Investment advice for 18 year old student

bmwboi99

Hi everyone

As the title suggests I am an 18 year old university student with currently no job or other source of income apart from my student loans and grant. I have approx £5500 in savings (easy access) and have been considering investing some of my capital - between £1000-2000- but need some advice as to which companies to invest in or suitable products available currently.

I dont have any real need to access all of my money for at least 2 years, and have no debt.

I am willing to take some risk, however I cant afford to place my money in any high risk stocks.

Any advice would be greatly appreciated.

Thanks in advance.

theoretica

I suggest you put most of your money in as high an interest paying account as you can find - no risk. Two years is not really long enough for an investment to be worth while.

If you want also take a small sum, that you are prepared to risk, and buy some stock or shares - mainly to get used to the idea that investments will go down as well as up (it took me a year to stop getting jumpy at every twitch of the market) and give you something to refer to as you educate yourself about investing.

jimjames

2 years is too short for investment and if you can't afford for the capital to drop then it isn't suitable for you either.

Wait until you are earning and then look into the best ways to invest for the future - but the good news is that you are already thinking about it. The earlier you start the better - the person who invests early could stop and still have more when they retire than someone who starts later and pays in more - all down to the miracle of compounding.

atush

you do have debt. You probably have an interest free overdraft (which will be debt if and when you use it) and you have student loans to repay.

And you don't know yet what your future expenditure will be like. My twins burned thru nearly 1K each first term ont top of what I gave them for living on (the little w*nkers). One even went to see MUSE and didn't offer to take me!!!!!

So save it into the best interest paying accts you can find (including your grant money and loans) til you need it for spending. I would not gamble with it until you have left uni and knwo the true extent of your ongoing debt.

bmwboi99

Thanks for the replies everyone.

"If you want also take a small sum, that you are prepared to risk, and buy some stock or shares - mainly to get used to the idea that investments will go down as well as up (it took me a year to stop getting jumpy at every twitch of the market) and give you something to refer to as you educate yourself about investing." -

This was what I was considering, however I am not sure how to proceed with it.

Any tips or advice would be greatly welcomed.

bowlhead99

Warning long post

The problem with this is that some of the best education we've received in relation to investing is through making mistakes. There is absolutely no substitute for it because otherwise you'll just see and hear warnings that 'stocks can go up as well as down', that certain investment providers can have really high charges for the benefits they offer, that tax is best avoided, that it's really stupid to have all your eggs in one basket, etc etc and think you're taking it all on board, but really you're not mentally taking it in.

However well you believe you've learnt the rules, there will still be a part of you that really thinks "yeah yeah, of course I won't put my money into shares of banks when their share prices are doing really well, because that's exactly the wrong time to invest" or "well yes of course BP will have a big spill every 10 years but I'll probably not catch it unless I'm really unlucky, and even if I do it will bounce back."

The best way to learn that something is risky or too expensive is to try something risky and lose, not get lucky and win. The best way to understand the value of a pension is to not save for one at all until you're 35 and then get a real smack in the face when you realize you have no chance to put enough away over the next 20 years while you're employable, to get you enough investment income for 40 years of comfortable living thereafter. The best way to learn to live within your means is to borrow more than you can really afford, get fired or made redundant without payoff, have a medical emergency and a debt collector agency at the same time and end up bankrupt with no chance of ever getting that senior job in finance you trained your life for.

Fortunately we haven't all suffered those fates on our investing journeys but we've seen them and none of those things is something we as a community should help or encourage you to do, "just so it teaches you a lesson".

Basically you have 5k now and by year 3 of your Uni (presuming you make it that far, no insult intended) you will be needing to use most of it to live on, or pay off cheap debt which is no longer looking so cheap, or buy a suit for a job interview or a car to get to work, and a couple of months deposit in a flat, or some other rainy day thing. When you can see these expenses coming down the road, you should not be investing in the hope you'll be able to more easily afford them - you should be saving so you're not risking being unable to afford them.

Below is a share price graph of 3 things scaled to start at the same point. Black line is the 'footsie' 100, an index of the values of the top 100 most valuable companies on the UK exchange. All the gains and losses of individual stocks should sort of average out, to reduce the risk of investing in just one company. But as you can see, it's twice in quite recent memory fallen from nearly 7000 to around 3500 in relatively short timescales.

