Losing £1000 in the Markets in a Month | How To Invest Profitably and Care-Free

by Magical Penny on August 31, 2012

I checked my online investment accounts the other month and I got a bit of a shock. My investments were ‘worth’ £1000 less than they were worth just 30 days previous.

But after the intial shock of seeing a smaller figure,  I closed my browser window and got on with my day.

Nothing to See Here People

When you think about the stock market, what do you think?

  • Computer screens flashing with green and red numbers?
  • A complicated system of trades and options, dividends and capital gains?
  • Just pure indistinguishable jumble?
For many, investing is perceived as gambling, kind of like playing Fidelity.  Sure, both can be a bit of a thrill, but investing is very different.

Investing can seem crazy at times, but when it comes down to it, it can also be pretty simple…

Investing involves buying pieces of companies with the hope that those pieces grow in value over time

The value of a company is always fluctuating depending on the hopes and fears of  investors looking to buy or sell the shares of a company.

You only lose or gain money when you sell

This is a really important fact to keep in mind, particularly if you are young and don’t need to sell your investments. When investing for the long term you are not looking to make a quick buck -you are looking to buy small pieces of companies, that over time will grow in value. If you see your investments lose value, assuming you have invested in a broad ‘index’ of companies (more on how to do this below) and don’t need to cash in your investments, then it should not bother you at all -because over time the average market return is positive.

The Gradual Accumulation of Value

Over time, the stock market gains value.  Certainly different time-frames produce different periods of return, and there are no guarantees in anything, but markets do tend to go up over long periods of time. Every day people wake up, head to work, and create ‘value’. If not enough value is being produced companies go out of business, certainly, but the average performance of most businesses that you can buy a proportion of is positive. Investing in these businesses through the stock market means you get to enjoy a share of the value created by the business.

 

How To Invest Profitably and Care-Free

One of the easiest ways to grow your savings over the long term is by buying ‘index’ funds – buying such an investment allows you to buy a tiny piece of every company in a particular ‘index’ – for example, buying a FTSE 100 index fund allows you to own a small piece of the top biggest companies in the UK.

  1. Always invest with money you don’t need and won’t need in the event of an emergency. You don’t ever want to be forced to sell your investments due to circumstance as you can’t guarantee the value of your investments at the time you will need them. To make money in the stock market you need to control when you sell, not be controlled by circumstance.
  2. Put your investments in a Stocks and Shares ISA (or a Roth IRA if you’re in America). This protects your investment gains from tax. I use Fidelity because I think their ‘fund supermarket’ is really clear and it’s easy to set up (and I’m not getting paid to say it I just love them!)
  3. There are lots of unit trusts to fill your investment accounts with, but ‘index funds’ or ‘tracker funds’ are arguably the best, because of their low fees that match the market (rather than mutual funds with larger fees that historically lag the market on average). In terms of fees 1.5% is typical for funds, but most trackers should be less than 0.75%, although it depends if you want to invest in domestic indexes or internationally…hint: both is best!
  4. Invest consistently – don’t let emotions or market – panic influence when you invest. The easiest way is with a regular monthly contribution when you get paid…automatic contribution is automatic wealth! Most companies allow you to invest with small amounts – Fidelity for example allows you to invest with just £20 a month.
  5. Enjoy the ride. Some months your investments will be up, some months they will be down, but over time they will grow and grow and secure your financial future.

 

Get started today and harness the power of compounding returns and feel happy inside! Let me know how you’re getting on in the comments.

 

Want to know more about how YOU can start investing? I’m working on a special course to show you how, via video tutorial.

 

 

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Are you Life Aware? | Life Insurance In a Nutshell

by Magical Penny on August 22, 2012

What would happen if you died after reading this post?

Quick! Watch the video before it’s too late.

Are you LifeAware? from Magical Penny on Vimeo.

Pretty serious stuff, right?

The idea of untimely death is the the trigger the latest financial movement, #LifeAware, over at another personal finance blog: Good Financial Cents.

As a personal finance blog, it’s a passion to make sure people are making financial empowered choices, including making sure you have life insurance if you need it.

Do I need life insurance?

What would happen if you died and couldn’t provide for your family? For many, life insurance is all about solving that potentially major problem.

But not everyone needs life insurance…. for example, I don’t have any because:

  • No one is relying on my income except me
  • I have no debt (including not having a mortgage) so if I were to die my estate would not owe anything to anyone
  • Well..I have student loan debt, but that doesn’t count as student loan debt in England and Wales is excused upon death (may be different in other countries)
  • I have enough savings to pay for my funeral and any other associated costs
  • I am not earning so much money that I’ve run out of tax-advantaged places to put it…for example my ISAs and pensions

If you are the same as me in all of these points, then you may not need life insurance either. If you die tomorrow it would be a terrible tragedy but no-one is going to go hungry. However, if you are planning on taking out a mortgage in the near future or have a family relying on you as a breadwinner then life insurance should definitely be on your financial to-do list.

 

Ask yourself: What would happen if YOU died today?

Would your family be OK financially if you didn’t make it home tonight?

It’s fun thinking about all the amazing things we want to do in life. But as much as we avoid the subject, accidents happen every day and can quickly end our plans.

For our cars we must have car insurance to cover bumps and crashes; for our houses buildings insurance helps address the risk that our homes may go up in smoke, or collapse to the ground. But what about our life itself?

No one likes to think about their own death. Our eventual death is hopefully a long time in the future, but for some unlucky people, life can be cut short.

Life insurance is shunned by some people because they view it as expensive or unnecessary. But for the majority of us, it doesn’t have to be expensive and it’s likely to be one of the most financially responsible things you do.

What Kind of Life Insurance do you need?

The cheapest and best type of life insurance is called ‘term insurance’ -where you pay a fixed amount every month for a fixed ‘term’ -typically 20 or 30 years.  The point of life insurance is to help support your family should you die during the term period. Having it in place means you won’t leave your family in financial trouble if you’re no longer around. Whilst it’s not compulsory for everyone, you must have life insurance if you have a mortgage as the bank will require you to pay off the amount you owe them, regardless of whether you’re around to pay the bills.

 

How much does life insurance cost?

The monthly cost depends on the size of the policy –the amount of money your estate would receive should you die during the term period-  but most polices are not more than a few pounds a month.  Typically you should take out enough to cover any mortgage + several years of your salary. Some financial advisers recommend 10 years worth but you should decide yourself how much cover you want to take out.  As for the length of the term, many people choose a time frame that takes them to an age in their life when they will not need coverage -when they think their children will have moved out or when they will have paid off their mortgage.

You might not know the exact amount of coverage you need just now but it’s worth getting something in place. Accidents can happen at any time so  it’s  worth looking into term insurance to make sure money is not a worry for the people you leave behind should the worst happen. The best part is once it’s in place, you can go back to thinking about more fun things, safe in the knowledge you’ve got things covered.

 

Hopefully this post has provided some food for thought so you can plan things to make sure your family are in as good a position as they can be!

 

Be sure to check out #LIFEAWARE at Good Financial Cents for more great information on life insurance!

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Coming to terms with emotional and financial separation

by Magical Penny on August 22, 2012

Divorce can be a trying time, even for partners that split amicably.

There are several major details to be sorted in the process of dividing financial assets and deciding where children should go, so it is important to keep an open mind and a willing attitude with your spouse during this time.  The more you can work together, the easier, faster, and less expensive your divorce will be. To get started, here are some discussions that you may want to have with your former partner.

Paying for the divorce

On average, a divorce in the UK will cost anywhere from £100 to £400, depending on how much help that you get from family law solicitors. However, if your divorce is contested or involves particularly complicated interactions between you and your spouse and your solicitors, the potential for a more expensive bill rises. Of course, money is only one factor in coming to an agreement that you can both live with, but it is one of the primary reasons why it is always better to maintain a good relationship with your former spouse.

Who will keep the kids?

If you have children together, this is the most important piece of your divorce settlement. It can take a heavy emotional toll on both parents as well as the children, which is why it is best to try to come up with a custody agreement either between yourselves or through a mediator. Financial matters must also be considered. Does the ex-spouse who assumes primary guardianship of the children receive financial support from the other? If so, how much support? It may be necessary to leave this decision to an impartial court official.

