Fitzonomics

Follow my blog with Bloglovin Did you know that if you'd invested £5,000 in Amazon 20 years ago, it'd be worth about £2.4million today...?! Crazy right?! But it's not crazy. It's true. It's stats like this that highlight one of the main benefits of investing: how life-changing a really good investment can be. However, I know there's a lot about investing many people find frightening. It's often associated with lots of risk, losing money, and the 2008 financial crisis. As rational as these fears are, more often than not the real fear is that of the unknown. Investing is not widely understood. We certainly never learn about it at school. I think this is a real shame because it's a part of modern-day life. And for women, it's really important. Many of us give up work to raise our families. Financially, this means losing a salary income, pension contributions, and your own financial stability. This makes it all the more beneficial to regain your own wealth. Many women will put cash away in a bank account for exactly these reasons. However, cash can't earn more than the rate of inflation (currently a low 1.5% in the UK), so savings accounts will not make you richer. In many cases, they can actually make your poorer. On the other hand, owning assets, such as bonds or shares, can help you with money worries if you're not working. They give you a fallback to deal with any hiccups or they allow you to leave a job you hate and find another. Owning assets could even enable you to go back to school or university and retrain, knowing you can afford it. Owning assets can make your wealthier because they can give you bigger returns. However, many of us don't turn our hard-earned cash into wealth. We're naturally risk-averse. And we've developed that way to protect our children which is a good thing. Many of us think cash is low risk. But we're missing out on so much by not making that cash work hard for us. There are so many benefits of investing your money. As a female investor, I want to share with you my top five. 1. Freedom, one the biggest benefits of investing Were you expecting this to the first of my benefits of investing? Truthfully?! It may sounds nuts on the surface, but it's absolutely true. Only by investing money can we be financially secure and completely free. This is because the income we get from a job is not long-term. Yep, it could go up as we get more skilled but if we want to keep the lifestyle we've got used to, then we're going to need to keep working, and usually for someone else. Our time will never really be our own. So much of it will belong to the organisation you work for. I have a friend who works for a large investment bank. She finds her job really boring but it's VERY well paid. Her challenge is to find another job that she enjoys but also that keeps her in the lifestyle she knows. She hasn't found it yet. And now she's worried about the looming recession. If she's told to go, she has no choice. She feels powerless, despite her hefty income. And if that income stops, she could lose her house, her lifestyle, and everything else that goes with it. It's at times like this you realise real decisions, like where you live or when you get up, are not made by you but by your employer. OK, so you have a little leeway, for example you can choose to get up earlier if you shower in the morning, but we're not talking about much. And if you have a mortgage, then your future belongs to your employer too because you need to earn money to pay for it. BUT, if you own assets, and they produce an income, your time is your own. The more income you have from places other than work, the more you own your time. Proper wealth is not about job income. Real wealth is about owning assets, working less and having more control over your life. And the more control you have, the less stressed you get, and the better you feel. So, investing is not only good for freedom but great for your health, too! 2. Money growth opportunities If we're sensible with our money, chances are many of us are saving any surplus we can afford in a savings account. And that's a good thing. It means you have some money behind you if times get tough for a while. (Or we want that new set of hair straighteners to be Dysons...!) However, have you seen bank interest rates recently...?! 0.10%!That's the rate I'm getting on my savings at the moment. And sadly, it's not likely to change for a long while because the UK Government is keeping borrowing rates low. It wants to try and encourage people to keep borrowing and spending to sustain businesses through the looming recession. This means that for every £100 I have in my bank account, the bank give me 10p. For the whole year. This means I'm almost letting them borrow my money for free. (For FREE...what?!) While this money is sitting in my bank account, I'm not making it work hard for me. The bank gets a good deal though. (Harrumpf!) In contrast, one of the least lucrative investments I currently hold pays me a return of 1.98% per year. This is my worst paying one, and it's still far more than the bank. I earn more money having my income invested in a company than I do sitting in a bank account. And if I need the money back? I can sell my shares. This type of opportunity to grow your money is another one of the benefits of investing. I think it's worth mentioning at this point, that the type of return I'm talking about is called a dividend yield. The yield percentage will change with the share price BUT the actual amount I get back per share - the dividend per share - does NOT change with share price. It only changes when the company I've invested in changes its policy, in much the same way as a bank changes its policy on interest rate payments to savers. You'll always get a better rate of return investing in companies rather than with a bank account because it's considered riskier. But, when you've lived through the 2008 banking crisis, you have to ask yourself if that is really the case... I always used to think investing was really risky. And it can be. But when done sensibly, it's much less risky than passing up the opportunity to make as much as you can from your hard-earned income. And over the course of a year or so, you may have saved up enough in returns to buy those Dyson straighteners after all! 3. Saving for retirement In the UK, it's now a legal requirement for businesses to offer to contribute to your pension fund (with a few exceptions). Although some people I know only see this as more money coming out of their paycheque, a pension deduction is actually your money for your use at a later date. It's not like tax. Tax goes into HMRC's big pot and you never see it again. Pensions are different. So, if you're working in the UK, chances are you're already paying a small amount towards your pension pot. In most cases, the pension provider invests this money on your behalf. For example, my pension