Your Money is More Important Than You Think

Money is difficult to acquire but easy to spend. This is perhaps more true now than ever before - it's so easy to spend money. For example, I just have to press the fingerprint reader on my keyboard at checkout and voilà, I've made the purchase. That's not to mention the whole online retail universe, which barely existed 20 years ago - now, you can literally buy everying you need in you life from the comfort of your keyboard. Add in the constant advertising bombardment that billion-dollar marketing campaigns throw at us, and the temptations have never been higher.

Every pound or dollar that you aquire should be treated with respect - those paper notes can be very powerful for you, if used correctly - they can buy you the food, goods and services you need to survive - or they can be wasted extravagantly on excess.

I appreciate that fewer people use cash these days (myself included), which is a shame, because you loose that tangible feeling when you physically exchange money for something you want. Yet again, we find a change in modern personal economics which makes it easier to spend more money. So, the next time you look in your wallet, give those paper notes a thought and consider all the things they could be used for - what you could buy, who you could be generous to, where you could save and how you could invest.

Really think about how hard you had to work to aquire those notes - money doesn't grow on trees after all. When you fully appreciate how difficult it is to acquire money, you'll want to hold on to more of it. I try to keep hold of as much money which comes into my possession as possible. Every pay check I get, I pay myself first by investing into the global stock market, and then I allocate the rest according to the bills I have to pay and any discretionary spending I want to do. Paying yourself first is the only way to build long-term wealth. You must live below your means and invest a chunk of your income every month.

Pensions

In the UK, there's around £3 trillion invested in UK pension schemes, while in the US, there's around $39 trillion! Un-be-leviable. That's a whole lotta money - the entire global GDP in 2023 was $106 trillion. Research by Hargreaves Lansdown found that only 36% of people know their pensions are invested in the stock market(!) One can imagine that far fewer people have any idea precisely in which funds their money is invested. This is very worrying.

Fees eat into your gains

High managing fees are the enemy of the private investor. A fund manager might decide to take 1 to 1.5% of your portfolio per year as a fee! This is outrageous and can costs you tens of thousands of pounds in the long term. The initial outlay may not seem like much, but when you consider this can compound over several decades, the costs soon skyrocket.

The actual amount of money a fund will charge you depends on how it is managed - is it actively managed (where the fund manager actively buys and sells stocks or other funds to try and beat the market average return), or is it passively managed, where a fund simply 'tracks' a number of companies by owning and holding a small fraction of all of them? Actively managed funds tend to be more expensive as they require more work by the manager, and it's unlikely they'll actually beat the market anyway. According to Morningstar, only 14.2% of actively managed funds beat passive strategies over the past 10 years.

So, scrap actively managed funds with their higher fees - they generally don't work and will cost you more money. But what about the fees themselves? Consider how £10,000 invested into a global stock market index fund (average return of ~8.5%) will perform under scenarios with different fees:

This is how compounding works (in this case to negatively impact portfolio performance). So although a 1 or 1.5% fee may not seem like much, over time it can cost you a significant proportion of your portfolio or pension. This is also how fund managers make so much money.

Keep your fees low by investing with a low-cost fund manager like Vanguard.

It's also worth checking that your investments (including pensions) are not unfairly supporting businesses or sectors that might be socially or environmentally harmful. Socially Responsible Investing, as it is known, considers these factors, and there are now a growing number of environmental, social and governance funds (ESG). These are a fantastic way to invest in an environmentally responsible manner.

Ultimately, being aware of where your money is invested is a win-win situation - both for you (through lower fees that will benefit your portfolio) and the environment.