Should you be worried?

Malthusian

Well it starts with a premise that is manifest nonsense - that all 20-somethings are physically attractive, as proven by his Facebook feed. I think he's probably spent the last 5 years shopping on Ocado and Amazon, a walk down the high street or through Asda will quickly disprove his "all 20-somethings are attractive" theory. I'm not making any value judgment on people in Asda by the way, just pointing out the silliness of his theory that all young people are beautiful. He's overlooked that his Facebook feed is both selective and self-selecting. Selective because it's unlikely he has many meth addicts, clinically obese and just plain genetically unfortunate among his friends and friends-of-friends, and self-selecting because ugly people post fewer selfies.

Why is this important? Because from this assumption he concludes that 20-something women in particular can spend £100 a month less on clothes without any loss of utility, without being any less happy. This probably isn't entirely wrong. But not for the reason given in the article.

Now moving on to his theory that "average returns" will turn £5,000 at age 25 into £225,000 at age 65. That's basically 10% per annum, every year, every decade. As things stand that looks like a hopelessly optimistic assumption. It might happen, you never know, but I do know that if an adviser or life company gave you an illustration assuming 10% returns the FCA would come down on them like a ton of bricks. The article makes no attempt to justify the assumption.

It's nothing more than a rather tiresome sermon on savings-as-sacrifice. Why stop at 65? Why not keep your money invested (in this lovely portfolio earning 10%pa) for another 20 years and be a millionaire (a £1.52millionaire to be exact)? "But that's stupid" cry the beautiful 20-somethings who aren't as dumb as they look. "What's the point of denying myself all my life to have £1.5 million at 85 when I'll barely be active enough to enjoy it? And isn't there something called inflation which means the 'Save £5,000 now and have £225,000 in 40 years' promise is disingenuous?" Exactly. And this logic extends all the way back.

£5,000 saved now is more likely to be £16,000, not £225,000, in 40 years' time in real terms (assuming growth of 3%pa in excess of inflation). If a £100 dress now is going to give you more pleasure than the time-discounted pleasure of £300 in 2056, then go ahead and buy that dress. And don't feel guilty on account of some guy who thinks that it's OK to talk nonsense from start to finish if you have the noble intentions of encouraging the young to save.

The OP is doing the right thing, because if you aren't intending to touch this money for 30 years then you have the nearest thing to certainty that you will be better off than if you kept it in the bank. But I would stop reading whoever this guy is. Unrealistic expectations are not good for sound investment.

weenie15

Monevator is probably the best UK personal finance blog out there.

Perhaps you could take that particular post with a pinch of salt but the rest of his website is crammed full of great investing/personal finance information and discussion.

For those young folk interested in saving and investing, a more recent take on the millionaire thing (with some calculations) can be seen here: http://theescapeartist.me/2016/01/21/the-3-numbers-that-can-make-you-a-millionaire/.

The way I see it, even if you don't make it to millionaire status, it'll put you on a good path to financial security/freedom.

I wouldn't say 'savings-as-sacrifice' is a tiresome sermon, just a bit of common sense so that people don't end up on the YOLO boat and find that at 65, they've only got the state pension to rely on and that's if there is any state pension by the time the young uns get to that age.

principa

monevator is great but repetitive - there's a limit to how often you can write an original blog post about the benefits of passive investing, how great Vanguard life-strategy is, and individual attitudes to risk.

to the OP - a 30 year horizon is admirable but your 45 year old self may disagree ;-)

dunstonh

"If you can save £5,000 by age 25 and invest it for average returns in the stock market, you’ll have £225,000 in your retirement pot by the time you’re 65, regardless of what you save during the rest of your life."

Which sounds great, BUT the markets continued downfall since opening has had me a little worried

Of course do remember that £225,000 in 40 years time will not have the same spending power as £225,000 today and it will not make you rich. Its a good start but not enough by itself. Maybe around £40,000 in spending power. However, if you go by doubling your money every 10 years as a guide, then £5000 would be £80,000 in 40 years time. Nowhere near the £225k. £80k after inflation would have spending power of £14,000. So, 5k invested (without increment) would be worth around £14k in 40 years in real terms.

Which sounds great, BUT the markets continued downfall since opening has had me a little worried

Why? Stockmarkets always have periods of negativity. This one is nothing particularly unusual and technically, its not even classed as a crash yet as it hasnt gone through 20% loss. The dot.com and credit crunch saw losses of over 40%. So, getting worried about 19% losses when you have chosen a high risk investment seems strange.

'm just getting pretty anxious as I'm losing hundreds of pounds day by day.... Is it really a case of suck it and see, ride it out in the hope it'll balance itself out eventually?

Why are you looking at it daily? That will just make you more nervous.

Malthusian

Perhaps you could take that particular post with a pinch of salt but the rest of his website is crammed full of great investing/personal finance information and discussion.

There are plenty of websites and blogs which provide good information without being leavened with nonsense and unrealistic assumptions.

I'm not in favour of the idea that you don't have to worry about accuracy if you're encouraging something postive, because a few years later when the saver finds out they've been had and they aren't going to have £225,000 at age 65, they may give up and decide they might as well spend it all now.

There are more than enough reasons to save for retirement or other long-term goals without making ones up.

Superscrooge

kittenkicks wrote: »

As mentioned, I don't really want to touch the funds, just keep it in there for 30 years or so.

I'm just getting pretty anxious as I'm losing hundreds of pounds day by day.... Is it really a case of suck it and see, ride it out in the hope it'll balance itself out eventually?

Any advice appreciated :money:

It's always worrying when you begin investing and stockmarkets go down. But if you are investing over 30 years, the daily ups and downs become of less significance than the long term trend.

I started investing in the mid 1980's and the scariest time for me was the 1987 crash but if you look at the below graph. What seemed like a cataclysmic bloodbath in 1987 is now just a small blip on the graph.

In 30 years time, what happens to shares in the next few weeks will be of little significance

eskbanker

Superscrooge wrote: »

I started investing in the mid 1980's and the scariest time for me was the 1987 crash but if you look at the below graph. What seemed like a cataclysmic bloodbath in 1987 is now just a small blip on the graph.

In 30 years time, what happens to shares in the next few weeks will be of little significance

Agreed, and all the more so when considering the compounding effect of dividend reinvestment, which amplifies that long-term growth significantly over and above the underlying index value for anyone tracking it.

DominicH

One might even say that it's a good thing that you are experiencing a stock market slump early in your investing career. Because, since there are bound to be slumps, ideally you want them to happen before you've invested most of the money you are going to invest. Not that, as others have said, this slump is anything special so far.

bigfreddiel

Buying £50 a month is only 1% of your total investment, so it won't really make any difference if you do this as a £600 lump sum or £50 monthly, except that the fees each month when you drip feed will eat into any returns, also if the market takes off big time, you miss out again.

If you can afford to pay in £600 now.

Cheers fj

masonic

bigfreddiel wrote: »

Buying £50 a month is only 1% of your total investment, so it won't really make any difference if you do this as a £600 lump sum or £50 monthly, except that the fees each month when you drip feed will eat into any returns, also if the market takes off big time, you miss out again.

If you can afford to pay in £600 now.

Putting in £600 now is statistically more likely to deliver the better performance, but the overall fees paid on the £600 lump sum will be higher than if it were paid in at £50 per month - trading fees are zero, fund fees are percentage based.