Friday 27 May 2011

Money Saving Tip #3 Paying down debt and investing

This isn't a substitute for going to Citizens Advice if you are really well in debt!

Nor does this constitute any form of financial advice, I am only stating what has worked for me over the past few years and cannot predict market conditions for the future!

When I was growing up my Grandma told me - never get into debt, if you are stuck for money come to me...
Well I never needed to take up the offer but the first bit I thoroughly took to heart. The only debt I have ever had was the mortgage, and that got paid off after 13 years. No, I didn't suddenly come into a pile of money, but when we re-mortgaged three years earlier we got on a mortgage that allowed us to pay up to £500 extra each month without penalty, we also fixed for 5 years at about 5.6%

So, we paid the maximum extra each month, and every month we got a rather pleasing letter from the building society saying we had so many months less to pay! In the end it got to a choice of paying off in a lump sum or just paying until the end of the fixed rate and indeed that would have been the end of the mortgage, so we used a far chunk of our savings and got rid of it altogether.

Being debt free makes a huge difference, and of course the satisfaction of having a home that is 100% yours!

How many people nowadays seems to have forgotten that it's rather a good idea to save up for something, not just buy it right now on credit and put off the bill until some indeterminate future time? So b****dy what about keeping up with the Jones or having a new car - they depreciate when they drive off the forecourt anyway! Live within your means and pay off any debts as quickly as possible - therefore less interest to pay and a much more well-off future!

Keep an eye on what banks and building societies do with your money - when you aren't looking they lower the interest rate on your accounts....

Never trust a financial advisor that isn't truly independent. We made the big mistake of going for a With-Profits fund in 2001 as it seemed at the time a way of avoiding big fluctuations of the stock market and giving a reasonable rate of return. We were sold this by an adviser from a bank at a time when these bonds were all the rage. Seemed good at the time but very quickly developed into a without profits fund.....

So, after deciding to chuck the bond in on it's 10th anniversary - where none of the fiddles and charges would apply, I put a similar amount of money into a self select funds ISA and some money into shares which I picked and researched myself.

Two years later and it's 40% profit so far on the funds and (although some shares are down, and one was a failure) I have been between 60% and 100% up on the share portfolio, one share being 500% up.

I informed the with-profits fund managers that a complete amateur like me could do these things for myself and do far better than someone on a rather unjustified bonus...they just tried to persuade me to leave my money in and gave me some bluster about the fluctuations in the market over the past 10 years - wasn;t that what the bond was supposed to guard against?!!!

It takes time and effort to do your own research into shares and you need to properly understand the terminology, a company balance sheet and research the markets and companies, but who better to look after your money that yourself!

A word of warning - don't follow share tips from newspapers, or from friends unless your own research and intuition agrees it's a good idea...

Don't put more into a single share than you can afford to lose

Spread your money over several funds and about 15 or so shares over different sectors and different geographical areas, although you may want to weight your investments towards a particular area e.g metals or technology or retail for instance depending on market conditions.

Invest when no one else is looking, not when everyone is jumping in, corrections occur!

Try and invest as the market starts to pick up after a crash, picking the bottom is difficult and only for the brave but when there's clear signs that things are starting to pick up then look for shares and funds that are undervalued compared to long term average

Unless you have pots to invest then shares with dividends don't generally make much - although they are mostly more stable, but capital growth will make a lot of difference to your portfolio.

Anyway, just what works for me!

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