“I know I need to do something, but don’t know where to start”
Here in the UK, we have a very specific way in which we manage our money that’s quite different to other parts of the world. In the US, there is a real culture of investing in shares, whereas in Europe if you want to save, you’ll primarily rely on your bank or an insurance company. Yet here in Britain, we have a rather odd mix of ‘building society culture’, online DIY investing and a network of financial advisers.
Why do we need to invest?
The government and regulators are concerned that, as a nation, we do not save enough, whether that’s into a pension or for other reasons like paying off a mortgage early or having an emergency fund. The average pension pot at retirement in the UK is just £107,300, which is around a third of the £300,000 or so industry experts recommend you save for a ‘moderate’ retirement.
They also worry that we have a tendency to borrow rather than save, which ultimately costs us more money, leaving us poorer in the long-term. In fact, 31% of the UK population have no savings at all, although the average cash savings total per person is £17,365 (source: Bank of England, 2023).
The other major concern is that just saving cash in a bank or building society doesn’t result in boosting the value of our savings as inflation is usually higher than the savings rates available, leading to a long-term reduction in value. The one historically proven way of increasing the value of our savings is by investing our cash, but many people are intimidated by the mere idea of stock markets, stocks & shares, funds and pension plans.
Investing is also a discipline. By putting money into a pension or an investment plan each month, you get used to that money being squirrelled away for future use, and you can watch it on its journey. It is incredibly satisfying to see your £100 a month growing over time. Don’t get me wrong. Investing can be bumpy and sometimes you see your money go down too, but historically, stock markets have risen over the long term.
“It helps having a purpose in mind for your investments, along with a timeframe. This can give you something to focus on, for example a holiday of a lifetime, investing for a child’s future or maybe to give you more options at retirement”, says Tony Clark, Senior Propositions Manager at St. James’s Place.
How do I get started with investing?
This is where most people fail – literally at the start line. Just the thought of all those charts, numbers, funds and shares is enough to stop even the brightest people in their tracks. They either stick any spare money in the bank or a savings account paying a couple of percent, or worse still spend it all! Things are tight at the moment, but investing can be very flexible and you can put more or less in each month if you like.
The question is, where do I go to get started? The first port of call is somewhere like Compare and Invest for two reasons. Firstly, they will help you to understand the world of investing a little bit more, and secondly provide the tools so that you can choose a potential investment service that suits your personal needs. Sites like Compare and Invest are a rich source of information and guidance for novices and it’s worth spending the time to read up on the basics.
The next step is finding a compatible investment service provider to use, and these come in three distinct types:
- The DIY investment platform (for example Hargreaves Lansdown and interactive investor)
- The guided investment service (known as robo advisers or app-based investment services)
- Financial advisers (for example SJP or Evelyn Partners)
All the above – and there are now many – have advantages and disadvantages – so we’ll look at them one by one and you can decide which feels right for you.
DIY investment platforms
These are the original internet-based investment services that allow you to buy shares and funds, have these investments looked after (administration) plus they offer a range of other services like a pension and ISA tax-wrapper, various ready made investments and best-buy lists.
Primarily, these services are for people who know a reasonable amount about investing and they definitely do not offer advice, so you have to make your own investment choices.
| Pros | Cons |
|---|---|
| A wide range of investments, tax wrappers, ready-made products and information | These services are often quite technical and confusing |
| Good for investors who have some experience | A certain level of knowledge is assumed (particularly around pensions) |
| Tend to be lower cost | You’re on your own! |
Digital investment services (robo-advisers)
This new breed of investment service was designed to fill the gap between the DIY investment platform and the financial adviser, by offering a guided questionnaire and help you to invest in the most suitable of a range of managed investment selections.
What that really means is that, depending on your views to taking investment risks, your feelings on potentially losing money and how long you’re happy leaving your money invested, there should be an investment product suitable to your needs. Once selected, that product will be invested and managed on your behalf so you don’t have to worry about buying and selling. That’ll be done by their in-house team of ‘experts’.
| Pros | Cons |
|---|---|
| A good way to start investing, without really knowing much about it | Range of investments are very small, tend to use low cost tracker funds |
| Relatively simple to use with ongoing investment managed for you | Relies on you fitting into a fairly narrow range of options |
| Websites tend to be modern and well-designed, with apps too | Relatively expensive for the service you get. Typically, no advice on offer |
Financial advice
In many ways, the original is still the best and you can’t beat the benefits of a real life financial adviser looking at your individual circumstances and tailoring a plan to suit. And it’s not just investments that they can assist with but also help with inheritance tax, retirement planning and even mortgages. The problem has always been the fact that advisers tend to be small, provincial firms who are expensive and frankly unable to take on new clients.
It’s this inability to deal with all the people who want advice that’s created the concept of the advice gap. Nowadays, financial advisory firms are consolidating into national practices offering better UK coverage, more capacity and a consistent level of professionalism.
| Pros | Cons |
|---|---|
| A personal service from someone who really understands your aims and objectives | Access to financial advice has, until recently, been hard to find |
| No need to even try to understand the financial markets – leave it to the professionals | You pay a professional to manage your financial affairs, so it’s more expensive than DIY |
| A wide range of investment choices and deeper advice across the board | Financial advice was perceived as being for the wealthy, although this is no longer the case |
Be self-aware
Given this choice, it’s important to be honest with yourself and look at how important saving is to you, your level of investment knowledge and the time you can devote to investing. If you find yourself doing a lot of household DIY, then it might be that you’re predisposed to having a go at managing your own investments.
But, beware. There are some big mistakes that novice investors can make, and these can be very costly in the long term. This is where speaking to a financial adviser can really help. It is good to see the larger financial advisory firms offering a national service and start becoming more inclusive, trying to attract new clients with as little as £150 per month to invest into the fold.
Tony Clark, Senior Propositions Manager at St. James’s Place, says, “When it comes to investing, taking advice can make all the difference to achieving your longer-term goals. Having a plan and an expert to keep things on track takes much of the guesswork out of how you get there.”
For information on DIY investment services and guided solutions, visit Compare and Invest.
For information of SJP’s advised options, visit sjp.co.uk.
This article was sponsored by St. James’s Place.
Authored by John Blowers.
Photo by Andrea Piacquadio on Canva
