William Garfield doesn’t find saving easy. At 22, having enough surplus cash to start a savings or investment plan can be difficult: many people this age have to cover high rental costs and student debts from a relatively low starting salary. But William already has an eye on the future and is trying to be disciplined and contribute to three different savings and investment plans.
He explains: “I am living in London, so rent is expensive even though I am sharing with four other people. It certainly won’t be easy to get onto the property ladder, but I have previously put some money into a Help to Buy ISA, which I hope will help me save for a deposit.”
This is largely invested in cash though, and William has also started to invest in a stocks and shares Isa as a way of boosting longer-term returns. He says: “When I got my first full-time job after university, I started to research how to handle my personal finances. I read about compound interest and how you could make the most of it by starting to save at an early age.”
Compound growth — described by Einstein as the eighth wonder of the world — is a term that describes the benefits of getting investment returns on your investment returns. Over longer periods of time this can significantly boost the value of your savings. (Although it’s worth noting that the reverse also applies to debts: if interest is not paid off and added to the sum owed, then the interest charged and size of your overall debt soon starts to spiral – this is why it’s important to pay off debt before you invest).
William, who works in the communications industry, figures that by starting to invest in his early 20s he’s well placed to benefit, so he started to look more seriously at different investment options to see which would suit him.
Identifying Your Investment Priorities
“Low fees are particularly important to me,” he says. “Higher fees can act as a drag on growth over the long run and eat into the compound interest that I’m trying to take advantage off. For this reason, I chose to steer clear of actively managed fund.”
He is also keen to ensure his money is diversified, so looks at funds that hold shares from across the globe. However, given his relatively young age, he is happy for his money to be fully invested in equities and doesn’t see the need at present to diversify across different asset classes.
“I’m young and plan to invest for the long run so don’t mind the higher risk associated with equities,” he explains. “But I intend to gradually shift my allocation away from equities and towards bonds as I get older to reduce my exposure to risk.”
William is a big fan of “keeping things simple” when it comes to his investments, and doesn’t like the complex jargon often used in the industry and the sheer number of funds there are to choose from. He says: “Once I had decided on my two main priorities — low fees and diversification — I wanted the simplest option that met these aims.”
William chose to invest in the Vanguard FTSE Global All Cap Index fund, via his stocks and shares Isa. As the name suggests, this tracks the performance of large, mid-sized and smaller company shares across both developed and emerging markets. William says: “I know this isn’t particularly exciting compared to the huge array of actively managed or niche funds out there, but it suits my needs at present.”
This fund has a four star rating from Morningstar, reflecting its relatively strong performance against peers, and has an ongoing charge of just 0.23%. The fund employs what is known as a passive or index investment strategy whereby it aims to track the performance of a chosen index as closely as possible by investing in a representative sample of the component securities of the index. Over the past three years it has delivered annualised returns of 9.98%, according to Morningstar data.
Looking Ahead
Alongside his Isa, William is also investing in a pension through his employer. He has set up a standing order so a portion of his salary goes into each of his investment plans the day after payday, so he isn’t tempted to spend the money elsewhere.
Although he has only been investing for a short while, William has already learned a few key lessons. “The main thing I’ve learned is to stop compulsively checking my Vanguard account every day to see how my investment is doing," he admits. "I did this for probably the first two months just out of curiosity but it’s not necessarily a good habit, given that I’m planning to invest for the long term.”
He is trying to follow a “set and forget strategy”, although he says the "forget" bit isn’t easy. While William views his Isa as a long-term saving plan that will hopefully contribute to his retirement, he may use some of it to buy a property along the way.
Looking to the future he says one of his biggest concerns is climate change. “I think this could be a risk to investments as it may force developed countries to question whether constant economic growth is actually compatible with protecting the planet.
“However, I doubt that this will materially affect my investment for the foreseeable future, so for now I’m sticking with a diversified fund that invests across the globe. There may be the opportunity to opt for more specialist funds at a later stage.”
