What I Tell My Family About Starting Their Investment Journey
You can live a rich life—a life richer, more vibrant, and more personal than you ever imagined. Whether your dream is to travel more, spend quality time with your loved ones, or simply enjoy financial freedom, it’s possible. Achieving your rich life starts with learning a few basic principles about investing and managing your money.
So here’s what I my family when we talk about getting them started with investing.
Start Simple: The Power of a Target-Date Fund
The simplest way to begin investing is with a target-date fund. This type of fund is easy to manage, even for beginners. A target-date fund is a single investment you choose based on the year you plan to retire. For example, if you plan to retire around 2050, you would select a 2050 target-date fund offered by companies like Vanguard, Hargreaves Landsdowne, AJ Bell, or PensionBee.
What Makes a Target-Date Fund So Effective?
A target-date fund is like a pie chart that automatically adjusts its investments. As you age and approach retirement, the fund becomes more conservative to align with your financial needs. All you have to do is set it up and contribute money to it consistently—no ongoing adjustments are needed. It’s an all-in-one investment solution.
What Is a Fund?
A fund is essentially a basket of investments that includes stocks and sometimes bonds. For example, a fund might own shares in companies like Microsoft, Google, or Nvidia. By investing in a fund, you’re diversifying your portfolio automatically. Diversification spreads out your risk in investing by distributing your money across a variety of assets, such as stocks, bonds, or funds, rather than relying on just one. This way, if one investment performs poorly, the others can help balance your overall returns, reducing the impact of any single loss on your portfolio.
How Does a Fund Work?
Instead of buying individual stocks and figuring out how much of each to own—which can be complex—a fund does this for you. It holds hundreds of stocks, and your investment is spread across all of them. Your role as an investor is simple: focus on contributing money consistently.
Where Can You Find Funds?
You can start by exploring reputable brokerage firms like Vanguard, Hargreaves Landsdowne, or PensionBee. If you’re outside the UK, look for a low-cost brokerage firm. While apps are an option, be cautious. Many apps gamify investing, encouraging frequent trading, which can hurt your returns. Remember, investing should be boring and automatic—not entertainment.
How Much Should You Invest?
A good rule of thumb is to invest 5–10% of your take-home pay. If you think you can’t afford that, review your spending. I guarantee you can find areas to cut back and free up money for investing. Automation makes it easy: once set up, the fund will draw money from your account monthly—whether it’s 100 pounds, 500 pounds, or 1,000 pounds.
Managing Your Investments: Set It and Forget It
Think of investing like preparing a dish in the slow cooker: once the oxtail is in the slow cooker , you let it cook. Similarly, once you set up your investment account, resist the urge to tweak it. You’re in this for the long haul. Your job is to keep contributing consistently and leave the money alone.
When you automate your investments, you may not notice the money leaving your account at first. But over time, you’ll be amazed at how much accumulates. Add the power of compound interest, and you’ll see how real wealth is built.
Your investment account isn’t a current account for day-to-day spending. It’s a place to grow your wealth over time. Automating your investments makes this process seamless. Here’s a simple system to follow:
- Get Paid: Your salary is deposited into your current account.
- Automate Transfers: Set up automatic transfers to:
- A savings account for specific goals (holidays, car purchases, etc.).
- Your investment account, where the money remains untouched to grow over time.
- Guilt-Free Spending: Use the remaining money for enjoying life.
- Pay Off Debt: Ensure any credit card is paid off automatically every month.
This system may take a few weeks to set up, but once it’s in place, you’ll never have to think about it again.
A little "homework" for you to see this in action.
Over the past century, the stock market has delivered average annual returns of 10–11% in the U.S. After adjusting for inflation, that’s about 7–8% per year. If you’re wondering what that means in practical terms, try this:
Search online for an investment calculator. Input the number of years you plan to invest (calculated from your current age to your expected retirement age), your monthly investment amount (e.g., £200 or £300), and an estimated annual return of 7%. The results will show you just how much your money can grow over time. The power ofcompound interestis truly remarkable.
Take the First Step Today
The most important financial decision you’ll ever make is to start investing. It doesn’t matter how much you can afford to invest right now—what matters is building the habit. Set up your accounts, automate the process, and let your money work for you.
Your rich life is within reach, and it starts with a single step.