How to dip your toe in the waters of investing
Many of you will hear investing and conjure up images of Gordon Gecko or the Wolf of Wall Street. I don’t blame you – that was me a few years ago. I was stubbornly loyal to my savings account and refused to listen to people who told me to start investing. I just didn’t see myself reflected in the world of investments and didn’t think it applied to me. My parents didn’t invest, my friends didn’t invest, why would I?
Investments that could rise or fall within a day scared me and I had worked too hard to put my cash at risk. I was a child of the 2008 credit crunch and had to find my first full-time when graduate jobs were being cut, workers were being laid off around the world and people were queueing up to take their money out of banks. As a young person facing the world alone in this environment, the message I received was clear: get a job, put your head down and keep your money safe in a guaranteed savings account.
It’s been over a decade since the last market crash so I think we’ve somewhat recovered confidence around the world in the economy. But several of us are still scarred from the 2008 experience of seeing the world’s markets crash around us. When you add this to existing stereotypes about who investors are, it’s no wonder that many of us are yet to dip our toe into the waters of investing.
We all have to push past our preconceptions at some stage and I finally started investing when someone mentioned two powerful words: compound interest.
This works in a similar way to your savings account in that if you put money in an account earning interest and don’t touch it, it’s likely to continue earning interest over time. What separates it from your savings account is that investments earn, on average, a much higher interest rate than most savings accounts. However, unlike your savings account, that return is not a sure thing and the money has less safeguards than savings accounts which are often guaranteed up to a certain amount by the government.
There is a very real risk when we talk about investing and the reason that I’m less phased by this risk is that I have a budget in place and a liquid emergency fund, which I’ve worked hard to build over time. Before you start investing, I would recommend getting a budget app to monitor your spending and starting to build an emergency fund so that you’re cushioned from the emergencies that life has a habit of throwing our way.
Now, if you’ve got a budget together and an emergency fund in place, you can now start looking at investing. If you’re anything like me, this was new territory and I didn’t have anyone one who I could ask for specific advice on getting started.
And that’s why my first foray into investing was investment apps and one app in particular called Acorns, or as it’s known in some countries, Raiz. The premise of Acorns is that it invests the spare change from each transaction, which you wouldn’t necessarily notice as missing from your account. Should you spend $3.50 on your morning coffee, a total of $4.00 would be deducted from your account, with $3.50 going to you lovely barista and $0.50 going to your Acorns account. You likely wouldn’t have noticed the $0.50 disappear from your account and that’s what makes Acorns so convenient for people who are starting to invest for the first time in that it’s not a big financial commitment. University students are often eligible for fee-free accounts or special offers so this could be a great starter app for any tertiary students in your life.
Acorns is a fairly simple app to set up – you download the app, link your accounts and start spending to automatically contribute money to the account. This app is a robo adviser which invests money for you according to the portfolio mix that you’re comfortable with. This includes conservative options with less risk, aggressive options with more risk but potential for greater returns or my favourite, the emerald mix which is focused on sustainably responsible investing.
Acorns’ fees are reasonable for large balances but if you have a low amount in the account and don’t contribute any extra to it, the monthly fees could wipe out some of your returns. To overcome this, consider contributing to Acorns as part of your monthly budget and watching your investments compound over time.
The Acorns app is a great way for first-time investors to see the power of compound interest in action and get more comfortable with seeing your balance go up and down as the market changes. This can set you on the road to investing as a way to build up your money over time and to reach bigger financial goals including home ownership or donating your investment gains to charitable causes you believe in.
At Money Bites, I’ve created a community which talks through the different options out there so that you can find the best product for your needs. With this in mind, I’m going to commit to writing a follow-up article with further investing options so that you can find the platform that works for you because it’s important that you find an investing product you will use regularly to achieve your goals.
The takeaway from this article is that wealth doesn’t have to be self serving and I try and compound my wealth because it will enable me to contribute more to the world and act on issues I care about. My name is Kate and I’m an investor – I’m a young woman, I work to improve the world around me and I’m an investor. If you can’t see yourself in the investing world, change it yourself and start investing now.