Making a new home for yourself

In many cases, one spouse chooses to leave the home. Or, if the family home is too expensive for one person to maintain, both may consider leaving and downgrading to smaller home. Among these costs, you will have to factor in first and last month’s rent, or, if you are buying a home, a down payment, closing costs, and other real estate fees. It is important to make the move go as smoothly as possible, so it may be a good idea to stay with a family member or friend while you save money for this transition and search for a place where you (and possibly your children) can be comfortable.

 Dividing assets

 Next to deciding who gets guardianship of the children, this divorce aspect has the most potential to cause (even more) discord between spouses. The easiest way to do it is for both parties to come together to provide a written account of all of their financial assets. This includes those that they possess jointly as well as those that are individual. Then, each person can make a copy and turn it in to his or her solicitor to use in divorce proceedings. Many people may try to get away with not listing all of their financial assets for fear of being left with nothing after divorce; this is never a good idea. If you are caught hiding financial holdings intentionally, you may have to pay a hefty price ordered by the court.

Just because you no longer wish to be married to each other doesn’t mean that you can’t be great partners in working through your divorce. Leave it on good terms, and the emotional and financial impact will be far less for both of you.

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Saving for Retirement Reimagined Through the Lens of Beer

by Magical Penny on August 20, 2012

Compound interest blows my mind.

A little bit of money with a lot of time can work wonders for helping you reach your savings goals.

But the problem for many is that it’s really hard to imagine the future and make sense of the impact that time can have on the size of your retirement accounts.

So when I came across this info-graphic about beer and retirement planning, I had to smile. It really puts compound interest in perspective!

 

The RothIRA.com Awesome Tower of Beer

From: The RothIRA.com Awesome Tower of Beer

 

Note: The Roth IRA is an tax-advantage account only available in the US.

If you’re in the UK, like me, you can save in a Stocks and Shares ISA instead, and take advantage of the stock market’s higher returns over the long term.

If you don’t know where to start when it comes to opening a Stocks and Shares ISA you’re in luck, as I’m currently working on a video series that will show you exactly what you look out for and how to open one, step by step!

 

You’ll Need More Than Beer

While its fun to think off all the beer you could buy with a tiny daily saving plan, there will always be lots of things you’ll need to pay for when you are not working so get to it, one pound or dollar at a time.

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The 95% Mortgage is back!

by Magical Penny on August 15, 2012

Nowadays many people struggle to save up enough money to invest into the UK’s property market.

This has caused problems for many first time buyers looking to invest as the normal loan-to-value mortgages can range between 70-80%. This has resulted in buyers having to save up colossal amounts of 20-30% for just the deposit alone which on a £160,000 property could range from £32,000 to £48,000.

Five years ago there were more than 800 different 95% Mortgages available in the UK for first time buyers which meant that buyers only had to save up for a 5-10% deposit. This meant more people were buying because it was more affordable to do so and rentals increased due to this.

As the financial crunch worsened the 95% Mortgage disappeared off the face of the earth due to lenders not being able to risk giving away mortgages with such a low deposit. This resulted in an increase in rentals and a decrease in property sales for first time buyers.

In March 2012 the British government decided that it was important to get more first time buyers investing into the property market so introduced a scheme called the NewBuy Scheme.

The NewBuy Scheme aims to team up with builders in creating new properties for the 95% mortgages. The scheme aims to help first time buyers find a place within the troubling housing market.
Since then it is expected that there has been success in over 600 reservations and an increase in employment within the building and construction industry. The NewBuy scheme is expected to create a further 50,000 jobs within the building and construction industry over the coming years.

The 95% Mortgage will help tens of thousands of people reach the goal of owning their own home and hopefully 95% mortgages will continue to grow.

5 Reasons why a 95% mortgage is a good idea!

  1. Applying to be part of the NewBuy scheme is a life changing choice that moves you away from rental and allows you to own your first property using a 95% mortgage.
  2. The 95% mortgage gives you the opportunity to obtain a mortgage with a low deposit.
  3. 95% Mortgage will allow you to purchase a new build up to the value of £500,000 still with a 5% deposit.
  4. There are loads of 95% Mortgage Deals out there and you can speak to expert mortgage advisors that can get you the very best deals
  5. 95% Mortgages are aimed at new build properties so you can get your first brand new property that you’ve always dreamed of at an affordable price.


