing actually is and what is
- 0:49Kia: and isn't considered an investment?
- 0:51Timi Merriman-Johnson: Sure thing. And thanks for having me here. I like
- 0:53Timi Merriman-Johnson: to think of investing as a long- term form of saving where
- 0:56Timi Merriman-Johnson: we set aside money today in expectation of a return
- 1:00Timi Merriman-Johnson: in the future. If we don't expect the return, then
- 1:04Timi Merriman-Johnson: we might be gambling or speculating, and if we expect
- 1:08Timi Merriman-Johnson: the return right away, then we're trading. So it's just
- 1:10Timi Merriman-Johnson: very important to know the difference between those three things.
- 1:13Kia: I think that's very key. I think sometimes when you
- 1:16Kia: think about investing, you think about people with those charts,
- 1:18Kia: like you said, the trading, but I think that breakdown
- 1:22Kia: really just makes it simple for people to understand. So
- 1:26Kia: really and truly, anyone who has something like a workplace
- 1:29Kia: pension is already an investor, right?
- 1:32Timi Merriman-Johnson: Yeah, absolutely. So in the UK at the moment, if
- 1:34Timi Merriman-Johnson: you work for a company and you earn more than 10,
- 1:37Timi Merriman-Johnson: 000 pounds per tax year and you're age over 22,
- 1:41Timi Merriman-Johnson: you'll be auto- enrolled into a pension. And this money
- 1:44Timi Merriman-Johnson: isn't saved in cash. It's actually invested for you, albeit
- 1:47Timi Merriman-Johnson: very much happening in the background over the course of
- 1:50Timi Merriman-Johnson: your career so that when you come to retire you
- 1:52Timi Merriman-Johnson: have a pot of money to either stop working or
- 1:55Timi Merriman-Johnson: to work a bit less. So yes, if you pay
- 1:57Timi Merriman-Johnson: into workplace pension, you're already an investor, which is a
- 1:59Timi Merriman-Johnson: fantastic thing.
- 2:00Kia: So let's bring it back then. So if we're talking
- 2:03Kia: someone who's brand new to investing, what are the products
- 2:06Kia: that they should consider looking at?
- 2:08Timi Merriman-Johnson: So there's a few different types of investing accounts you
- 2:10Timi Merriman-Johnson: can use. There are stocks and shares ISAs. There are
- 2:14Timi Merriman-Johnson: lifetime stocks and shares ISAs, and there are also pension
- 2:17Timi Merriman-Johnson: accounts, which we just mentioned, they're also a type of
- 2:19Timi Merriman-Johnson: investment account. But if you're a beginner, you may want
- 2:22Timi Merriman-Johnson: to start investing into a fund in a stocks and
- 2:24Timi Merriman-Johnson: shares ISA as that lends itself well to people who
- 2:27Timi Merriman-Johnson: are investing for the first time.
- 2:28Kia: So how does that work? Is it, you just put
- 2:30Kia: money into that and that gets invested on your behalf if you
- 2:33Kia: put your money to a fund?
- 2:34Timi Merriman-Johnson: When you open a stocks and shares ISA with an
- 2:36Timi Merriman-Johnson: investment platform, you have to nominate a bank account that
- 2:40Timi Merriman-Johnson: you're going to top up that stocks and shares ISA
- 2:42Timi Merriman-Johnson: with and then you can choose which fund you want to put
- 2:46Timi Merriman-Johnson: that money into, so it's a two- step process.
- 2:48Kia: But it makes that process a lot easier. You don't have to figure out
- 2:51Kia: what to actually invest into, specific stocks. It just makes
- 2:54Kia: it beginner- friendly. You put your money in there and
- 2:57Kia: I guess, invest on your behalf.
- 2:58Timi Merriman-Johnson: Yeah.
- 2:58Kia: Amazing.
- 2:59Timi Merriman-Johnson: And then as we just said, pension accounts are also
- 3:02Timi Merriman-Johnson: a type of investment account as well. They are called
- 3:05Timi Merriman-Johnson: self invested personal pensions or SIPS for short, and they
- 3:09Timi Merriman-Johnson: have their own annual allowance of 60,000. If you pay
- 3:13Timi Merriman-Johnson: into stocks and shares ISA, let's say you max out
- 3:15Timi Merriman-Johnson: at 20,000 pounds and your investment grows, you get to keep
- 3:19Timi Merriman-Johnson: that additional tax- free. You don't pay any capital gains
- 3:22Timi Merriman-Johnson: tax or any tax on the income that you make
- 3:25Timi Merriman-Johnson: through dividends and that sort of thing.
- 3:27Kia: I mean, anytime I hear things are tax- free and
- 3:29Kia: we get money, to me it always-
- 3:31Timi Merriman-Johnson: We want to get money.
