A letter to my daughter on her wedding day

This article was originally published in The Telegraph.  

A couple of weeks ago my lovely daughter was married and two weeks hence she will celebrate her 30^th birthday. I hope she will forgive me for taking this opportunity to mention a few things that didn’t make the final edit of the father of the bride speech. It felt like there were more important things to say on the day.

I know I’m preaching to the converted, dear A___. Ever since we struck our Lifetime ISA deal in your early 20s, you’ve shown that you understand how to make your money work for you. Our agreement was that I would match whatever you paid into your LISA. I didn’t need to explain that your £2,000 a year plus mine would trigger the maximum £1,000 annual contribution from the government. Or that five years of this simple arrangement, plus a bit of investment growth, would get you on the housing ladder. I am delighted that it did.

You recently decided against swapping your starter flat for a bigger doer-upper house. That was a good call. The housing correction has not run its course yet and there will be a better time to make that leap. Your mum and I also had to navigate a tricky housing market in the early 1990s. Like you, we improved our one-bedder enough to get our money back after three years and so avoid negative equity and trade up at the bottom of the market. Let’s hope history can repeat itself.

The next sensible thing you have already done is to parlay your hard-earned degree from a good university into a well-paid job that you are smashing. It’s hard to make the right financial decisions in the absence of a decent income. You also, by the way, made a good financial choice in marrying J____. It may sound obvious, but two decent incomes really are a lot better than one.

An important, if for now largely invisible, part of your job is the pension it comes with. Like me, you won’t enjoy the benefits of a final salary pension. What you end up with will be determined by how kind the markets are to you over the next 30 years and how much you put aside every month. Fortunately, you have a similar agreement with your employer to our LISA deal. So, make sure you take full advantage of their matching contribution. It’s free money.

One thing you might want to consider is that whenever you get a pay rise you earmark a proportion of it to your savings and investments. You won’t notice the difference because your take home will still be rising, and the impact over the years will be meaningful. And while we’re on the subject of pay rises, don’t hold back - they need you too. Women are less good at asking for more money than their male counterparts. Don’t compound the gender earnings and pensions gap with a lack of self-belief.

One of the burdens that you bear that I did not is a student loan. I’m sorry about that, but we are where we are. Don’t think of it as a loan, though. The above-inflation interest rate that’s rolling up on the outstanding balance means you won’t pay it off and should consider it a graduate tax. Unfortunately, we live in a country with European tax rates but American public services.

Before I turn to your investments, a bit of housekeeping. I’m sure you don’t have any debts other than that student loan. If you did, I’d encourage you to pay them off before you do anything else.

Next up, make sure that you’ve put in place a cash cushion so you’re never a forced seller. The price you pay for the long-term outperformance of the stock market is its short-term volatility. The ups and downs of the market can work for and against you. Make sure you are always on the right side of that trade.

But what I really want to talk to you about is your savings strategy. It’s hard when you’re focused on finding a bigger place. And over the next few years there will be many calls on your cash. But the most powerful force in investment is time. And the sooner you start the better. Leave it a few years and achieving the same outcome will become impossibly expensive.

Make investing a habit even if the amounts involved seem inconsequential to begin with. Dripping your money into the market rather than in one-off lump sums will sometimes make financial sense and sometimes not. But it will always be the right thing to do from a psychological perspective.

Relax about the investment risks you are taking. Time is on your side, and you have two luxuries that I no longer enjoy - you have the time to repair your mistakes and the amount at risk from them is small compared with what you are contributing. In 30 years’ time it will be the mirror image on both fronts.

Make sure you don’t put your eggs in one basket. You don’t know what the next year holds let alone the next 30, so make sure you are as diversified as you can be. And don’t assume that economic growth will necessarily translate into investment returns. Valuations matter too.

One last thing. Don’t underestimate the pernicious impact of inflation. Remember the Rule of 72. Divide the rate of inflation into 72 and that will tell you how many years it will take to halve the purchasing power of your money. A 4% inflation rate may sound benign, but it will reduce the real value of your savings by three quarters before you reach retirement age.

Oh, and really, really last thing. Stay married!

Check out this week's Personal Investor podcast, where Tom Stevenson and Ed Monk discuss the investment lessons they'd pass on to the next generation.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.