The Best Money Advice I Ever Got And The 4 Reasons Why

Applying this piece of advice could boost your long term financial outlook.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the course of a lifetime you get lots of advice. Some is helpful, some not. Some suggests what you should do, some what you most certainly should not do. And when it comes to money, there’s a wealth of advice available from friends, colleagues and across the internet.

Much of the money advice on offer today revolves around how to save it and there are websites to help people squeeze the most out of their household budgets. Interestingly though, fewer people offer advice on what can really make you more money, like winning a promotion or setting up a business.

However, the best money advice I ever received wasn’t about saving money, nor about how to make more of it. It was this – invest as much capital as possible throughout a lifetime in a wide range of assets, starting at as young an age as possible. This advice could be beneficial for four key reasons.

You can start young

Investing at a young age allows the effects of compounding to be maximised. An annual return of 7% sounds relatively appealing over one year. But if it’s repeated over a long period and a 7% return is generated on money that has itself already enjoyed such a return in multiple years, then the total figure will be much, much higher. In fact, £10,000 invested now for 40 years at such a return would be worth just under £150,000.

It eases other pressures

Investing diversifies an individual’s income stream. In other words, someone who has a portfolio of shares is less reliant on their job to pay the mortgage or rent, to pay their bills and to lead a comfortable lifestyle. And while losing a main source of income is always a challenge to overcome, having investments that generate a 4% or greater yield each year can help to alleviate at least some of that pressure.

It’s simple

Investing is incredibly simple. Saving money may be getting easier thanks to the internet, but it still requires considerable effort in order to access the best deals. And while generating higher income is even more difficult in terms of increasing your knowledge, working harder and coming up with business ideas, investing is relatively straightforward. In fact, building a diversified portfolio of 20-30 stocks is achievable for most people and with such a large amount of information on offer, the return-versus-effort ratio is relatively high.

It works

When most people either reduce their costs or earn more money, it’s either spent or saved. While the latter is a good habit to develop, sitting on cash piles never made anybody rich. Returns on cash of more than 2% are highly unusual at the moment. And while inflation is less than 2%, the real return on cash is unlikely to boost an individual’s net worth in the long run. Investing in the FTSE 100, on the other hand, has produced an annualised total return of around 9.4% during the last 32 years.

So, while saving money and earning more money are definitely worthy pursuits, the reality is that investing what you have available is the best means to improve your financial outlook. Yes, maintaining a cash buffer in case of emergency is sensible. But in the long run, investors tend to be better off than savers and even, in many cases, than high earners.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »