"You’re too young to invest" and other limiting beliefs you shouldn't listen to
I picked my first investment funds when I was 16 – two years later than I would have liked, but it got me hooked. Here are some of the things I’ve learned since as well as some common misconceptions.
By Courtney John-Reader, Aviva Digital Experience Manager
1. You’re too young to invest
The first time I tried to open a retirement fund in Canada, I was 14. My mum came with me to the bank and the account manager was a bit surprised by my request, judging by how her eyebrows raised when she heard me. She told me I could open one if my mum co-signed it – because I was too young. I waited until I could open one myself.
There’s (hopefully) a lot of life to go and, ultimately, the only person I can be 100% sure has my financial back is me. So why is it weird to want to start early?
Starting early meant I could take full advantage of ‘compound interest,’ aka the money I make makes money, not just the money I put in. Let’s say I invest £20 and after the first year I have £21. I don’t put any more money in but leave the interest there to grow as well. If I continued to see 5% interest each year, after 10 years I’d have £32. I’ve made £12 — not bad. But after 30 years, my £20 would turn into £86 thanks to compound interest (and imagine if I had £100 or kept investing!). An extra 20 years can make a big difference – try this investment calculator and see for yourself.
Of course, making a profit is not guaranteed (I’ll come back to that, see point number 5).
2. You need a lot of money to get going
Once upon a time, investments were kept in a locked tower and the only way to get to the top was to hand over £10,000 for someone else to manage. Kind of.
Luckily, it’s now 2020 and investing is no longer a secret of the rich and famous but something that anyone can get started in – even with as little as £1. When I started my ISA in 2016, I didn’t have a lot of spare cash (thanks London rent prices). I opened an account with £1 and for the first six months only paid in by roundups, where my ISA got the extra pence to round a purchase up to the nearest pound — so £2.50 for a cup of tea meant £0.50 for my ISA, adding up to £5 or less a week.
Which brings us smack up against the next one…
3. There’s no point investing with small amounts
It’s true that if you invest £10 a month you’re unlikely to make the same amount of cash as someone putting in £1,000 a month. But you could still see growth. And more than that, once you start investing, you’re telling yourself that you’re in charge of your money and are working towards financial freedom.
Putting money aside for something great in the future changes how you think about money, which changes how you feel. And that feeling grows and gets more powerful. And even if you put in £10 a month and saw little growth, after five years you’d still have money saved that could otherwise have vanished in everyday expenses.
4. You need to learn all about investing to get started
When I picked my first funds at 16, I did have to do a bit of work to decide which funds I wanted. I’m weird, so I found that fun, but I appreciate that stocks and shares might not be everyone’s favourite pastime. Thankfully, there’s now a host of ready-made options – funds and portfolios that try to offer the diversity that goes into a strong investment portfolio alongside the ease of knowing how much risk you are willing to take.
And there are more companies which offer up themed funds and portfolios to help you find a way to invest in something you like and care about, including the environment, social issues and even gaming companies!
If you pick an option that was put together for you, that doesn’t mean you can’t change your mind in future. Or that you can’t learn more about how markets work and make different decisions. Your investing experience evolves with you, and there’s always room to grow.
5. You’ll lose money
I mean, you could, because all investing has some risk in it and the value of your investment could go down as well as up, meaning you could get back less than you invested. But that’s also why there are risk ratings on funds so you get to choose how much or how little risk you want to take. Investing isn’t some get rich quick scheme (and if someone offers that, run!) where it’s all or nothing.
I saw the value of my LISA drop in March. I’ve also been watching it go back up. Because I got started early, I’m not in a rush to use that money so I can be patient and ride out bumps in the market without needing an emergency exit. Investments are for the long-term – perfect if you’ve started young.
Investing should be part of your saving strategy, but not your only savings account. I keep emergency funds or savings I’ll need to use in the next few years in an easy-access savings account (like a current account or cash ISA) but invest the money I won’t need for 5-10 years.
Don’t invest with money you’d need in an emergency, but if you find you have some spare cash, what can you do next? There are lots of companies offering different ways to invest – consider what you can invest in, how much it takes to get going, and what kind of fees they’re charging (hint: higher fees means fewer returns for you).
You can learn about some of the investing basics right here to get you started.