When second-year student Ewan Waddington received the nest egg that his family had saved for him over the years, he didn’t splash out on nights out and takeaways as some students might. Instead, Ewan explains how he’s saving up for his first home and is trying his hand at investing
Since I was little, my parents have been saving for my future and relatives have contributed on occasion along the way. This year, my parents gave me control of my savings so that I can take responsibility for how I grow, save or spend the money.
I am in my second year of university studying mechanical engineering. But I want my savings to help with more long-term needs. I hope one day I will be able to buy a home and that I will have money that continues to grow way into the future. At first, I looked around for a savings account. I searched a comparison website to find the best interest rate that a bank could offer me. But I quickly realised that if I didn’t want my money to lose purchasing power over the years, I would have to do something other than just open a savings account. This is because inflation is higher than the AERs, or annual equivalent rates, most savings accounts offer at the moment.
So I started to ask trusted family members for advice. I spoke to those who have experience investing – successfully and unsuccessfully. A key piece of advice was to keep the cost of investing low as this can make a massive difference to how quickly your portfolio grows. A key lesson from someone who did not do so well was DO NOT put all your eggs in one basket. Finally, because of the effect of compounding, I was advised to get started as soon as possible.
Planning ahead: Ewan Waddington Photo by Alyzah Adamson
Then I read two books on investing. I started with The Long and the Short of It by John Kay and Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor by John C. Bogle. The Long and Short of It was the most helpful because it is aimed at beginners and because it talked about UK markets. It also has a very helpful glossary. The key lessons I’ve learnt is that investing is a long-term commitment; you are taking a risk and there are lots of different approaches; and, as none of which are totally right, investors need to use a combination of all of them.
I also studied economics at A-level. It focused heavily on supply and demand graphs, which I found very dry at the time. However, in hindsight I did learn some helpful things about how markets work and what could be the cause of changes within markets. So this is my current plan. I am in the process of opening a Help to Buy Isa because I will receive a 25% government bonus on the money I save when I buy my first home.
I will also open a savings account, from which I will withdraw money regularly to put into a low-cost tracker fund to keep things cheap. I will hold this fund in a Stocks and Shares Isa so that my investment will be tax free. Drip-feeding money into my Isa means I won’t risk putting all my money in when markets are high. I’ll also keep some cash as an emergency fund in case I need it sooner.
I will do this until I have finished university in about two years. Then I will reassess the situation and see what I can afford to save once I’ve found a job. I’m sure at some point I’ll need to use the money to buy a property, but for now my plan is to reinvest my gains.
Do you have a lesson you’ve learnt about money you’d like to share? Please email editor@moneywise.co.uk
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