Remember:

  1. When applying for a 95% Mortgage make sure that you apply with an experienced specialist company that knows the market well.
  2. Make sure that you understand the NewBuy Scheme and how it works
  3. Make sure that you’re eligible to apply for the NewBuy Scheme.
  4. Be sure you are buying for the right reasons. Buying a house is not always the best thing to do, even if it feels like something you should be doing to make ‘progress’.

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Can Taking Out A Loan Be A Good Idea?

by Magical Penny on July 6, 2012

Should You Take Out a Loan?

Ask any number of personal finance writers about taking out a loan and the most common answer is likely to be “No, don’t do it”. There are plenty of stories about people spending more than their income and resorting to loans to plug the gap. The stories hardly ever end well. The conclusion many come to is to avoid loans wherever possible. However, using loans can be a great way to achieve your goals -as long as you understand the consequences and weight up the benefits and costs.

Immediate cash for a reasonable price

Loans allow you to buy things with money you don’t have. For a price.  Some sites, like jaguarpaydayloans.co.uk offer services for short-term lending, whilst others allow you to get a loan with a longer period of time to pay it back. The cost of loans leads some people to avoid them but that doesn’t automatically mean that loans are not worth considering. Whilst you could save money by simply delaying your purchase until you have saved enough income from other sources, you may deem the cost of the loan to be worth it as taking out the loan allows you to benefit from a purchase earlier. For example, saving up for a car will not help you in the short term if you need personal transport every day. Essentially a loan allows you to buy “time” -the time it would have taken you to save up for what you want.

Emergencies

Life doesn’t always go smoothly and sometimes people resort to loans to recover from emergencies that happen in people’s lives. It is wise to save for such emergencies so you do not have to resort to loans, because loans always have a cost. However, if the emergency demands it, a loan can be tremendously helpful and valuable, by helping move things along in the way that only money can. Ultimately people are more important than money so if the situation requires it- like buying a plane ticket to spend time with a dying family member- a loan can be worth its costs.

Education

One of the most popular reasons to take out a loan is to cover the cost of an education. Using a loan for this purpose is a clear example of how to use loans to your advantage. For many of us it is impossible to fund an education early in life as we have not had a chance to earn enough to pay for it. Loans therefore give students the opportunity to develop their education which will then allow them, if things go to plan,  to earn enough later to pay back the loan and continue growing their earnings into the future.

In summary, whilst living beyond your means is definitely is not helpful to the pursuit of growing your pennies, loans can have a place in successful financial plans. Indeed, they do have a cost attached but if you take the time to assess the costs and the benefit for your situation and make an informed decision, then personal loans can be a useful tool for helping you achieve your goals.

Have you ever taken out a loan that you found helpful?

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Consumer Savings Increase Thanks to PPI Refunds

by Magical Penny on June 29, 2012

A guest post by Simon Thompson…could you be entitled to a refund?

Consumer pockets have gained a little extra weight during the first quarter of 2012, which many economists believe has been helped by retrained consumer spending and assisted by large compensation payouts due to the payment protection insurance (PPI) scandal.

That is according to the banking group ING Direct, which released a consumer saving report in May. The findings revealed an unexpected 18 per cent in the first three months of the year, with median savings balances rising by £284 to stand at £1,858. This is also the first consecutive quarterly rise in savings since 2009 and could be the beginning of the three-year trend of falling saving levels.

PPI reclaims (done by companies like ppiclaims.uk.com ) have certainly helped the savings of ordinary Britons to rise significantly. According to the report an estimated two million people remain in line for a PPI payout, with each estimated at an average of £2,600 this year totalling £5.6 billion in refunds. One third of these refunds are likely to go straight into saving accounts, the equivalent of £1.9 billion by the end of the year, with as much as £480 million already channelled into savings in the first quarter of the year.

The first bit of positive financial news I have heard in recent months is no doubt causing many people who know they are still entitled to compensation want to know how they might proceed in claiming PPI back as soon as possible.

Legitimate claims management companies still clearly seem to be one of the most hassle free routes in order to receive the maximum possible payout from the financial institutions which caused this financial mess.
However I must stress it is important you chose a reputable claims specialist. Many companies will offer an excellent and reliable service, however due to their popularity with so many customers there are a few companies whose practices are substandard.

