Iona: Hello, I'm Iona Bain, and welcome to A Little Bit
Iona: Richer, brought to you by L& G. Now, with so
Iona: many different options available, it can be tricky to know
Iona: where to start when building your investment portfolio, but no
Iona: matter how much you have to invest, it's important to
Iona: get the basics right, so you can build good habits
Iona: and grow your money. So today, we're looking at how
Iona: you might start investing beyond your pension savings, so you
Iona: can build a portfolio your future self will thank you
Iona: for. And we couldn't think of anyone better to join
Iona: us today than Mr. MoneyJar himself, Rotimi Merriman- Johnson. He's
Iona: a financial advisor and award- winning content creator who's been
Iona: featured on the BBC, the Financial Times, ITV News, and
Iona: Sky News. Rotimi is an ambassador of the UK charity
Iona: National Numeracy, and he hosts his own financial podcast, The
Iona: Mr. MoneyJar Show. Welcome, Rotimi.
Rotimi: Thanks very much for having me, Iona.
Iona: Before we start investing, should we have a cushion? And
Iona: if so, how much should we have in easily accessible savings?
Rotimi: Yeah. So the standard advice around emergency funds is that
Rotimi: you should have three to six months' worth of living
Rotimi: expenses tucked away. We've had a lot of inflation in
Rotimi: the last few years. The cost of living is quite
Rotimi: high. Six months represents quite a lot of money for
Rotimi: people. So when I speak to people, I say, " Try
Rotimi: and have, as a starting point, one month's worth of
Rotimi: expenses tucked away." And I try not to give a
Rotimi: fixed sum, because that depends on the time and the
Rotimi: place. But just imagine, if you had one month's worth
Rotimi: of expenses tucked away, just the psychological ease that you
Rotimi: would feel and the financial resilience you would have. One
Rotimi: month's of living expenses, put it in an easy access
Rotimi: savings account, and then anything over and above that you
Rotimi: can begin to invest, if you so wish.
Iona: And why should people have that money in easily accessible
Iona: savings? Why couldn't people just rely on the money that
Iona: they've invested in the stock market and pull that out
Iona: at any time?
Rotimi: Right. So it's because, as we know with investing, the
Rotimi: value of investments can rise as well as fall. And
Rotimi: if you don't have that emergency fund set aside and
Rotimi: all of your money is invested, and the stock market
Rotimi: takes a tumble, as it has done in recent times,
Rotimi: then you might have to sell your investments at a
Rotimi: loss to access your money. So that's why we keep
Rotimi: a portion of our money in emergency savings, and then
Rotimi: we invest the surplus.
Iona: Mm- hmm. So it's not about choosing whether to save
Iona: or invest. In a sense, we've all got to be
Iona: both team saving and team investing.
Rotimi: Yeah. The saving bit is for short- term future you,
Rotimi: and the investing bit is for long- term future you,
Rotimi: like years and years into the future.
Iona: So let's assume therefore that somebody has got that foundation
Iona: in place and they're looking to start investing. Where should
Iona: they begin?
Rotimi: So there's three simple steps when it comes to investing.
Rotimi: You need to pick an investing platform, sometimes called a
Rotimi: broker. You need to pick your investment account or accounts.
Rotimi: And then you need to decide what the money is
Rotimi: going to be invested in. So that's the basics of
Rotimi: it. Now, when it comes to signing up to investment
Rotimi: platform, this is a very, very similar process to opening
Rotimi: a bank account online. You then need to nominate a
Rotimi: bank account that you want to then use to add
Rotimi: money to that platform. And you can typically add money
Rotimi: in a couple of ways, either through lump sums or
Rotimi: through monthly savings. And the lump sum amounts tend to
Rotimi: be slightly higher than the monthly savings amounts. Some platforms
Rotimi: will let you do monthly savings from as little as £ 25 a month, for example.
Iona: That sounds like a really achievable, realistic way to start
Iona: investing. And also, can there be advantages in drip feeding that
Iona: money into the stock market on a regular basis?
Rotimi: Yes. So there is a temptation to do what's called
Rotimi: time the market. Try and buy at the right time, try and sell at
Rotimi: the right time. If you instead just decide to invest
Rotimi: what you can afford every single month for the long
Rotimi: term, then this removes the temptation to time the market,
Rotimi: it reduces some of the anxiety around prices going up
Rotimi: and down, and we're doing it so that we can
Rotimi: build our wealth at a point in the future.
Iona: You've got to take a step back and just trust
Iona: in the process.
Rotimi: Yeah.
