Nobody Cares More About Your Money Than You
Whether budgeting for a trip of a lifetime, helping children get on the property ladder or planning for retirement, we all have financial goals, and an ever increasing number of people are taking personal control of their finances with technology as the enabler.
DIY Investor seeks to debunk the mystique that has traditionally shrouded the financial services sector and demonstrate that it is not difficult to get to grips with the basic principles of investing and investment products; online platforms now deliver access to market data, planning tools and trading technology that were once the preserve of the professional.
Undoubtedly the first step is the hardest, but it will not take long to get to grips with core concepts and begin to grow in confidence as a DIY investor; this site will continue to deliver content from industry commentators and market participants, as well as practical experience from DIY investors, to help you on your journey.
Once you take the plunge you’ll realise that much of an IFA’s work was formulaic and simple to replicate – set your financial objectives, understand your attitude to risk and construct a personal financial plan; then build a diverse portfolio of investments that are in line with your risk tolerance whilst delivering the desired end result.
A recurring sentiment on bulletin boards is the sense of empowerment and liberation that comes with DIY investing and the platforms available now ensure that you can track your investments 24/7/365.
Because nobody cares more about your money than you do.
Personal Finance 101
Mr Micawber’s oft quoted recipe for happiness from David Copperfield is not a bad foundation for the DIY investor:
‘Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.’
Here we look at some of the basics you should consider before you start to build an investment portfolio.
Old Wilkins clearly knew a thing about budgeting and a very good place to start a journey towards financial freedom is by setting a budget – spend less than you earn and save or invest the difference.
Why be a DIY Investor?
Whether budgeting for a trip of a lifetime, helping children get on the property ladder or planning for retirement, we all have financial milestones and objectives, and faced with the high cost of professional advice, an increasing number of people are deciding to take personal control of their finances; technology is the enabler.
There is no doubt that the financial services sector, and in particular the City, have revelled in being impenetrable to the man on the street – with enlightenment and guidance come fat fees – but having scraped away much of its pomp and jargon, it is not difficult to get to grips with the basic principles of investing and investment products; online platforms now serve up market data, planning tools and trading technology that were once the preserve of the professional.
Once you have decided that you are ready to take control of your finances you may feel a mixture of euphoria and trepidation; it’s a momentous decision and one that comes with not little responsibility – after all, if it were to go wrong, you are the investment manager!
Whilst every investor may differ slightly in terms of their personal circumstances, risk appetite and desired outcome, there are some fundamental considerations that should underpin any DIY investment strategy.
Be Tax Smart
The ‘Starbucks effect’ can cause the most mild mannered tax payer to mutter disapprovingly as international companies shuffle money around the world in search of optimum tax efficiency.
The distinction between tax avoidance and tax evasion is well made and the reason a household name such as Google employs legions of tax accountants is simple – it saves them a fortune.
Whilst an adviser may not be able to totally relieve you of any tax burden, there is every chance that by ensuring that you pay no more tax than you need to, you could save thousands of pounds a year.
Making it Personal
When you join DIY Investor we ask you about your financial objectives and we also invite you to answer a series of questions to indicate your attitude to risk; we do so because we believe that crowds make good decisions and that by bringing together people in similar circumstances it is possible for them to make informed investment decisions and achieve improved outcomes.
Before getting to grips with the plethora of products that are available, the DIY investor should spend a little ‘me’ time – decide why you are investing in the first place, what your objectives are and what time horizons you have; work out what type of investor you are and what your stated appetite to risk feels like in reality – we would all like stellar returns with no risk, but if your investments keep you up at night you have gone out of your comfort zone.
DIY Investor delivers information to experienced investors and it also delivers education to those new to savings and investment.
Build a Balanced Portfolio
Those seeking a better rate of return and to take more control of their financial future, could consider building their own investment portfolio.
Many options exist in terms of ways to invest and account types, and these will be explored elsewhere on this site, but the key to a successful (profitable) strategy is the establishment of a balanced investment portfolio.
However daunting it may sound, an investment portfolio is simply where you keep your money. If all your money is held as cash in your bank account, that’s your portfolio.
But it’s not a smart investment portfolio and this site is designed to demystify investing and set you on your way to becoming a DIY investor.
Investing for Children
Those born between 1980 and 2000 are the first generation to reach adulthood in the new millennium and are generally portrayed as taking their financial future seriously despite facing considerable challenges.
Average student debt now tops £40,000, wages have been squeezed, rents are high and property ownership a pipe dream for most.
It is accepted that earlier and longer is rarely the wrong strategy when it comes to retirement planning, it is difficult for the millennials to look so far ahead and as a result, a survey bleakly described them as ‘Generation Lost’.
With the average starting salary for a graduate in the UK at £28,000 any accusations of profligacy can be dismissed – the cost of everyday living now means that this is a generation with very little disposable income and it is now more important than ever that parents give their children a financial head start.
DIY Investor looks at some of the options exist for those saving for children, primarily based around how much control the parent wishes to have over the investment and at what age they would like the resulting cash to be made available.
Compound Interest in Action
How different could things have been if only we’d known about the power of compound interest; if only we’d known then that the most important factor in a successful investment strategy was its duration, then we’d have done things differently wouldn’t we?
Compound interest is the multiplier effect of interest being earned on interest, over time; the higher the interest rate and the longer the period of saving or investment the greater the end result.
And however tough we thought we had it, spare a thought for those recent graduates, trying to make their way in the world with the burden of student debt, astronomically high accommodation costs and constantly reminded that they will be facing abject poverty when they retire.
It’s tough, but whether you are planning for your own financial future or looking to give a loved one a head start, compound interest comes as close as is possible to ‘money for nothing’
In Praise of RDR
In December 2012 the Financial Services Authority (FSA), the City regulator, introduced a package of important reforms which affected everyone saving for a pension or investing in an ISA.
Following a spate of difficulties and miss-selling scandals, the financial services sector changed forever following the introduction of a package of important financial reforms known as the ‘retail distribution review’, or RDR.
- RDR turned the economics of the financial services industry on its head
- professionalised the provision of financial advice
- put the consumer in charge of how your money is spent.
Previously, advisers have taken unseen commissions for recommending certain financial products to their clients; the ‘free’ advice that was being dispensed was nothing of the sort, and neither did the rate of commission bear any resemblance to the suitability or the performance of the products that were being recommended.