company allows me to choose whether my money is invested in stocks/shares, bonds, or cash. Different providers will give you different options. Some will be riskier than others, but remember that pension companies' reputations depend on them being able to make good on promises to customers. This means they have a long-term outlook, so they're extremely unlikely to make risky investments (unless they're a bad provider). One of the great things about putting your money into your pension, rather than taking it all in your paycheque, is not paying tax on it. Yup, any money that goes into your pension pot is not used as part of your monthly tax payment to HMRC. So, the more you pay into your pension every month, the less tax you pay! This isn't tax dodging. HMRC actually encourages people to do this because the more of us there are who can look after ourselves in later life, the less the state has to pay out in pensions later on. Everybody wins! And for me, knowing that I can rely on my pension, and not the Government's political whims, to look after us in the future, is a big worry off my mind. Everybody has their own personal tolerance of risk. Some people will be happier to take more risk than others. The more risk you take, the bigger the rewards can be but also the greater the likelihood of losing some money. It's worth remembering though, the point I made above about cash. My bank account gives me 0.1% back on my money. The UK's current rate of inflation is 1.5%, and this is LOW. This means that every year prices are going up by an average 1.5%. So, if prices are going up 1.5% and I'm only earning 0.1% on my money...I'm actually losing money by keeping my cash in the bank. This is because next year my shopping will be 1.5% more expensive than this year. Unless the bank's rate of return matches the rate of inflation (in this example, 1.5%), then I am effectively losing my money. Not good. If being risky is doing something that causes you to lose money, then keeping your cash in the bank is...pretty risky! For me, the benefits of investing in a pension, and not leaving my surplus cash in the bank, wins hands down. A bank account is useful for short-term cash flow i.e. monthly bills. But as a way of making your money work hard for you, most of them are next to useless. 4. Reach your money management goals What are your future plans? Buying a new house or car? Starting your own business? Putting your kids through school/university? Whatever your money goals, money in your bank account won't help with this. In fact, if the rate of return on your account is less than the rate of inflation, it will actually set you back from reaching your goals. But investing? Investing can help you to reach those goals of yours, another one of the benefits of investing. By earning a higher rate of return than in a savings account, you will earn more money over the long term. Companies need cash and they're willing to pay you to lend it to them. This is true whether you become a shareholder or you decide to loan it to them by buying bonds. Either way, they'll try their best to make it worth your while. But you'll also earn those higher returns more quickly. And the more you invest, the bigger those returns will be. And this means you can reach your goals faster, leaving room for more. 5. Support others or start a business of your own Businesses need money. And I don't just mean large companies. Your own business or the business of someone you know, like a family member or a friend, also needs money. Investing in someone's business can be a really important part of helping them to grow it - if they want it to be. Lots of investors are really keen to support entrepreneurs and to help create jobs and new products. You could do this too. Yep, helping people can be one of the benefits of investing! It can be really enjoyable helping someone to create and establish a new business or to support them in successfully developing one. In exchange, not only do you get the satisfaction of helping someone out but you may get a strong return on your original cash investment. If you don't have personal contacts who need help, you can find many others who do by using online platforms that help with crowdfunding. Many investors love investing in people! It doesn't matter if they're business owners, artists, or charity workers. It lets them feel good about their money, it helps people out and it means everybody wins! and...another one of the benefits of investing... Women are really well suited to it! How is that a benefit? Well, it means as a women, you could make some passive income! I kid you not! Women have a great natural temperament for investing. I'm not a man-hating, bra-burning angry feminist by a long, long way. But, I do accept that there are biological differences between men and women and one of them means that women are usually better investors. That difference is a degree of caution. Women are - generally - more cautious. Many of us run households. We balance budgets and think about our family's future all the time. Women tend to think more long-term. Obviously this isn't always true as each one of us is unique. But on balance, I think it is. When I was in the Army, part of my role was in bomb disposal. After seeing me on a job one day, one of the officers I knew, who commanded an infantry company (a very alpha male, gggrrrr-type, environment), asked me why there weren't more female bomb disposal operators. In fact, I was the only one he'd ever come across! When I enquired why he thought that was relevant, he replied that in his experience women don't rush in to things, aren't afraid to ask questions and are able to plan and organise properly. From watching me in my work, he thought these were great qualities for a bomb disposal operator. I had to agree. On both counts! I bought him a drink. Bomb disposal is often thought of as a very alpha male environment. The reality is very different as it's actually a very considered and technical discipline. Investing is exactly the same. Often seen as the preserve of wealthy public schoolboys, it's actually another technical discipline that requires research, collaboration, and an understanding of the risk involved, gained by asking questions. Women do all this naturally. So, ladies, what are you waiting for...?! There are many benefits of investing your money and not losing your money by putting any surplus cash in a saving account. From making better returns to giving you the freedom you crave, it's there to help you turn your hard-earned cash into wealth. Make investing part of your home money management plan and take a step towards becoming that independent wealthy women of your dreams! What do you think about investing? Do the benefits outweigh the risks or do you feel it's still too risky? Let me know what you think and what else you would like to know below.

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