WEBVTT - Take Your First Investment Steps 0:00:01.080 --> 0:00:04.230 Hey. It is Kia. The world of investments can sometimes 0:00:04.230 --> 0:00:07.170 seem like a really murky, confusing place. There's a lot 0:00:07.170 --> 0:00:09.630 of loud voices on the internet talking about stuff like Bitcoin 0:00:09.630 --> 0:00:13.530 and NFTs, and it can really make investments seem like 0:00:13.530 --> 0:00:16.409 an extremely risky thing. That's only for the chosen few. 0:00:16.859 --> 0:00:18.419 If you have some money that you'd like to see 0:00:18.420 --> 0:00:20.669 grow, then this episode should be able to help you 0:00:20.670 --> 0:00:24.390 understand what to consider and be wary of. There are 0:00:24.390 --> 0:00:26.669 different levels of risk and you don't have to be 0:00:26.670 --> 0:00:29.429 a tech pro to get investing. With me to get 0:00:29.429 --> 0:00:32.699 into all of this is Timi Merriman- Johnson. Timi is 0:00:32.700 --> 0:00:35.879 the founder of Mr MoneyJar, a financial education company, and 0:00:35.879 --> 0:00:40.260 he's also a podcast star and author. So Timi, let's 0:00:40.260 --> 0:00:43.560 get into it. Can you give me a very entry 0:00:43.560 --> 0:00:49.019 level explanation on what investing actually is and what is 0:00:49.019 --> 0:00:50.580 and isn't considered an investment? 0:00:51.179 --> 0:00:53.098 Sure thing. And thanks for having me here. I like 0:00:53.098 --> 0:00:56.880 to think of investing as a long- term form of saving where 0:00:56.880 --> 0:01:00.450 we set aside money today in expectation of a return 0:01:00.450 --> 0:01:04.499 in the future. If we don't expect the return, then 0:01:04.500 --> 0:01:08.400 we might be gambling or speculating, and if we expect 0:01:08.400 --> 0:01:10.830 the return right away, then we're trading. So it's just 0:01:10.830 --> 0:01:13.439 very important to know the difference between those three things. 0:01:13.949 --> 0:01:16.319 I think that's very key. I think sometimes when you 0:01:16.319 --> 0:01:18.780 think about investing, you think about people with those charts, 0:01:18.780 --> 0:01:22.318 like you said, the trading, but I think that breakdown 0:01:22.319 --> 0:01:26.219 really just makes it simple for people to understand. So 0:01:26.549 --> 0:01:29.640 really and truly, anyone who has something like a workplace 0:01:29.699 --> 0:01:32.190 pension is already an investor, right? 0:01:32.490 --> 0:01:34.919 Yeah, absolutely. So in the UK at the moment, if 0:01:34.920 --> 0:01:37.770 you work for a company and you earn more than 10, 0:01:37.770 --> 0:01:40.889 000 pounds per tax year and you're age over 22, 0:01:41.250 --> 0:01:44.518 you'll be auto- enrolled into a pension. And this money 0:01:44.520 --> 0:01:47.880 isn't saved in cash. It's actually invested for you, albeit 0:01:47.940 --> 0:01:50.010 very much happening in the background over the course of 0:01:50.010 --> 0:01:52.560 your career so that when you come to retire you 0:01:52.560 --> 0:01:55.200 have a pot of money to either stop working or 0:01:55.200 --> 0:01:57.029 to work a bit less. So yes, if you pay 0:01:57.030 --> 0:01:59.520 into workplace pension, you're already an investor, which is a 0:01:59.520 --> 0:02:00.269 fantastic thing. 