Back to School week is my favourite week of the year. Apart from worrying that I’ll be put out of a job because our team of junior experts are so good on camera, I love the chance to really get back to basics on all things investment. Even experienced investors need to refresh their knowledge every now and again. And whether it’s how to invest your first Isa or getting your head around the complicated world of pensions, we all have to start somewhere on our financial journey and it can be difficult to know where to begin.
With the advent of the Junior Isa, that journey can start at a very young age these days (from birth, in fact) – and part of the problem for parents is how to make investing seem interesting to a young person, especially when there is Netflix and TikTok and whatever else the kids are up to these days to contend with.
So, this year we got thinking about how to bridge that gap – we asked our team of youngsters about their favourite hobbies and interests and sent our analysts off to find the stocks to suit. Because while holding a global tracker fund is probably one of the cheapest and most effective ways to invest for the long-term, it’s really not all that interesting to a young person (or to a lot of adults, for that matter). Far more exciting is the chance to own a stake in something you already know and love, whether it’s a the company that makes your favourite chocolate bar, the business behind the best Formula 1 cars, or the team that makes your favourite video games.
Technology and app-makers have made it far easier to invest in recent years – you can now get started with as little as £1 to invest, and with just a few taps on your phone – but the bit that no-one has yet solved is coming up with a magic formula that makes investing interesting and exciting to the masses. For a lot of people, the stock market will always be something complicated and more than a little bit scary. Yet research tells us that the earlier we get started in good money habits, the more likely they are to stick. If we can make investing less confusing and more relatable, we’re halfway there.
Back to Boring Basics
With all that in mind, you might think that I walk round telling everyone I meet that they should get investing pronto. I promise this isn’t true (I’m sure I’d have no pals left if it was). So last weekend, when a friend asked me how to get started with a stocks and shares Isa, my first question was: have you got a rainy day fund sorted?
Because as I’ve said many a time, before you even think about investing it usually makes sense to pay down your debt and get yourself an emergency pot of money. Investing is supposed to be for the long-term, so you need a separate pot of cash that you can get your hands on at short-notice if the unexpected happens – after all, being forced to sell your stocks or funds at the wrong time could be pretty disastrous.
But when people first start thinking about investing they tend to be drawn to the racy stuff. The SPACs and start-ups, the IPOs and meme stocks. And while there’s room for that in your portfolio, if that’s what you like (at Morningstar, we call it Mad Money), it usually pays to start with the simple, boring stuff first and that means getting your financial house in order before you start ramping up the risk.
“Boring!” I hear you cry. Surely you’ve learned by now that most of my suggestions are boring? I know a Cash Isa paying 0.5% isn’t the stuff of dreams, but it will let you sleep at night and know your money isn’t going anywhere. And if you like a bit more jeopardy in your life, Premium Bonds are a fantastic option – an email from ERNIE is always a good thing. Once you’ve got all your safety net in place, you can move on to the exciting stuff.