Iona: Yeah. So on the one hand, you can buy shares in individual
Iona: companies, as you were saying before, and that's ultimately what
Iona: we are doing when we're investing. But we don't have
Iona: to do that ourselves necessarily, and therefore deal with all
Iona: those issues that can come along with that. We can
Iona: also invest in funds. Just explain what the difference is
Iona: between investing in companies on an individual basis versus investing
Iona: in funds.
Rotimi: Yeah. So you've signed up to your platform, and then
Rotimi: you'll need to open an investing account within that platform.
Rotimi: So investing platforms will typically offer a general investment account.
Rotimi: With this, you can put in as much money as
Rotimi: you like, and then you can invest that money. So
Rotimi: there's no annual limit, but no tax protection. Then you've
Rotimi: got stocks and shares ISAs, one of the four ISA
Rotimi: types. You can put in up to £ 20,000 per tax
Rotimi: year into a stocks and shares ISA, and of the
Rotimi: money that you put in, any gains that you get
Rotimi: on your investments or any dividends that you receive are
Rotimi: completely tax- free. And this becomes especially powerful once you
Rotimi: begin to really tap into compounding and get to those
Rotimi: larger investment sizes. SIPPs are another type of investment account.
Iona: What does that stand for?
Rotimi: SIPP stands for self- invested personal pension. And not a lot of people
Rotimi: realize this, but a workplace pension is a type of
Rotimi: private pension, but you can open a pension of your
Rotimi: own, and there's no actual limit to the number of
Rotimi: pension accounts you can open and contribute to in a
Rotimi: tax year. Self- invested personal pensions have their own annual
Rotimi: limit of £ 60,000 per tax year, and again, that money is
Rotimi: sheltered from tax, and you get what's called tax relief
Rotimi: on your contributions, which is where the government adds in
Rotimi: extra money.
Iona: Mm- hmm. And it also depends on your goal. If you're
Iona: wanting to enhance your retirement income, SIPP could be worth considering.
Rotimi: Or if you're self- employed. Yeah.
Iona: Indeed, because you don't have your workplace pension.
Rotimi: Exactly.
Iona: Absolutely. And then when it comes to those differences between
Iona: investing in funds and investing in individual shares, explain what
Iona: the pros and cons are respectively.
Rotimi: Yes, yes. So you can invest in stocks, which is when
Rotimi: you purchase ownership in a company, so shares in Google
Rotimi: for example. The thing with purchasing individual stocks is your
Rotimi: investment performance is tied to just that one company, and
Rotimi: it's a more active way of investing. So if you
Rotimi: pick the right stock, then you can do really well
Rotimi: off the back of it potentially, but it also means
Rotimi: that if the company doesn't do so well, your investment
Rotimi: can go to zero. So what some people do is
Rotimi: they invest in what are called funds, which is where
Rotimi: you give your money to an investment firm who's buying
Rotimi: shares on their end, but they've basically selected a group
Rotimi: of shares which they think are either going to outperform
Rotimi: the market or target a particular sector, like tech or
Rotimi: clean energy. And the performance of your investment will be the
Rotimi: average of how all the companies in that fund does.
Rotimi: Then when it comes to funds, there are actively managed
Rotimi: funds, which is where a selection process has gone on,
Rotimi: and then there are index funds or tracker funds, which
Rotimi: just try to replicate what the market does. And index
Rotimi: or tracker funds are particularly popular with people because they're
Rotimi: very cheap, and they're not actively managed, and you can
Rotimi: buy indexes that track the UK stock market, the US
Rotimi: stock market, or even the global stock market.
Iona: I mean, buying and selling shares has become a lot
Iona: more accessible and a lot more popular in recent times,
Iona: which on the one hand is something I assume that
Iona: you'd be quite encouraged to see, but there can be
Iona: downsides to that, can't there? Because you can get involved
Iona: and jump in at the deep end but not necessarily know
Iona: that much about what you're doing. What would your advice
Iona: be for anyone who is tempted to get out there
Iona: and start buying and selling shares, and might be quite gung-
Iona: ho about it, and maybe need to take a step
Iona: back and assess what the risks are?
Rotimi: Yeah. If you want to invest, take an amount of
Rotimi: money that you don't need, invest it, and just use
Rotimi: that to see what happens. Use it to get used to
Rotimi: the buying and selling. And this is why it's good
Rotimi: that a lot of investing platforms have quite low minimums
Rotimi: when it comes to putting money into the platform. You
Rotimi: can invest it, and it's almost like you're learning the buying
Rotimi: and selling process. You're getting used to seeing your money
Rotimi: go up and down in value, and you're building your
Rotimi: confidence whilst not risking it all.
Iona: So if in doubt, start small, and then work up from-
Rotimi: And then build. Yeah.
Iona: Yeah. Absolutely. What's a good rule of thumb for diversifying
Iona: your investments, and why does diversification matter so much when
Iona: it comes to investing?
Rotimi: So diversification in simple terms means not putting all your
Rotimi: eggs in one basket. And the reason why we do
Rotimi: this is because different companies will go through different cycles
Rotimi: and will perform differently at different times, and rather than
Rotimi: have a scenario where you're just invested into one company
Rotimi: and you're hoping that that company does well, you build
Rotimi: what's called a portfolio of companies. You can do this
Rotimi: yourself, or you can use a fund. And the performance
Rotimi: of your investments will depend on how a selection of
Rotimi: companies does. So it helps with your investment performance, and
Rotimi: again, it helps from a psychological perspective of, you're not
Rotimi: relying on just one company to deliver your returns for
Rotimi: you. If you're creating a portfolio for yourself, as some
Rotimi: people do, it will mean that you'll need to understand
Rotimi: each individual company and why you're putting them into your
Rotimi: portfolio. If you're a beginner investor or you're not interested
Rotimi: in picking stocks, you can just buy units in a
Rotimi: fund, and that's another way of diversifying. So to put
Rotimi: it in context, if you were using an index fund
Rotimi: that tracked the UK stock market, the FTSE 100, you would have
Rotimi: 100 companies in that fund. So for your money to
Rotimi: go to zero, it would require 100 companies to go
Rotimi: to zero, which I think if that's happened, we have
Rotimi: bigger problems to worry about.
Iona: Yes. Yes.
Rotimi: If you're investing in the US, you can buy an
Rotimi: index which tracks the biggest 500 companies in the US.
Rotimi: Again, that's diversification there. And then if you invest in
Rotimi: a global fund, which is what I personally do, then
Rotimi: that could contain hundreds or even thousands of companies from
Rotimi: all over the world. And in a global fund, the
Rotimi: weighting of the different countries will follow the size of
Rotimi: the global stock market.
Iona: We've spoken about how some people might be quite happy
Iona: to jump in and get started, but there could be
Iona: lots of people for whom the prospect of losing money
Iona: is a very scary one. So how do we get
Iona: over that fear?
Rotimi: It's a very legitimate fear. And look, we're not taught
Rotimi: about this stuff in school. You may or may not
Rotimi: have someone at home who can teach you this stuff.
Rotimi: But what we are taught to do is to buy
Rotimi: things, which shops to go to. You know the right
Rotimi: prices to buy things at. But when it comes to
Rotimi: investing, or perhaps even saving, we don't have that same
Rotimi: knowledge. And that's where I think the fear comes from,
Rotimi: I think comes from a lack of experience and of
Rotimi: expectation of what's going to happen.
Iona: And also because we have to delay gratification. We're saving
Iona: and investing, we have to wait to get those results.
Rotimi: Yeah, exactly. But there's a couple things I would say
Rotimi: to people. If you are one of the 30 million (inaudible)
Rotimi: employees in the UK, you're investing already. You're investing
Rotimi: into your workplace pension. That money is not held in
Rotimi: cash, that money is being invested. You're paying into it
Rotimi: month in, month out. And as a result, pension wealth
Rotimi: is the biggest store of wealth in the UK, and
Rotimi: it's just from everyone working, paying into their pensions every
Rotimi: month. So you're already doing it, albeit behind the scenes.
Rotimi: When it comes to investing your money in, say, a
Rotimi: stocks and shares ISA for example, you can use a
Rotimi: very similar principle of taking what you can afford, investing
Rotimi: regularly, and doing it for the long term. Now, there's
Rotimi: no such thing as a 100% risk- free investment, but we
Rotimi: must remember the distinction between the value of our investments
Rotimi: going down and losing money. If you invest your money,
Rotimi: the value will go up and down, but you do
Rotimi: not lose or gain money until you sell. Again, that's
Rotimi: why we do it for the long term. If we
Rotimi: do it for the long term and we don't need to
Rotimi: sell our investments, we can wait for the market to
Rotimi: recover, essentially. And if you look at the stock market
Rotimi: chart for the FTSE 100, the S&P 500, for example, you'll see that it trends
Rotimi: upwards, but it's not in a straight line.
