Five easy ways to make moneyBy Nick Louth, MSN Money special correspondentLast updated
February 17 2005Putting your money to work doesn’t have to be an effort. Here are five easy
ways to start investing for effortless returns1. Start a pension plan before you’re 25You may not
be able to spend it until you retire, but providing yourself with a good solid pension is something
that is easily and cheaply done when you’re young and much harder if you leave the decision
until you are already 50 or older. The facts are simple. A basic state pension won’t let you starve,
but you won’t be able to afford much more than the basics. Retirement is likely to be 20-25 years
of your life, and most us will be healthy enough to hike, ski or swim as well as eat out and travel.
Wouldn’t it be a shame if you don’t have the cash to see the world? Pension provision is a huge
subject, and regulations change, but here are five key points of principle:Start young, even if
you can’t contribute much, and get the benefits of years of compound interestThe self-employed, particularly, need to make sure they don’t delay. They don’t get the reminders
(or often compulsion) that employment bringsGet a flexible pension that you can take from one
employer to the next, and will allow you to contribute during periods of self-employmentEven
though generous final salary schemes are waning, the defined contribution schemes which are
replacing them still allow for employers to make contributions on top of your own. Make sure
they doEvery pound of your taxed salary that goes into a pension gets a tax credit from the
Government which boosts its value. Current tax rates turn a pound into 128.2p for a basic rate
taxpayer, and 166p for a top tax rate payer. It’s the easiest money there is
For a detailed guide to pensions see the latest article by Nic Cicutti on the state second pension2. Contribute to a low-cost stock market trackerThis allow you a low-risk way of latching onto
the stock market’s long-term returns. So long as you are looking to put your money away for ten
years or more, you can expect to strongly outperform other investments. A tracker is just one type
of fund, where your money is pooled with that of thousands of other people’s. While most funds
have a well-paid investment manager to choose shares to buy, trackers merely own shares in a
cross-section of the big companies that dominate the economy. The great advantage is not that
trackers perform better. They perform about the same as managed funds on average, but charge
you a lot less. Some pension schemes come in the form of market trackers.A low-cost tracker
charges a maximum of 0.5% a year in management fees, with no initial charge. Compare that with
the average managed fund which charges 3.3% up-front, then 2% a year. The difference may sound
small, but compounded over long periods can grow alarmingly. Just £100 invested in shares with an
annual fee of just 0.5% would be worth £361 after 20 years, assuming typical annual returns of 7.5%.
But with a 2% fee, you would have just £276. Almost your entire initial contribution would have
been eaten up by fees!
Get started: why shares?3. Look at NS&I’s Guaranteed Equity BondsThese are
National Savings & Investments products which require a five year investment. Over that period they typically offer you the same percentage return as U.K. share prices have risen. However, if the
value of the market has fallen, you still get your money back.This heads-you-win, tails-you-don’t
lose is an extremely attractive investment option, and is guaranteed (unlike some other private
sector products) by the Treasury. It should be noted, however, that you don’t get the dividends
from shares in this product. Though there Is no Guaranteed Equity Bond available at present,
there should be a new issue shortly.
You can register on the www.nsandi.com site to be notified about them (external link, window opens new browser)4. Invest with Britain's best investorAnthony
Bolton has for 25 years managed a 20% average annual increase in the Fidelity Special Situations
Fund he manages. Though his fund isn’t anywhere near as cheap as a market tracker in terms of charges,
it has offered a consistently superior performance which justify the fees.Almost alone among top fund professionals, he has beaten all the market averages for more than two decades. While you cannot
rely on most fund managers to keep beating the averages, he is surely an exception.
For more details about Mr Bolton and his fund, see my profile of him5. Own your own homeBeing a
first time buyer, unlike the other options, is rarely easy to begin with. Few of us manage to get on
the housing ladder without a struggle, at least initially. Yet once the initial hardship is over, most
who have bought their own home have probably been surprised by how quickly and effortlessly its
value has increased over the years.Owner occupation has been the bedrock of wealth creation for
most of us over the last fifty years, and is likely to remain so. Nothing better illustrates exactly
what we are trying to do with investment money than what we might call the ‘wealth surprise’:
That moment when you pick up a statement, look in an estate agent’s window or read through the
share price columns and are surprised by the increased value of what you own.
See also: Five reasons to buy propertyMore useful links:
Share dealing from Interactive Investor: £10 flat fee for all UK trades, no account charges
FREE company annual reports - download them or get them mailed to youKeep ahead of the markets - get FREE share price alertsWant in-depth company information? Get Investment Profiles from Reuters.co.ukShare tips from the newspapers