The faster customers make a claim, the quicker the money is back into their arms to either save or spend. I am sure that as a result of the surge in PPI payouts over 2012, retailers and possibly the economy overall will benefit from the news with an estimated £1.5billion of PPI cash to be spend on consumer goods over the year.

Simon Thompson is the Managing Director of Precision Claims, who are specialists in helping customers to make claims for mis-sold PPI against banks. Click here to see what is defined as mis-selling.

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A Quick Guide to Freshers’ Finances

by Magical Penny on June 26, 2012

With students getting their results soon and preparing to head to university in the autumn they’ll need to look at their finances without delay

For many students, starting at university this year, will bring huge changes to their lives. Not only by living away from home for the first time, but also in learning to manage their own finances.

Student grants and loans are normally paid at the start of each term, and the temptation is strong to blow it all at the start of the year. Without careful planning they may need to visit sites like this one for extra cash. However, with some sensible budgeting they can ensure that, as students, they will be able to make their money last through the whole term.

 

 

Drawing up a simple chart showing the total amount of money the student will receive each term, and deducting from that a list of known expenditure will help enormously.

 

Rent for accommodation is often paid for each term in advance, and if public transport costs are incurred between accommodation and campus then a yearly season ticket is a sound idea and will save money over the whole academic year.

Once the essentials are pre-paid then the balance of the money available to the student can be divided between the number of weeks to be budgeted for, to give a weekly amount to cover food and household shopping, any clothing needed, and of course, those all-essential social activities which form part of student life at university.

Spending a little time in shopping for food and cooking meals is much more economical than eating out, and most supermarkets have special offers on different products each week. Many stores have free magazines which not only detail their offers, but also include recipes and handy seasonal hints, many of which are a real boon to those living away from home for the first time. Markets and discount stores also offer food at prices below those in supermarkets, so it is worth exploring what is available locally and taking advantage of those savings whilst they are there.

A handy way for students to limit their monthly expenditure is by using a pre-paid card, which are sometimes available with one of the many basic bank accounts on the market, by simply loading it with the sum allocated for that month and then using it to pay for everything during that time period. Pre-paid cards have some advantages over cash cards, particularly when it comes to budgeting, whilst some pre-paid cards come with bonus offers of cash-back rewards or worthwhile discounts on a range of products.

 

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Liability Insurance: Ensuring your SME is covered

by Magical Penny on June 12, 2012

Start up business costs can be a substantial investment. I’m currently in the process of setting up Magical Penny and my other web properties up as a business so I know (although a ‘web business’ is easier than many other kinds of businesses).

With any business births in the current climate, securing any element of your finances is a relief and peace of mind.

The British population has embraced the imported ‘claims culture’, putting small and medium enterprises under difficult financial pressures to perform perfectly without room for human error. From 2007 to 2011, the United Kingdom has seen an 18 per cent rise in liability claims, with 2010/11 recoveries totalling over a terrifying £10.6 million pounds.

The ‘claims culture’ is being nurtured by Claim Management Companies (CMCs) who make exorbitant amounts from successful cases. Their ‘no win, no fee’ policies attract exaggerated and fraudulent claims from individuals who are looking for a get rich quick opportunity, in between genuine cases of mistreatment and misfortune.

In 2011, a report from the Association of British Insurers alleged that 51 per cent of consumers had been contacted by CMCs in 2010 regarding potential injury or accident claims – a worrying statistic inferring that businesses need to be more vigilant than ever surrounding their potential public and professional liability.

Although not all liability insurance is legally required, taking out an inclusive policy should be considered as an investment for your business and not a hindrance. Whatever your business’s insurance needs, policies typically cover legal fees and compensation.

When you consider a professional indemnity insurance provider, or a trusted public or employer liability insurance company, you are taking steps to protect your enterprise from preventable economic failure.

Public Liability Insurance

Public liability insurance is not a compulsory insurance but it does cover your business against claims that surround any accident or injury caused by your company. This is not restricted to major health claims – public liability insurance ensures that clumsy damage to client’s property is also insured.

Public liability insurance is a basic, but reliable guarantee that should your business physically instigate an instance of damage or infirmity, your legal and liability costs are covered.

