You’re on your own two feet
At this time of your life, you’ve graduated and are working your way up the first few rungs of your career ladder. You’ve got that all-important salary, and the first thing you should do, investment-wise, is start an emergency fund. You should aim to have at least three months’ worth of rent, utilities and grocery money tucked away in an interest-earning account to deal with unforeseen circumstances. You don’t want to be relying on a loan provider (eg. Wonga.com) to be bailing you out of trouble, as these can quickly spiral out of control into a debt black hole – young people with no savings are particularly susceptible to this.
Once you’ve saved up at least £5,000, reduce the monthly amount you put into this fund and start thinking further ahead.
Think about retirement – yes, really!
You’re four decades away from retirement, but it’s because it’s such a long time away that it’s such a good idea to start saving now. Try to put 10 per cent of your salary towards a retirement fund. If you can’t manage 10 per cent, make it five per cent, but just keep doing it, month after month, because you’re going to be making use of good old compound interest to bump these savings up. By the time you retire, you should be very comfortable indeed. If you leave it until your forties to start saving, you’ll need to give up a third or more of your monthly salary – at a time when you’ll probably have a young family. Not good!
A roof over your head
Once you’ve got your long-term investments sorted, it’s time to look at more immediate goals, like a house deposit. You’ll need a big lump sum for this, so to get this deposit together, open a brokerage account and make payments into it by monthly direct debit. By paying the same amount into it every month, this account will buy lots of shares when they’re low in price, and fewer when they’re higher. If you do this consistently, over time, your average actual spend can be lower than the average actual price of shares. Keep a steady eye on your shares and sell some off at opportune times to build your deposit fund.
Because you have a longer time frame than older people, you can afford to opt for slow-growing, more reliable investments and just leave them to do their thing. Take at least five years to save this sum, as shorter time frames are more vulnerable to the upswings and downswings of the stock market.
Don’t put all your eggs in one basket – make sure you invest in lots of different stocks, different industries and in different continents (more advice on diversifying your portfolio can be found here). This will buffer your money against the rises and falls of different sectors and different regions. Over time, you’re almost certain to make money with this approach. It’s slow but steady, and you’ll never have to resort to Wonga.com.
The best investment you can make is in some advice. Make an appointment with a portfolio consultant and don’t be shy about asking questions, no matter how silly they might seem. This is your money, and your future.