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