- 3:31Kia: ... puts a smile on my face. It makes me happy if we can bring home
- 3:35Kia: some extra money, we don't have to give it to
- 3:36Kia: taxes. That's always a good thing, isn't it?
- 3:38Timi Merriman-Johnson: Yeah.
- 3:38Kia: I remember when it comes to investing, I remember I
- 3:40Kia: started investing at 20 and I did what you just
- 3:45Kia: explained. I downloaded a platform and I signed up, and
- 3:48Kia: I remember at 20 I'm in university and I remember thinking, "
- 3:50Kia: Wow, this is all brand new." But it was so
- 3:53Kia: exciting to start to learn. I mean, I didn't start
- 3:56Kia: investing straight away. I did what you just mentioned. I
- 3:58Kia: researched on all of them and found the best one
- 3:59Kia: for me. But I think you breaking it down just
- 4:02Kia: shows that it isn't scary as people may seem. It
- 4:06Kia: is quite accessible, I think it is.
- 4:08Timi Merriman-Johnson: It's accessible and it's arguably the most accessible it's ever
- 4:12Timi Merriman-Johnson: been because of the number of different platforms available. And
- 4:15Timi Merriman-Johnson: I must say it's really great that you got started
- 4:17Timi Merriman-Johnson: when you're 20. I got started investing when I was
- 4:19Timi Merriman-Johnson: in my mid 20s and I wish I could have
- 4:22Timi Merriman-Johnson: started sooner because a key component of investing is compounding.
- 4:27Timi Merriman-Johnson: So the great thing about the fact that you started
- 4:29Timi Merriman-Johnson: so early is that even starting with just small stems
- 4:33Timi Merriman-Johnson: and investing regularly gives your investments a longer period of
- 4:36Timi Merriman-Johnson: time to grow and compound over time. And compounding is
- 4:40Timi Merriman-Johnson: basically where you get growth on top of the growth
- 4:43Timi Merriman-Johnson: that you already have. There's a exercise I like to
- 4:46Timi Merriman-Johnson: do when I give talks. I'll say to people, " What
- 4:49Timi Merriman-Johnson: would you much rather have 10 million pounds today or
- 4:51Timi Merriman-Johnson: one pound coin that doubles every day for 30 days?"
- 4:54Timi Merriman-Johnson: And people can tell that it's a trick question. So
- 4:56Timi Merriman-Johnson: they'll go for the one pound coin and I'm like, "
- 4:58Timi Merriman-Johnson: Yeah, you're quite right. If you take the 10 million
- 5:01Timi Merriman-Johnson: pounds today, fair enough, you're a multimillionaire. But if you
- 5:03Timi Merriman-Johnson: double one pound 30 times, then you're a billionaire because
- 5:07Timi Merriman-Johnson: that's how compounding works with each additional day, your money
- 5:10Timi Merriman-Johnson: is doubling and it can grow exponentially."
- 5:13Kia: Compounding is the way. Let your money grow, put your
- 5:16Kia: money in, the growth can be on top of that
- 5:18Kia: growth. We love that. I think we've been talking about
- 5:21Kia: investing and I think it's also worthwhile mentioning that some employees
- 5:25Kia: are actually now offering workplace ISAs. So the benefits of
- 5:28Kia: these is that they're convenience. You can paint to them
- 5:31Kia: through salary deductions, that's through regular payments or through a
- 5:34Kia: lump sum, and the service charges on them are usually
- 5:37Kia: better than they would be if you set it up
- 5:39Kia: independently. It's available for people through their employers, so it's
- 5:43Kia: also worth additional consideration for people to have a look
- 5:46Kia: at. Now, Timi, I want to talk about something. I
- 5:49Kia: want to talk about risk. So when we talk about
- 5:53Kia: investing, we know there's obviously higher risk attached to investing
- 5:57Kia: than let's say putting money in a savings account, but what
- 6:01Kia: kind of housekeeping should our listeners do to prepare for
- 6:05Kia: this additional risk?
- 6:07Timi Merriman-Johnson: Risk and understanding your attitude to risk is very, very
- 6:10Timi Merriman-Johnson: important when it comes to investing because it must be
- 6:13Timi Merriman-Johnson: said from the very beginning that there's no such thing
- 6:15Timi Merriman-Johnson: as a 100% risk- free investment. You're always taking on
- 6:19Timi Merriman-Johnson: a degree of risk when you set that money aside
- 6:21Timi Merriman-Johnson: in the expectation of that future return. But the reason why
- 6:25Timi Merriman-Johnson: we invest is because, and we can see at the
- 6:28Timi Merriman-Johnson: moment with the rising cost of living is that cash
- 6:31Timi Merriman-Johnson: tends to lose its value over time due to inflation.
- 6:35Timi Merriman-Johnson: And so we invest so that hopefully our cash can
- 6:38Timi Merriman-Johnson: grow at a rate faster than inflation and we can
- 6:42Timi Merriman-Johnson: see that that's happening in the UK at the moment.