0:02:00.509 --> 0:02:03.450 So let's bring it back then. So if we're talking 0:02:03.450 --> 0:02:06.629 someone who's brand new to investing, what are the products 0:02:06.630 --> 0:02:08.130 that they should consider looking at? 0:02:08.130 --> 0:02:10.410 So there's a few different types of investing accounts you 0:02:10.410 --> 0:02:14.070 can use. There are stocks and shares ISAs. There are 0:02:14.370 --> 0:02:17.459 lifetime stocks and shares ISAs, and there are also pension 0:02:17.460 --> 0:02:19.679 accounts, which we just mentioned, they're also a type of 0:02:19.679 --> 0:02:22.440 investment account. But if you're a beginner, you may want 0:02:22.440 --> 0:02:24.630 to start investing into a fund in a stocks and 0:02:24.630 --> 0:02:27.000 shares ISA as that lends itself well to people who 0:02:27.000 --> 0:02:28.380 are investing for the first time. 0:02:28.800 --> 0:02:30.900 So how does that work? Is it, you just put 0:02:30.900 --> 0:02:33.419 money into that and that gets invested on your behalf if you 0:02:33.419 --> 0:02:34.290 put your money to a fund? 0:02:34.530 --> 0:02:36.719 When you open a stocks and shares ISA with an 0:02:36.719 --> 0:02:40.649 investment platform, you have to nominate a bank account that 0:02:40.650 --> 0:02:42.749 you're going to top up that stocks and shares ISA 0:02:42.750 --> 0:02:46.080 with and then you can choose which fund you want to put 0:02:46.080 --> 0:02:48.181 that money into, so it's a two- step process. 0:02:48.181 --> 0:02:51.179 But it makes that process a lot easier. You don't have to figure out 0:02:51.179 --> 0:02:54.659 what to actually invest into, specific stocks. It just makes 0:02:54.660 --> 0:02:57.000 it beginner- friendly. You put your money in there and 0:02:57.000 --> 0:02:58.020 I guess, invest on your behalf. 0:02:58.049 --> 0:02:58.289 Yeah. 0:02:58.350 --> 0:02:58.829 Amazing. 0:02:59.400 --> 0:03:02.609 And then as we just said, pension accounts are also 0:03:02.639 --> 0:03:05.460 a type of investment account as well. They are called 0:03:05.490 --> 0:03:09.570 self invested personal pensions or SIPS for short, and they 0:03:09.570 --> 0:03:13.349 have their own annual allowance of 60,000. If you pay 0:03:13.349 --> 0:03:15.989 into stocks and shares ISA, let's say you max out 0:03:15.990 --> 0:03:19.589 at 20,000 pounds and your investment grows, you get to keep 0:03:19.980 --> 0:03:22.889 that additional tax- free. You don't pay any capital gains 0:03:22.889 --> 0:03:25.320 tax or any tax on the income that you make 0:03:25.320 --> 0:03:26.850 through dividends and that sort of thing. 0:03:27.300 --> 0:03:29.250 I mean, anytime I hear things are tax- free and 0:03:29.250 --> 0:03:31.168 we get money, to me it always- 0:03:31.169 --> 0:03:31.351 We want to get money. 0:03:31.351 --> 0:03:35.160 ... puts a smile on my face. It makes me happy if we can bring home 0:03:35.160 --> 0:03:36.630 some extra money, we don't have to give it to 0:03:36.630 --> 0:03:38.220 taxes. That's always a good thing, isn't it? 0:03:38.310 --> 0:03:38.430 Yeah. 0:03:38.790 --> 0:03:40.650 I remember when it comes to investing, I remember I 0:03:40.650 --> 0:03:45.239 started investing at 20 and I did what you just 0:03:45.240 --> 0:03:48.479 explained. I downloaded a platform and I signed up, and 0:03:48.480 --> 0:03:50.940 I remember at 20 I'm in university and I remember thinking, " 0:03:50.940 --> 0:03:53.160 Wow, this is all brand new." But it was so 0:03:53.160 --> 0:03:56.070 exciting to start to learn. I mean, I didn't start 0:03:56.070 --> 0:03:58.050 investing straight away. I did what you just mentioned. I 0:03:58.050 --> 0:03:59.580 researched on all of them and found the best one 0:03:59.580 --> 0:04:02.219 for me. But I think you breaking it down just 0:04:02.220 --> 0:04:06.119 shows that it isn't scary as people may seem. It 0:04:06.120 --> 0:04:08.340 is quite accessible, I think it is. 0:04:08.400 --> 0:04:12.059 It's accessible and it's arguably the most accessible it's ever 0:04:12.059 --> 0:04:14.730 been because of the number of different platforms available. And 0:04:15.000 --> 0:04:17.219 I must say it's really great that you got started 0:04:17.220 --> 0:04:19.350 when you're 20. I got started investing when I was 0:04:19.350 --> 0:04:22.049 in my mid 20s and I wish I could have 0:04:22.050 --> 0:04:26.820 started sooner because a key component of investing is compounding. 0:04:27.240 --> 0:04:29.430 So the great thing about the fact that you started 0:04:29.430 --> 0:04:33.150 so early is that even starting with just small stems 0:04:33.150 --> 0:04:36.928 and investing regularly gives your investments a longer period of 0:04:36.930 --> 0:04:40.049 time to grow and compound over time. And compounding is 0:04:40.050 --> 0:04:43.678 basically where you get growth on top of the growth 0:04:43.678 --> 0:04:46.589 that you already have. There's a exercise I like to 0:04:46.589 --> 0:04:49.229 do when I give talks. I'll say to people, " What 0:04:49.230 --> 0:04:51.810 would you much rather have 10 million pounds today or 0:04:51.810 --> 0:04:54.060 one pound coin that doubles every day for 30 days?" 0:04:54.060 --> 0:04:56.970 And people can tell that it's a trick question. So 0:04:56.970 --> 0:04:58.920 they'll go for the one pound coin and I'm like, " 0:04:58.920 --> 0:05:01.229 Yeah, you're quite right. If you take the 10 million 0:05:01.230 --> 0:05:03.719 pounds today, fair enough, you're a multimillionaire. But if you 0:05:03.719 --> 0:05:07.200 double one pound 30 times, then you're a billionaire because 0:05:07.230 --> 0:05:10.830 that's how compounding works with each additional day, your money 0:05:10.830 --> 0:05:13.590 is doubling and it can grow exponentially." 0:05:13.980 --> 0:05:16.289 Compounding is the way. Let your money grow, put your 0:05:16.290 --> 0:05:18.089 money in, the growth can be on top of that 0:05:18.089 --> 0:05:21.120 growth. We love that. I think we've been talking about 0:05:21.210 --> 0:05:24.990 investing and I think it's also worthwhile mentioning that some employees 0:05:25.020 --> 0:05:28.740 are actually now offering workplace ISAs. So the benefits of 0:05:28.740 --> 0:05:31.440 these is that they're convenience. You can paint to them 0:05:31.500 --> 0:05:34.409 through salary deductions, that's through regular payments or through a 0:05:34.410 --> 0:05:37.678 lump sum, and the service charges on them are usually 0:05:37.678 --> 0:05:39.599 better than they would be if you set it up 0:05:39.839 --> 0:05:43.740 independently. It's available for people through their employers, so it's 0:05:43.740 --> 0:05:46.410 also worth additional consideration for people to have a look 0:05:46.410 --> 0:05:49.440 at. Now, Timi, I want to talk about something. I 0:05:49.440 --> 0:05:53.040 want to talk about risk. So when we talk about 0:05:53.040 --> 0:05:57.659 investing, we know there's obviously higher risk attached to investing 0:05:57.660 --> 0:06:01.770 than let's say putting money in a savings account, but what 0:06:01.770 --> 0:06:05.010 kind of housekeeping should our listeners do to prepare for 0:06:05.010 --> 0:06:06.630 this additional risk? 0:06:07.020 --> 0:06:10.710 Risk and understanding your attitude to risk is very, very 0:06:10.710 --> 0:06:13.589 important when it comes to investing because it must be 0:06:13.589 --> 0:06:15.779 said from the very beginning that there's no such thing 0:06:15.779 --> 0:06:19.169 as a 100% risk- free investment. You're always taking on 0:06:19.170 --> 0:06:21.420 a degree of risk when you set that money aside 0:06:21.839 --> 0:06:25.290 in the expectation of that future return. But the reason why 0:06:25.290 --> 0:06:28.169 we invest is because, and we can see at the 0:06:28.170 --> 0:06:31.200 moment with the rising cost of living is that cash 0:06:31.410 --> 0:06:35.700 tends to lose its value over time due to inflation. 0:06:35.760 --> 0:06:38.849 And so we invest so that hopefully our cash can 0:06:38.850 --> 0:06:42.299 grow at a rate faster than inflation and we can 0:06:42.300 --> 0:06:45.090 see that that's happening in the UK at the moment. 0:06:45.750 --> 0:06:49.469 But as you said, there are some very important housekeeping 0:06:49.469 --> 0:06:52.950 things to do before we invest. Number one is to 0:06:52.980 --> 0:06:56.460 look at paying down high interest consumer debt. We know 0:06:56.490 --> 0:06:58.950 from the data that the average interest rate on an 0:06:58.950 --> 0:07:02.250 overdraft is about 40%. We know the average interest rate 0:07:02.490 --> 0:07:06.178 on a credit card is about 20%, and to get 0:07:06.178 --> 0:07:09.750 a 20% return on an investment year in year out 0:07:09.750 --> 0:07:11.910 would make you one of the best investors in the 0:07:11.910 --> 0:07:15.090 world. It'd make you a Warren Buffet level investor. And 0:07:15.090 --> 0:07:18.000 so if you have high interest consumer debt, it's worth 0:07:18.120 --> 0:07:21.330 looking at either taking that to 0% or paying it 0:07:21.330 --> 0:07:24.840 down because that's money that you're losing. The other thing 0:07:24.840 --> 0:07:28.289 to look at is, so we said investing is a long- 0:07:28.289 --> 0:07:31.380 term form of saving, but short- term savings are important 0:07:31.380 --> 0:07:34.679 too. And so the very first place to start is 0:07:34.680 --> 0:07:38.190 your emergency fund. So the way to think about your 0:07:38.190 --> 0:07:41.219 emergency fund is if you were to lose your primary 0:07:41.219 --> 0:07:44.549 source of income or an emergency was to happen, do 0:07:44.549 --> 0:07:47.519 you have enough money to get yourself through that without 0:07:47.520 --> 0:07:51.120 having to rely upon debt? Saving an emergency fund before 0:07:51.120 --> 0:07:54.960 you invest means that should your investments fluctuate in value, 0:07:54.960 --> 0:07:57.690 which they will do from time to time, you have 0:07:57.690 --> 0:08:00.360 a pot of cash in cash that you can draw 0:08:00.360 --> 0:08:03.330 upon. The other thing to look at is things you'd 0:08:03.330 --> 0:08:05.309 like to do or have in the next year or 0:08:05.309 --> 0:08:07.680 two. As we said, investings for the long term, we tend 0:08:07.680 --> 0:08:09.780 to think of it in terms of years and decades 0:08:09.780 --> 0:08:11.790 rather than in weeks or months. So if you're looking 0:08:11.790 --> 0:08:13.950 at the next one to two years and you have 0:08:13.950 --> 0:08:16.260 things that you'd like to do or have, this could be 0:08:16.889 --> 0:08:20.339 buying Christmas presents, going on holiday, saving for a house 0:08:20.340 --> 0:08:22.289 deposit will be a big financial milestone for a lot 0:08:22.289 --> 0:08:25.740 of people. Making sure that you're saving towards those goals 0:08:25.740 --> 0:08:29.820 as well is very important. Then anything over and above 0:08:29.820 --> 0:08:32.370 that can go into investments. That's money that you don't 0:08:32.370 --> 0:08:35.280 need today and that's going to work for you going forwards. 