Loose Change

Loose Change: What I wish I’d learned earlier about investing

Loose Change is a series of blogposts by members of the UK Money Blogger community where they let loose on a financial issue important to them.

This week Rachael from Fitzonomics.co.uk shares what she’s learnt from her early investing mistakes.


It was said to be risky. My mum told me it was.

But, she said, it can also make people very wealthy. Although, they could risk losing it all.

So, I put the thought of investing away, to the back of my mind. Filed away for future reference. 

Any thoughts about investing were stored away securely. They were waiting for a time when I’d be grown up or rich enough to have money to gamble on the stock market. 

Truth be told, I’m still waiting 20 years later! But, now I’m an investor. 

Moreover, I enjoy it! I don’t often gamble, and I don’t do it for fun. I do it to work towards my financial freedom.

However, there are a few things I wish I’d learned earlier in life to help me achieve this more quickly. 


Don’t be afraid to start

Just do it. This is probably one of the most important things I could’ve done. I’m going to show you why.

(There are many historical investment calculators available across the internet. I’ve used one for these calculations. I’ve also ignored inflation.)

I started working in 2000, after I left university.

Just pretend for a minute that, after living with mum and dad for my first year of work, I deposited £10,000 into an average Cash ISA account in that same year.

If I left it there, alone, and untouched for 20 years, by 2019 that £10,000 would have grown to about £17,475. Not bad, eh?

However, if I’d put the £10,000 into a Stocks and Shares ISA, tracking the FTSE All-Share Index in 2000, then by 2019, that £10,000 would be worth around £24,204.

That’s a difference of £6,729 over the 20 years, or 67% of the initial investment.

That’s a remarkable difference! 

And the more I invested, the greater that difference would have been. Investing early would have given me the best chance to find the financial freedom I‘ve always craved. 

But, like many other people I knew, I thought investing wasn’t for me when I first began working. I put any spare money into savings accounts. And I forfeited the rewards that are there when you invest. 

I was afraid to get started. I didn’t prioritise learning more about it. 

But, in retrospect, this decision cost me money.


Understand how investing differs from speculating

I know, you’re telling me that putting your money in a Stocks and Shares ISA is riskier than putting it into its Cash ISA equivalent?

And, yes, you’d often be right.

However, investing is not about being reckless with risk. To my mind it’s quite the opposite, in fact.

It’s about understanding and managing your risk. Because even Cash ISAs, often thought to be ‘safe’, can have an associated risk in holding them.  

But, if only I’d known in my younger days that the investing of my mother’s imagination was not investing at all, but speculating. Or day trading, as it’s often known.

Understanding how these two concepts differ is one of many things I wish I’d learned earlier. It may have given me the confidence to start investing sooner.

Nowadays, investing or investors, are often used as catch-all terms.

But, a true investor analyses a company thoroughly, and knows what they think it’s worth before buying any shares. They protect themselves against serious losses by holding a variety of assets. And they don’t try to ‘get rich quick’.

In complete contrast, a speculator takes a gamble that a stock will go up (or down) in price because someone else will pay more (or less) for it.  

To my mind, speculators are the Dels and Rodneys* of the stock exchange. 

Notably, Del and Rodney didn’t get rich until they struck lucky with finding a valuable watch. And sometimes, speculators strike lucky too. 

But, to me, it’s not a reliable strategy for building wealth.

Now, to be fair, there’s a degree of speculation in every investment such as new companies needing money, for example. But, the investor understands where it is, and plans to deal with it accordingly.

The speculator isn’t bothered by it and ploughs on regardless.

The investor puts money into the business, the speculator into its share price.

(*Del and Rodney are the two main characters from the BBC’s classic sitcom Only Fools and Horses.)


Don’t follow the professionals!

Yes, I mean it.

On the face of it, this sounds pretty rash. But I’m not suggesting that I ignore all the advice I receive. Far from it as that would be silly. What I mean is learn to think for yourself and trust your own judgement with the advice you hear.

Financial markets, like any other industry, have trends that come in and out of fashion. Stock picking techniques are discussed, so-called hot-tips are frequently given, and mechanical formulas conjured up.

Ignore them. Ignore the lot!

I’ve never known any of it to work in the long-term.

The only thing that does work in the end is to do your homework, buy quality securities, and hold on to them.

Which brings me onto the next thing I wish I’d learned earlier. 


Pay yourself, not your broker.

Like many others, every time I’ve bought or sold a share, I’ve paid a broker to make the trade. 

So, when we trade, brokers make money. And if we trade a lot, we pay a lot of money, they make a lot of money!

However, there are now apps available to let you trade for free. These may help to reduce financial risk in one respect because you don’t pay fees. 

But, and this is a BIG but, often any money you deposit with these companies is lent out to others to trade with it. And since most people lose money when trading, your deposit could be at a high risk of being lost. 

It’s a more complex broker business model but as ever it’s the institutional brokers that end up making the money. Just like older times. Nothing is ever free.

Always be suspicious of any mechanism that is designed to get us to trade more frequently.       

Therefore, hold your shares for the long-term. Don’t trade often.

Pay yourself, not your broker. 


Buy a tracker


Lastly, despite everything I’ve just said, I find it reassuring to know that most people don’t need to pick their own stocks. Phew!

Even professional stock pickers have a hard time ‘beating the market’, and, to be honest, most fail to do so. Consequently, it’s highly unlikely that amateurs will do any better.

I think that one of the best ways to begin investing is by purchasing a tracker fund, through a Stocks and Shares ISA. 

Tracker funds aim to track the performance of a stock market index, such as the FTSE 100 or the FTSE All-Share. They do this by buying shares in all the companies in the index. 

Buying into a tracker fund means you effectively hold shares, or bits of shares, in every company listed in that index. If the share price of one company goes down, another may go up. In this way, we protect our investments.

It’s one of the best ways to invest. And if I’d known about these when I started out, I’d have made a lot more money over time because I’d have limited my losses.   

I think that real investing is not gambling with your money. It’s about sensible risk management.

If only I’d understood that earlier.

I may have had the confidence to begin to invest sooner. I could be further along the path to my financial freedom. 

I almost certainly would have made different financial decisions.

The stock market is not only for older, richer people who can afford to gamble and lose.

It’s for anyone who is willing to take personal responsibility for their own financial decisions.  

And if I’d understood that earlier, the better off I’d be.

Articles in the Loose Change series are written by members of our community. The views do not necessarily represent those of UK Money Bloggers or other members. The articles should not be taken as financial advice.

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