Blue is BP, a massive global oil business. Over last 20 years it's gone up to a point 70% higher than the FTSE average. It pays dividends too, like most of the FTSE. This is great, what could go wrong?! Well, you would be cursing if you had bought shares in 2008, watched them lose 40% of their value in the credit crunch, seen them mount a stunning recovery in your second year of uni to pretty much get back to where they were, just in time for you to need the cash, then BOOM by July 2010 they have an oil spill, pay billions in fines, lose 55% of their value and you have to spend the summer working it off.

Then there's Lloyds Group. Nice big famous bank, this is looking good, after a couple of years it's doing twice as well as an investment in the FTSE, and better than BP. By the time the dot-com boom, Enron scandal, 9/11 etc is out of the way, it's now gone back to exactly where the average of the FTSE is. So you've lost half if you bought in the late 90s and were hoping to use the cash in 2003. But then the corner turns and it outperforms again... Until the credit crunch, when the shares went from six quid to 20p. Say bye to everything. Oh and it was paying a tidy dividend every 6 months like most of the rest of the FTSE shares, but now it can't because it got bailed it out and EU made it promise not to.

Theoretica in a post above says you could try risking a small amount. There is really no point, in your position, in doing this with say £500. To avoid serious risk, you need to diversify and spread your money widely across asset classes. This is impossible to do very effectively with very small amounts and over short time periods. If you somehow succeed in spreading the risk you limit the upside. So maybe you make 20% on your £500. But with relatively high fees being a drag on small amounts invested this is unlikely. And if it works it's not much actual cash for the risk and effort. Just as likely to lose 20% plus instead which would have bought a month worth of food when you are unemployed.

Don't get me wrong I am a fan of investing and have made my career in the investment management sector. But when you don't have enough salary coming in to be sure you don't need the 5k to live on, we would all be completely reckless in telling you where you might like to start investing it, because nobody can find you somewhere guaranteeing a better two year return than cash without risk of losing it, and it's not our money to lose.

One thing you could try as an educational project for yourself is just run a virtual portfolio. That way you aren't actually risking £100 to try and make £100, which is more fun to do in a casino with some beers anyway
:beer:

doughnutmachine

bmwboi99 wrote: »

Hi everyone

As the title suggests I am an 18 year old university student with currently no job or other source of income apart from my student loans and grant. I have approx £5500 in savings (easy access) and have been considering investing some of my capital - between £1000-2000- but need some advice as to which companies to invest in or suitable products available currently.

I dont have any real need to access all of my money for at least 2 years, and have no debt.

I am willing to take some risk, however I cant afford to place my money in any high risk stocks.

Any advice would be greatly appreciated.

Thanks in advance.

tbh i think investing is an important life skill, the sooner you start the better. perhaps invest 500 pounds into 4 ftse100 shares.

i would get a nominee share account with someone like lloyds. shares i would consider are vodaphone, shell, morrisons and national grid.

bmwboi99

thanks for replying.

Is there particular reasons why you feel the 4 stocks u mentioned are a good investment?

thanks

innovate

doughnutmachine wrote: »

tbh i think investing is an important life skill, the sooner you start the better. perhaps invest 500 pounds into 4 ftse100 shares.

i would get a nominee share account with someone like lloyds. shares i would consider are vodaphone, shell, morrisons and national grid.

bowlhead99 wrote: »

There is really no point, in your position, in doing this with say £500. To avoid serious risk, you need to diversify and spread your money widely across asset classes. This is impossible to do very effectively with very small amounts and over short time periods. If you somehow succeed in spreading the risk you limit the upside. So maybe you make 20% on your £500. But with relatively high fees being a drag on small amounts invested this is unlikely. And if it works it's not much actual cash for the risk and effort. Just as likely to lose 20% plus instead which would have bought a month worth of food when you are unemployed.

I would put my money on bowlhead99's advice because it is well thought-through and full of sense and experience.

But then as bowlhead99 also said, the best education in relation to investing is through making mistakes. So you could go with the doughnut advice instead.

atush

I like the idea of a virtual portfolio to learn about investing, or drip feeding small amts into an investment trust savings plan (which will teach you about pound cost averaging and investment volatility.

bmwboi99

Was looking at the Lloyds TSB share nominee account fees and discover that they charge a flat fee of £15 for an online trade, which is rather steep, considering I will only be investing £500.

Is there any other companies which I can use to trade shares which have lower fees?

I am also still considering whether to invest in a stocks and shares isa monthly , invest in a s&s isa with a lump sum or open an share nominee account.

Any additional advice would be greatly apprechiated.

Thanks