0:08:35.400 --> 0:08:38.880 I think that's good points that you've made about understanding 0:08:38.880 --> 0:08:42.750 risk and preparing for it. And I think I'm very 0:08:42.750 --> 0:08:45.360 big on emergency funds because we never know what's going 0:08:45.360 --> 0:08:47.820 to happen. It's so key to have a pot of 0:08:47.820 --> 0:08:50.399 money saved there just in case things happen. 0:08:50.760 --> 0:08:53.369 And I'm really pleased to say that I think the 0:08:53.370 --> 0:08:56.848 pandemic has actually changed a lot of our attitudes- 0:08:56.849 --> 0:08:56.850 It has. 0:08:56.850 --> 0:08:59.490 ... to risk as well. Earlier on in my career, 0:08:59.730 --> 0:09:02.429 the idea of having a pot of money set aside 0:09:02.429 --> 0:09:05.040 for seemingly no reason at all seemed very arbitrary to 0:09:05.040 --> 0:09:07.350 me. It's not something that I necessarily wanted to do, 0:09:07.590 --> 0:09:09.270 but I think the pandemic has shown a lot of 0:09:09.270 --> 0:09:12.450 us that you can lose your primary source of income 0:09:12.599 --> 0:09:16.440 and things can happen, your situation can change, particularly for 0:09:16.740 --> 0:09:19.980 younger savers. They're actually really thinking about it and doing 0:09:19.980 --> 0:09:22.319 it in a very sophisticated way. So even though we're 0:09:22.320 --> 0:09:24.238 saying it on this podcast, I speak to lots of 0:09:24.240 --> 0:09:26.280 people that are doing this already and I think it's great. 0:09:26.849 --> 0:09:31.170 Timi, what advice would you give to our listeners who 0:09:31.170 --> 0:09:35.309 are deciding, " Yes, I want to start investing," but they're 0:09:35.309 --> 0:09:38.728 trying to figure out what is the right investment for them? 0:09:38.729 --> 0:09:41.880 That's a really good question. I think there'll be lots 0:09:42.690 --> 0:09:45.510 of different things to look at. Knowing how long you 0:09:45.510 --> 0:09:49.170 want to invest for will be a really key thing. 0:09:49.440 --> 0:09:52.708 Like we were talking about risk, yes, you can invest 0:09:52.708 --> 0:09:57.420 into individual stocks, for example, but that's actually the riskiest 0:09:57.420 --> 0:10:00.208 way to own company shares, so you may want to 0:10:00.210 --> 0:10:04.050 look at funds for example. We know that there's a 0:10:04.050 --> 0:10:08.610 growing appetite for ethical investments, and so if you want 0:10:08.610 --> 0:10:11.279 to invest in a way that doesn't invest in arms 0:10:11.279 --> 0:10:14.130 or tobacco or that sort of thing, then that might 0:10:14.130 --> 0:10:18.540 be a investment that's right for you. But also people with 0:10:18.540 --> 0:10:22.139 particular values like religious values, you may want to invest 0:10:22.139 --> 0:10:24.840 in like Shariah funds or Halal funds, that's another way 0:10:24.840 --> 0:10:26.759 that you can look at it. But I think the 0:10:26.759 --> 0:10:29.819 most important thing when it comes to investing and deciding 0:10:29.820 --> 0:10:33.840 what investment is correct for you is investing in something 0:10:33.840 --> 0:10:37.650 that you fundamentally understand. So if you're investing into something 0:10:37.950 --> 0:10:40.830 because you've seen a hot stock tip on social media 0:10:40.830 --> 0:10:43.440 or your mate's doing it or you've seen something