✔ You have some money, want it to make more and currently have others handle the investment process for you. Maybe you have fund managers or investment advisers handle your investments so you can gain tax advantages or because your savings are lumped together with those of others in a pension or similar fund. Or maybe your life is just too busy or complicated for you to do the investing yourself. Regardless, you now want to understand how investing works so you can either take over your own investment decisions or monitor what others are doing with your hard-earned cash. I’m not sure many people will pick up this book just to check up on the professionals, but I could be wrong.
✔ You’re now in charge of your pension decisions. Unless you work in the public sector, the chances are that you now have to take stock of your own pension arrangements. What you get when you retire is now largely up to you rather than your former employer or employers. And the new pension freedoms extend this choice into your retirement years. Because building up and then winding down a pension are likely to be the biggest investment decisions you make, Chapters 14 and 15 are devoted to helping you construct your retirement funds and then make the most of your pension’s nest-egg.
Some people spend all they have each month (and then some on top – ouch!). Others put away a bit in the bank or building society on a regular basis. And still others buy and sell stocks and shares, with some going in for some very complex investments.
Test time: you need to decide whether you’re a spender, a saver or an investor. Doing so isn’t as easy as it looks, though. Spenders can be savers or investors. Savers can be spenders and investors. And investors are generally also savers and must, at some stage, be spenders. But most people are predominantly one of the three types – spender, saver or investor. Which category you think you fit into determines what you do from now on, how you react and how you progress.
Spenders have fun
Spenders are generally people who live for the here and now. They may want more than they can have and end up borrowing money, probably on plastic cards. For many spenders, accumulating cash for the future has no priority.
Here are ten attributes of spenders. If the majority of them apply to you then, yep, you’re a spender:
✔ You don’t look forward to the end of the month.
✔ You love new things: you’ll queue all night for the latest smartphone and your friends gasp when you tell them how much your new handbag cost.
✔ You have more than one credit card – maybe you use one to pay for the other.
✔ You can’t resist two-for-one offers, even if you throw half of what you buy away.
✔ You buy unnecessary clothes.
✔ You’re always first – and last – to buy a round of drinks.
✔ You believe in living a lot now.
✔ You see the future as a foreign land.
✔ You worry about money at times but then go out to the shops to stop fretting.
✔ You buy glossy magazines as much for the advertisements as the articles.
If you’re in this category, your first priority is to recognise that investors can’t always be spenders. Getting familiar with investing is a good way to accomplish this priority because it offers an alternative use for your cash.
Savers have cash
Savers are people who want to keep their financial cake and eat small slices at a later date. Here are ten saver attributes. Tick those that apply to you, and if the majority do then you’re probably a saver:
✔ You have a surplus at the end of each month.
✔ You go to the supermarket with a shopping list.
✔ You don’t have a credit card, or you pay it off in full each month.
✔ You’re prepared to put off purchases.
✔ You’d rather buy second-hand than run up a debt.
✔ Your property is more important than your furniture.
✔ You look at the display windows at banks and building societies.
✔ You know what the current interest rates are.
✔ You believe in the saying ‘waste not, want not’.
✔ You’ve read Sorting out Your Finances For Dummies (published by Wiley) – or, if you haven’t, you’ll get a copy the next time you buy a book.
You can’t use a credit card to buy investment products over the phone, via the Internet or in other circumstances where you can’t send a cheque. Some of the reasons lie in the complexity of consumer credit legislation. Another factor is that financial companies only want you to invest what you can afford, although unauthorised, illegal and probably fraudulent offshore investment firms may try to sucker you into schemes by telling you to use your credit card.
But the most important reason you shouldn’t borrow to invest or save is that doing so only makes financial sense if the return is going to be higher than the interest rate charged. Paying 29.9 per cent annual interest – and that’s by no means the top credit card rate – is pointless unless you can be very sure that your investment will grow even faster and that your original capital will be safe. Both now and in all of history, no such investments exist.
And note that even if you could borrow at 0 per cent annual interest, you’d still have to be sure of getting your money back with one of those rare investments that can’t fall, in order to be better off.
Investors build up future funds
Investors are people who are prepared to go the extra mile to try to ensure that their wealth goes the extra thousands, tens of thousands or even more. Investors want control over their money but are ready to take a risk provided that they’re in charge and know the odds. They want their money to work hard for them – as hard as they worked to get the money.
You don’t need an MBA, a posh old-school tie or stacks of money. However, know that although you can sleepwalk into just saving your cash, you must be wide awake to be an investor.
As a pure saver, you really don’t have to know what you’re doing. You can just stash your cash under the bed, for example. As an investor, you must