- 6:45Timi Merriman-Johnson: But as you said, there are some very important housekeeping
- 6:49Timi Merriman-Johnson: things to do before we invest. Number one is to
- 6:52Timi Merriman-Johnson: look at paying down high interest consumer debt. We know
- 6:56Timi Merriman-Johnson: from the data that the average interest rate on an
- 6:58Timi Merriman-Johnson: overdraft is about 40%. We know the average interest rate
- 7:02Timi Merriman-Johnson: on a credit card is about 20%, and to get
- 7:06Timi Merriman-Johnson: a 20% return on an investment year in year out
- 7:09Timi Merriman-Johnson: would make you one of the best investors in the
- 7:11Timi Merriman-Johnson: world. It'd make you a Warren Buffet level investor. And
- 7:15Timi Merriman-Johnson: so if you have high interest consumer debt, it's worth
- 7:18Timi Merriman-Johnson: looking at either taking that to 0% or paying it
- 7:21Timi Merriman-Johnson: down because that's money that you're losing. The other thing
- 7:24Timi Merriman-Johnson: to look at is, so we said investing is a long-
- 7:28Timi Merriman-Johnson: term form of saving, but short- term savings are important
- 7:31Timi Merriman-Johnson: too. And so the very first place to start is
- 7:34Timi Merriman-Johnson: your emergency fund. So the way to think about your
- 7:38Timi Merriman-Johnson: emergency fund is if you were to lose your primary
- 7:41Timi Merriman-Johnson: source of income or an emergency was to happen, do
- 7:44Timi Merriman-Johnson: you have enough money to get yourself through that without
- 7:47Timi Merriman-Johnson: having to rely upon debt? Saving an emergency fund before
- 7:51Timi Merriman-Johnson: you invest means that should your investments fluctuate in value,
- 7:54Timi Merriman-Johnson: which they will do from time to time, you have
- 7:57Timi Merriman-Johnson: a pot of cash in cash that you can draw
- 8:00Timi Merriman-Johnson: upon. The other thing to look at is things you'd
- 8:03Timi Merriman-Johnson: like to do or have in the next year or
- 8:05Timi Merriman-Johnson: two. As we said, investings for the long term, we tend
- 8:07Timi Merriman-Johnson: to think of it in terms of years and decades
- 8:09Timi Merriman-Johnson: rather than in weeks or months. So if you're looking
- 8:11Timi Merriman-Johnson: at the next one to two years and you have
- 8:13Timi Merriman-Johnson: things that you'd like to do or have, this could be
- 8:16Timi Merriman-Johnson: buying Christmas presents, going on holiday, saving for a house
- 8:20Timi Merriman-Johnson: deposit will be a big financial milestone for a lot
- 8:22Timi Merriman-Johnson: of people. Making sure that you're saving towards those goals
- 8:25Timi Merriman-Johnson: as well is very important. Then anything over and above
- 8:29Timi Merriman-Johnson: that can go into investments. That's money that you don't
- 8:32Timi Merriman-Johnson: need today and that's going to work for you going forwards.
- 8:35Kia: I think that's good points that you've made about understanding
- 8:38Kia: risk and preparing for it. And I think I'm very
- 8:42Kia: big on emergency funds because we never know what's going
- 8:45Kia: to happen. It's so key to have a pot of
- 8:47Kia: money saved there just in case things happen.
- 8:50Timi Merriman-Johnson: And I'm really pleased to say that I think the
- 8:53Timi Merriman-Johnson: pandemic has actually changed a lot of our attitudes-
- 8:56Kia: It has.
- 8:56Timi Merriman-Johnson: ... to risk as well. Earlier on in my career,
- 8:59Timi Merriman-Johnson: the idea of having a pot of money set aside
- 9:02Timi Merriman-Johnson: for seemingly no reason at all seemed very arbitrary to
- 9:05Timi Merriman-Johnson: me. It's not something that I necessarily wanted to do,
- 9:07Timi Merriman-Johnson: but I think the pandemic has shown a lot of
- 9:09Timi Merriman-Johnson: us that you can lose your primary source of income
- 9:12Timi Merriman-Johnson: and things can happen, your situation can change, particularly for
- 9:16Timi Merriman-Johnson: younger savers. They're actually really thinking about it and doing
- 9:19Timi Merriman-Johnson: it in a very sophisticated way. So even though we're
- 9:22Timi Merriman-Johnson: saying it on this podcast, I speak to lots of
- 9:24Timi Merriman-Johnson: people that are doing this already and I think it's great.
- 9:26Kia: Timi, what advice would you give to our listeners who
- 9:31Kia: are deciding, " Yes, I want to start investing," but they're
- 9:35Kia: trying to figure out what is the right investment for them?