in 0:10:43.440 --> 0:10:46.170 the news, that's probably not the way that you want 0:10:46.170 --> 0:10:48.299 to go about investing. You want to have a sense 0:10:48.299 --> 0:10:51.360 of why you're investing into it, whether it aligns with 0:10:51.360 --> 0:10:54.208 your values for how long you're investing into it so 0:10:54.210 --> 0:10:58.230 that should the value of the investment come down as 0:10:58.230 --> 0:11:01.108 it sometimes happens, you're not panicking because you haven't made 0:11:01.110 --> 0:11:04.049 a decision copying someone else. You've actually done your own 0:11:04.049 --> 0:11:05.580 research into that investment. 0:11:05.940 --> 0:11:08.069 I agree with you, and I think it's also worthwhile 0:11:08.070 --> 0:11:11.880 adding on to what you said that personal finance and 0:11:11.880 --> 0:11:13.920 investing is just that. It is personal. 0:11:14.520 --> 0:11:14.849 Personal finance is personal. 0:11:14.849 --> 0:11:18.299 Exactly. So what you might do versus what I might 0:11:18.300 --> 0:11:20.790 do versus what your mom might do are probably going 0:11:20.790 --> 0:11:23.879 to be three different things going on. So it's all 0:11:23.879 --> 0:11:27.330 about finding and deciding what's best for you and sticking 0:11:27.330 --> 0:11:29.728 to that. So to run off this episode then, Timi, 0:11:29.730 --> 0:11:32.429 I'm going to ask you the question that I always 0:11:32.429 --> 0:11:35.460 ask at the end of the episode. What are the three tips that 0:11:35.460 --> 0:11:37.828 you'd give to our listeners to help them get a 0:11:37.830 --> 0:11:38.490 little bit richer? 0:11:40.289 --> 0:11:42.510 I think the first thing, and we touched upon this earlier on in the episode, 0:11:42.510 --> 0:11:45.780 is to try to stay away from high interest consumer 0:11:45.780 --> 0:11:47.520 debt. And if you have it, try to see if 0:11:47.520 --> 0:11:50.010 you can pay it down or get it to a 0:11:50.010 --> 0:11:52.650 lower interest rate. The second thing is to save up 0:11:52.650 --> 0:11:55.950 that emergency fund. The future is uncertain, but you'll know 0:11:55.950 --> 0:11:57.630 that if something comes up, you'll be able to put 0:11:57.630 --> 0:12:02.069 yourself through that. And then to set aside small amounts 0:12:02.070 --> 0:12:06.000 of money every month, invest regularly for the long- term 0:12:06.000 --> 0:12:08.578 and you should be financially better off at the end 0:12:08.580 --> 0:12:08.848 of that. 0:12:08.849 --> 0:12:11.340 Timi, thank you so much. You always give such amazing 0:12:11.340 --> 0:12:14.130 gems and that was no different, so thank you so 0:12:14.130 --> 0:12:16.230 much for coming onto this episode. This has been great. 0:12:17.309 --> 0:12:19.170 So a couple of things to say about all this, 0:12:19.230 --> 0:12:21.809 please don't put money into high risk investments that you 0:12:21.809 --> 0:12:25.108 cannot afford to lose. I know it sounds obvious, but 0:12:25.110 --> 0:12:27.719 it's always worth keeping in mind. Once you're up and 0:12:27.719 --> 0:12:30.330 running, investment can be a great way to take more 0:12:30.330 --> 0:12:33.779 control over your finances and so can self- employment, which 0:12:33.780 --> 0:12:37.020 I'm going to be exploring next week. But while you 0:12:37.020 --> 0:12:39.929 wait, be sure to follow and tell your mates about 0:12:39.929 --> 0:12:43.380 the podcast. Well, that's if you have time after you've 0:12:43.380 --> 0:12:46.019 sorted your investment portfolio, of course. Bye.