1. Make sure you have enough money set aside for a rainy day. Having 3-6 months of costs set aside in savings means that you can weather any nasty surprises, such as losing your job. Having a rainy-day fund can give you peace of mind and a little more financial freedom.
2. Pay your future-self first. Before you do anything, get clear on your financial goals, develop a plan and pay your future-self a percentage of your salary. Decide the amount based on your goals and put it on autopilot. If it comes out on payday, the chances are you’re less likely to miss it! You can set up a payday boost from within the app, or if you prefer, set money aside using round ups or a weekly deposit.
3. Think longer-term. Brexit and Trump will certainly cause day-to-day fluctuations in the stock market! While this can be stressful, remember that over the very long term, despite ups and downs, the stock market has been the best place for the longer-term investor to build their wealth.
4. Emotions are enemy number one. Despite what you may have been taught, sometimes it’s best not to trust your instincts! When fear and greed kick in, we can end up doing exactly the wrong thing at the wrong time. Rationally we all want to buy low and sell high, but when we panic our emotions can lead us to sell when markets tumble and buy when they rise.
5. Automate your investments by buying little and often. Regular investing each week or month, no matter what the state of the market, will teach you a non-emotional approach. You’ll buy low, high and everything in between. Remember, investing in the stock market has historically generated a good return on your money. The chart below shows the US stock market over the last 50 years. Had you invested in it 50 years ago, you would now have made 21 times your money.
6. Don’t let your cash stash get too big. Holding savings in cash for emergencies and shorter-term needs makes sense. However, cash can be a poor investment over the longer-term as inflation erodes away its purchasing power, particularly in low-interest rate environments. It’s impossible to predict the future, but over the long-term shares have delivered better returns than cash. Here’s a graph that shows the percentage of times during the last 116 years that shares have beaten cash when held for 5, 10 and 18 consecutive years.*
7. Don’t put off till tomorrow what you can do today. Whatever you’re planning towards, start now. You’ll feel better and crucially you’ll benefit from compound returns. Invest £1,000 aged 35 at 9.46%* and you’d have £6,097 when you’re 55. Start ten years earlier and you’d have £15,054 – almost twice as much.
*Based on FTSE All-World Total Return GBP, Morningstar.