Employer Liability Insurance

Companies that employ any number of workers are legally required to take out employer liability insurance. This product protects employers and employees should any team members’ experience a work related accident or suffer from an illness induced by their occupation.

Although most moral small/medium enterprises (SME’s) have the interests of their workers in mind and implement comprehensive health and safety policies and procedures, it is always wise to prepare for unanticipated, unfortunate events.

Work related illnesses cause a high proportion of absence from work each year. The latest Health and Safety Executive key annual figures from 2010/11 confirm another astonishing year for industry induced sickness and injury. The fundamental figures affirm that approximately ‘1.2 million working people were suffering from a work-related illness’, while ‘171 workers were killed at work’ and ‘200,000 reportable injuries occurred’.

These dire demographics are unquestionably a warning sign for all organisations, but particularly SMEs. To put your business under avoidable fiscal jeopardy suggests complete discount towards the current climate.

Whether you employ individuals under a permanent or temporary basis you are required to take out a minimum policy cover of £5 million. You must also account for voluntary staff, or anyone who has performed tasks or chores to assist your business.

cautionProfessional Indemnity Insurance

Though every business insurance policy should be tailored to suit your line of work and individual business, it is imperative that you speak directly with your professional indemnity insurance provider to arrange suitable cover for your company.

Professional indemnity insurance is a far more complex form of insurance provided to protect those who run specialist businesses. If the service you provide your clients requires expert knowledge or professionally qualified acumen, you may find that you have had to take out professional indemnity insurance before you begin business.

This is particularly applicable to solicitors and architects, for example. Sale of your intellectual property, advice or creativity based services should be protected by professional indemnity insurance. Be sure that your intangible products are protected to the same level as material commodities.

Should a claim ascend surrounding negligence, copyright infringement, damage or loss of professional data, dishonesty or defamation, professional indemnity insurance will cover your legal fees in addition to any compensation costs, as ordered.

 

At a time when jobs at an all-time low and the recession is affecting all individuals from every walk of life, do not endanger your business. Consider taking out satisfactory insurance to protect your SME and survive the excessive ‘claim culture’ within the current economic climate.

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First Time Home Buyer’s Guide

by Magical Penny on June 8, 2012

With prices ever-increasing and interest rates on savings so low, setting foot on the property ladder seems an impossible dream for many people.

If you’ve been reading Magical Penny for a while you’ll know that as a single 20 something I’m very happy renting at this time in my life but if you’re in a different situation it may be heartbreaking to spend a significant chunk of a house deposit on a year’s rent and young families can struggle to find a house they can afford that has a garden for their children.

 

How does anyone manage to buy their first home?

For the younger generation, relying on their parents is one way of managing to fund a deposit. Certainly that’s how many of my friends have started on the housing ladder.

Parents who can afford to are loaning or giving their children large sums of money in lieu of an inheritance to help them buy their first house. Others are letting their grown-up children move back into the family home so that they can save up for a deposit.

Another option is buying with friends or a partner as this reduces the costs as each person can contribute to the deposit and monthly mortgage payments.

 

Otherwise, the only real option is to start saving as much as possible, as soon as possible. If you’re struggling to save consistently you should have a read of some of the many articles about saving money, here on Magical Penny

 

If you are looking at mortgages for buying a home you have a few options:

Understanding mortgages:

The most common mortgage is a repayment mortgage. Each month you pay back a portion of the amount borrowed, plus the interest for that month. At the end of the term you will have cleared your debt.

With an interest only mortgage, you only pay back the interest owed and at the end of the term, you are required to pay back the outstanding mortgage.

 

Rates and requirements:

Fixed rate mortgages offer interest which is unchanging throughout the period. If the interest rate drops, you will still be paying the higher rate.

With a variable mortgage, the interest rate will change as often as interest rates do, usually once a year.

As with all mortgages, if you do not keep up with your mortgage repayments, your home may be repossessed.

 

Tips for buying a home:

  • Write down your priorities – local schools, transport links, crime rate etc.
  • Work out how much you can afford as a deposit
  • Find out how much you can sensibly borrow
  • Decide how much you can afford to repay each month
  • Don’t forget the associated costs such as stamp duty, surveyors, solicitors etc.
  • Consider how much needs doing to the property – can you afford a new kitchen/roof etc.

 

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