- 9:38Timi Merriman-Johnson: That's a really good question. I think there'll be lots
- 9:42Timi Merriman-Johnson: of different things to look at. Knowing how long you
- 9:45Timi Merriman-Johnson: want to invest for will be a really key thing.
- 9:49Timi Merriman-Johnson: Like we were talking about risk, yes, you can invest
- 9:52Timi Merriman-Johnson: into individual stocks, for example, but that's actually the riskiest
- 9:57Timi Merriman-Johnson: way to own company shares, so you may want to
- 10:00Timi Merriman-Johnson: look at funds for example. We know that there's a
- 10:04Timi Merriman-Johnson: growing appetite for ethical investments, and so if you want
- 10:08Timi Merriman-Johnson: to invest in a way that doesn't invest in arms
- 10:11Timi Merriman-Johnson: or tobacco or that sort of thing, then that might
- 10:14Timi Merriman-Johnson: be a investment that's right for you. But also people with
- 10:18Timi Merriman-Johnson: particular values like religious values, you may want to invest
- 10:22Timi Merriman-Johnson: in like Shariah funds or Halal funds, that's another way
- 10:24Timi Merriman-Johnson: that you can look at it. But I think the
- 10:26Timi Merriman-Johnson: most important thing when it comes to investing and deciding
- 10:29Timi Merriman-Johnson: what investment is correct for you is investing in something
- 10:33Timi Merriman-Johnson: that you fundamentally understand. So if you're investing into something
- 10:37Timi Merriman-Johnson: because you've seen a hot stock tip on social media
- 10:40Timi Merriman-Johnson: or your mate's doing it or you've seen something in
- 10:43Timi Merriman-Johnson: the news, that's probably not the way that you want
- 10:46Timi Merriman-Johnson: to go about investing. You want to have a sense
- 10:48Timi Merriman-Johnson: of why you're investing into it, whether it aligns with
- 10:51Timi Merriman-Johnson: your values for how long you're investing into it so
- 10:54Timi Merriman-Johnson: that should the value of the investment come down as
- 10:58Timi Merriman-Johnson: it sometimes happens, you're not panicking because you haven't made
- 11:01Timi Merriman-Johnson: a decision copying someone else. You've actually done your own
- 11:04Timi Merriman-Johnson: research into that investment.
- 11:05Kia: I agree with you, and I think it's also worthwhile
- 11:08Kia: adding on to what you said that personal finance and
- 11:11Kia: investing is just that. It is personal.
- 11:14Timi Merriman-Johnson: Personal finance is personal.
- 11:14Kia: Exactly. So what you might do versus what I might
- 11:18Kia: do versus what your mom might do are probably going
- 11:20Kia: to be three different things going on. So it's all
- 11:23Kia: about finding and deciding what's best for you and sticking
- 11:27Kia: to that. So to run off this episode then, Timi,
- 11:29Kia: I'm going to ask you the question that I always
- 11:32Kia: ask at the end of the episode. What are the three tips that
- 11:35Kia: you'd give to our listeners to help them get a
- 11:37Kia: little bit richer?
- 11:40Timi Merriman-Johnson: I think the first thing, and we touched upon this earlier on in the episode,
- 11:42Timi Merriman-Johnson: is to try to stay away from high interest consumer
- 11:45Timi Merriman-Johnson: debt. And if you have it, try to see if
- 11:47Timi Merriman-Johnson: you can pay it down or get it to a
- 11:50Timi Merriman-Johnson: lower interest rate. The second thing is to save up
- 11:52Timi Merriman-Johnson: that emergency fund. The future is uncertain, but you'll know
- 11:55Timi Merriman-Johnson: that if something comes up, you'll be able to put
- 11:57Timi Merriman-Johnson: yourself through that. And then to set aside small amounts
- 12:02Timi Merriman-Johnson: of money every month, invest regularly for the long- term
- 12:06Timi Merriman-Johnson: and you should be financially better off at the end
- 12:08Timi Merriman-Johnson: of that.
- 12:08Kia: Timi, thank you so much. You always give such amazing
- 12:11Kia: gems and that was no different, so thank you so
- 12:14Kia: much for coming onto this episode. This has been great.
- 12:17Kia: So a couple of things to say about all this,
- 12:19Kia: please don't put money into high risk investments that you
- 12:21Kia: cannot afford to lose. I know it sounds obvious, but
- 12:25Kia: it's always worth keeping in mind. Once you're up and
- 12:27Kia: running, investment can be a great way to take more
- 12:30Kia: control over your finances and so can self- employment, which
- 12:33Kia: I'm going to be exploring next week. But while you
- 12:37Kia: wait, be sure to follow and tell your mates about
- 12:39Kia: the podcast. Well, that's if you have time after you've
- 12:43Kia: sorted your investment portfolio, of course. Bye.