Five ways to make your money work harder


Date: 18 May 2018

Five ways to make your money work harderWhether it's your dream to grow your business with smart investing, splash out on a dream purchase or retire early, most entrepreneurs need their money to work hard for them.

If you don't want to spend all day in front of a screen chasing the best deals, here are five golden rules to follow.

1. Let the markets do the work

With more than 98 million trades a day, across the global markets, it's highly unlikely that a committee discussing where to invest your money will spot a favourable discrepancy in a stock price.

Instead, of buying retail funds selected by a fund manager, buy a diversified basket of global index tracker funds and let the markets work for you. A wide basket of stocks from around the world linked directly to market returns can reduce the risk of trying to outguess the markets.

2. Diversify, diversify, diversify

Investment returns are random; they cannot be predicted with any certainty, so don't let your financial adviser move and change your funds on an annual basis to justify their existence and their fees.

Avoid limiting your investments to a handful of stocks or one stock market. This is a concentrated strategy with high risk implications.

Instead, buy the global market using a diversified basket of index tracker funds and leave the speculation to the gamblers.

3. Take control of your money

Conventional wealth management institutions are in business to maximise shareholder value - not your investment returns. Why would they suggest an opportunity to move your money to a competitor, even if it was in your best financial interest?

It is therefore essential to take back control of your money and ensure that the 'hidden' ongoing portfolio costs are kept to the bare minimum. Aim to keep the costs of managing your portfolio at under 1%. The industry average is in the region of 2.3%, so if you save yourself even 1% a year you will have made a substantial amount of money using compounding interest over the life of your portfolio.

For example; if you invested £100,000 with a traditional financial services company paying a total fee of 2.3%, and you received a 7% return on your money for 25 years, you will have a projected future value of £329,332. As £100,000 was yours to start with, you will have made a £229,332 profit. The overall cost to you, to make that profit, will have been £109,912.

If you invested £100,000 in a low-fee portfolio, paying a total fee of 1.11%, and received a 7% return on your money for 25 years you will have a projected future value of £441,601. As £100,000 was yours to start with you will have made a £341,601 profit. The overall cost to you would be £63,718.

4. Remember investments are a long-term strategy

Market timing cannot be predicted. Taking your money out in falling markets means you lose real cash. Most people don't reinvest until they get their optimism back, which is often too late; by then the stocks have risen, you've missed out on the gains, and you still have your losses to make up.

Manage your emotions by investing in a risk portfolio that is correlated to your capacity for loss - not one that is based purely on the search for the highest returns.

5. Don't lose money with the banks

Capital deposited in a bank is being eaten by inflation at 2-3% every year. Over the last 10 years, whilst the stock markets have gone up, the buying power of your bank-deposited savings has decreased dramatically, and will continue to do so for the immediate future.

My advice is to look at investing, rather than 'saving' with a bank; diversify your portfolio; let the markets work for you; and ensure you keep your management fees to around 1%. By following these rules you'll increase your fund faster and the day you can retire (or splash the money on your dream) will arrive much sooner.

Sponsored post. Copyright © 2018 Hannah Goldsmith, founder of Goldsmiths Financial Solutions

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