Iona: What would your advice be to anyone who is seeing
Iona: all that turmoil out there and is thinking, " Actually, I'm
Iona: not sure if this is the right time to be invested"?
Rotimi: Yeah. Isn't it interesting how someone can say something, and
Rotimi: then the value of a company will drop, even though
Rotimi: the on- the- ground reality of that company has not changed?
Iona: Yeah.
Rotimi: So when it comes to how we value companies, there's
Rotimi: almost the book value of that company, but then there's
Rotimi: this added value on top based upon what people think
Rotimi: is going to happen. They'll then sell those stocks, and
Rotimi: then that will cause the value to fall. Those changes
Rotimi: in valuation happen in the short term all the time,
Rotimi: all day, every day. They're playing one game, but you're
Rotimi: playing a different game, which is to ignore the noise
Rotimi: and to invest for long term. So this is why I say
Rotimi: the volatility is going to happen, but if you can stay the
Rotimi: course, then it's not something that you need to worry about.
Iona: What about these options that people might see when they
Iona: start their investing journey that seem a little bit more
Iona: exotic, like crypto, commodities, gold, forex trading? What would your
Iona: advice be around those options?
Rotimi: There's a very important investing principle, which was shared by
Rotimi: Warren Buffett, held by many to be the best investor
Rotimi: of all time. And his principle is to invest in
Rotimi: what you understand. That's what I would say to people. Do
Rotimi: you understand what you're investing in? Do you understand, if
Rotimi: the price has gone down or gone up, why it's
Rotimi: gone down or gone up? Do you understand the trends,
Rotimi: the cycles? If you don't, then that's when the anxiety
Rotimi: and the worry sets in. If you've seen something online,
Rotimi: you've gone, " I'm going to invest in that because I've
Rotimi: someone talking about it," you don't know why they've bought
Rotimi: it, or if they've even bought it, you copy them,
Rotimi: and then it's now gone down 30%, and you're worried.
Rotimi: So I would just say, stick to what you understand,
Rotimi: and continually learn and build upon your knowledge.
Iona: And also perhaps be wary of anything that looks like
Iona: a shortcut or a get rich quick scheme, because there
Iona: are no shortcuts when it comes to investing. It's long-
Iona: term, by its very nature.
Rotimi: Yeah. It's a long- term thing, one. Two, people who are
Rotimi: making money and investing are not on the internet talking
Rotimi: about their strategies. Trust me. They're just quietly making money
Rotimi: from it. They're not going to come online to tell
Rotimi: you how to 10x your money in a month.
Iona: Yeah, because they're already doing fine.
Rotimi: Yeah.
Iona: Are there any investing principles that we ought to really
Iona: keep in mind as we start this journey, and try
Iona: to stick with investing for the long term?
Rotimi: Diversification, trying not to time the market, so trying not
Rotimi: to get in and get out, and investing in what
Rotimi: you understand. I think if you stick to these four
Rotimi: principles, the quality of your decision- making is going to
Rotimi: go up.
Iona: And if there are three things that you would want
Iona: to serve as the starting point for people as they
Iona: go about this, what would those three things be?
Rotimi: Investing's for everyone. It's never been easier or more accessible
Rotimi: for people, so I wouldn't want people to be scared
Rotimi: of it, if you use the investing principles we've spoken
Rotimi: about. You don't need to have loads and loads of
Rotimi: money to invest. In fact, you can start with small
Rotimi: sums, and because of compounding, the earlier you start, the
Rotimi: longer your money has to grow. And it doesn't need
Rotimi: to be super complicated. You get great results by investing
Rotimi: consistently for the long term in a diversified way.
Iona: So in a sense, once you've actually just taken that
Iona: decision, you've done the hard bit, in a way.
Rotimi: Yeah.
Iona: You then just have to wait to see-
Rotimi: The hard bit is leaving it alone. Yeah.
Iona: Yes. That is all fantastic advice. Thank you so much, Rotimi.
Rotimi: Thank you for having me.
Iona: Well, Rotimi, I think we're feeling a lot more empowered
Iona: now to go and start that future fund, so thank
Iona: you very much. Next time the consumer editor at The
Iona: Financial Times, Claer Barrett, will be here to talk through
Iona: living with debt and managing it. This podcast is brought
Iona: to you by L& G. You can keep up with
Iona: the show on YouTube, TikTok, and Instagram @ legalandgeneral, and I would
Iona: love it if you could follow the podcast, leave us
Iona: a review, and help others get a little bit richer
Iona: too. Thanks for listening. Until next time, see you soon.