Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
When Chandler asks Ross what he would do if he were to win the lottery, Ross reminds us why he is the worst character of the six:
Ross: I don’t know. I’ll probably just invest it.
Chandler: Ooh, calm down.
Joey: Seriously, that’s your fantasy? To invest it?
I had made it about two weeks into lockdown before turning to the comfort of Friends, but this exchange from Season 9 hit some of my early-20s anxieties off-guard.
Everyone thinks that young people need to be told to invest. That’s not true. We know we should, but, as Joey and Chandler point out, we don’t necessarily see it as a priority, especially in a world where planning for the future is playing second fiddle to getting through the present.
Despite these anxieties, investing is more important for our generation than any other. Given the array of obstacles in the way of enjoying prosperous financial futures, it’s imperative that we learn how to make the most of what we’ve got. Investing doesn’t feature in many people’s fantasies, but it is a tool we can all use to help realise them.
So, why should you bother?
1. You’re already doing it
Investing is really just a way to save money. If you have money in a company pension, then you’re already investing. Do you ever get emails from work saying you’ve made £2 on your pot? Yep, exactly the same thing.
The difference between you and “investors” is that they’re actively thinking about maximising the returns on their savings. Chances are, they’re after more than a couple of quid. If you’re looking at your long-term goals and wondering how your savings will ever make them happen, investing could be for you too.
Taking the next step often starts with opening a tax-efficient Stocks and Shares ISA (Individual Savings Account). By holding your investments in an ISA, you protect yourself from tax on any interest you earn. You can save up to £20,000 a year in an ISA, starting with as little as £25 per month. Find out more about ISAs here.
2. Time is on our side
Financially speaking, it’s not a great time to be a young person. Student debts, lower real wages, higher house prices, increased wealth concentration, a tougher jobs market - not to mention Brexit fears and a global pandemic that has seen 18-34 year-olds’ finances the worst affected of all age groups in the UK.
Fortunately, we do have one big advantage over the Boomers - time is on our side. The more time invested in the market, the more opportunity your money has to grow.
What does that mean? Well, it all comes down to compound interest. Through the beauty of compound interest, you’ll earn interest on any initial investment you make, plus all of its subsequently generated interest - interest on interest.
The longer this compounding process goes on for, the more interest generated - and so the more to compound. The earlier you get started, the better.
Source: Fidelity International, for illustration purposes only, actual performance will vary each year. With simple interest, a set amount of interest is added on every year. Compound interest keeps earning interest on the initial investment plus all the interest on the interest that has accumulated over time.
3. With youth comes wisdom
It’s very easy to say that young people don’t know anything about investing. Annoyingly, that’s probably not far off the mark. There’s minimal financial education in schools and, as Joey points out, it can be pretty far down the priority list.
But think about all the things you do know that other generations don’t. You know what matters to young people, about what they’re buying and their favourite brands, and so what will become the key consumer themes of a generation. Analyst teams across the globe are researching some of the stuff you know already, because you’re living it. That alone gives you a pretty good head start.
What’s more, there’s an awful lot you don’t need to know. You don’t need to read financial columns, or understand share prices, or shout the loudest at stock markets. Like everything, investing has to be simple, or else no one would bother.
Most people invest in ‘funds’ which are managed by professional fund managers, who pool money from investors together and invest it in a range of companies where they see the best opportunities. They’re the ones who really need to know what they’re talking about, not you.
So, why bother?
The truth is, we have plenty to be saving for. Do you ever look at your income and wonder how you’re ever going to put down a house deposit with that? Let alone raise a family? And why does everyone keep telling you that you already need to start saving if you ever want to retire? These are pressures that our generation can’t afford to ignore, and our basic incomes are no longer enough to handle them. Investing isn’t cool at first glance, but it is your friend. Unlike Joey and Chandler.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. 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 an authorised financial adviser.
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