Saving matters, it’s no secret. We’ve been fairly clear about the benefits of saving small amounts over a period of time. If you feel you are unable to save large amounts of money, or feel overwhelmed at the prospect of committing to sacrificing large percentages of your salary every month then building your wealth through small but consistent amounts may be your answer.
After all, from the smallest seeds giant redwoods grow.
Option one: Saving £3 a day
For the price of a daily coffee you could make the difference between a comfortable retirement and the prospect of working right through your golden years.
Setting yourself a savings step £21 a week (£3 a day) for 30 years, will earn you an impressive sum by the end.
You will have accrued £32,850.
Without doing anything, other than clicking a button, you will have built yourself a small nest egg that will protect your against many uncertainties of old age. It’s a worthy ambition, and one well worth attempting. By putting away small amounts at a time you will not be forcing yourself to do without necessities, and your money will be sitting safely into your bank account.
The tiny flaw in this plan? Inflation.
Inflation is the amount that prices increase over time. It is, essentially, the indicator of your money’s value. This is bad new for those of us who save money, as historically, over time the value of money tends to decrease. This means that your money buys you less and less. Look at the great Freddo frog scandal: what you could buy for 10p in 2000 cost 17p in 2010 for the same product.
This means that money sitting safely in your bank account doing nothing actually loses value.
The answer? Investing.
Option Two: Investing £3 a day
Maybe you don’t feel confident with the word investment. Maybe you have never even thought about what investment really means, or have found the dense jungle of short hand terms and in-house knowledge so alienating that you’ve stayed staunchly on the other side of the wall. If that’s the case then don’t worry, it’s not as difficult as it seems, and it will really pay dividends to learn.
As an example let’s take the annual performance of the FTSE 100: all that this means is the top 100 companies in the UK with the highest market value. Their performance is used as the yardstick for all UK business.
Aside from the disaster that was 2008, that although there have been some fluctuations, over the last ten years the market has steadily climbed.
Now, say that instead of saving your £3 a day in your bank account, you instead funnelled it into stocks in the FTSE 100.
If you saved £3 a day for 365 days you would have £1,095 after a year. If you invested that into the FTSE 100 in 2008 you would have actually lost money. With an annual return of -28.3, your investment would have been worth only £785. However, if you had invested in 2009, with an annual return of +27.3, it would have been worth £1,394.
Over the period from 2008 - 2018 the average yearly return from the FTSE 100 was around 4.28% when you take into account both the strong and the bad years.
This means that if you had put £3 a day into the FTSE 100 over the last ten years and earned 4.28% interest on it each year, then at the end of 30 years you would have accrued £67,120.
Whilst, as with all things in life, investment is never a sure thing (look at 2008 as our very real reminder) statistically speaking, the stock market has increased over time rather than decreased. By investing your savings with Oval you are making your money work harder for you.
Let’s go back to our friends the giant redwoods of Northern California. These giants of the natural world spring from seeds shed by pine cones. If they didn’t produce these pine cones the trees simply wouldn’t exist. However, it takes a young tree over twelve years to start producing them in order to seed new plants of the next generation. At least twelve years of patiently investing in their own growth and strength, in order to set their roots deep and establish themselves for the next 700 hundred years of their life.
Investing is a long-term plan, where you patiently set down seeds that will grow into solid investments that will pay you dividends in the years to come.
Your capital is at risk, and past performance may not be a reliable indicator of future results. Oval Money is not permitted to provide financial advice, and if you have any questions please consult an expert.