Is it too late to start investing? Ask Us Anything

0:01You know what I love, Damo? Things that save me time. You don't have YouTube Premium, mate, so I just don't believe that. Granted, I'll give you that one. However, I've got one for you. A great time saver in personal finance is Money Week magazine. They spend a lot of time distilling the biggest stories in personal finance down into consumable chunks, so you don't have to scroll and scroll. They give practical tips on savings, investments, pensions, the UK economy, the global economy. It's like your five a day, but for finance. If you want to give Money Week a try, you can get six issues in print and the app absolutely free by visiting moneyweek.com forward slash money.

0:34After your trial, you'll save an extra five pound a quarter on the subscription, which is exclusive to Making Money listeners. And that's moneyweek.com forward slash money. But there's a link in the description if you just want to click that. Hello, just a quick heads up that we're taking a short break to work on bringing you some more great interviews. Don't worry, though, we'll still be here answering your most pressing questions. Now, let's get started.

1:01Hello everyone, welcome to our mini episodes where we answer your biggest questions about money. We love hearing from you, so let's see what we've got today. Joanna asked, how does an older person start to invest and is it worth it in your 50s? Cecilia actually asked something similar. She said, what is the best investing strategy for someone who started investing late and hasn't got 30 to 40 years until retirement? Yeah, I get asked this question a lot. So, you know, it's that old thing of the best time to start was yesterday. The second best time to start is today. You're never going to be any younger than you are right now.

1:36So, you know, get cracking in that sense. The one thing that I would say is, first of all, think about it as traditional retirement. The way people think about it is I get to 60 and I stop and I'm retired or 65 and that's me done then. I've got a pot of cash. Don't think of it like that. I think of it as I will be retired until you say 90 and I will need to be invested throughout that time period in one way or another. So actually that extends your time horizon then from 10 years to 40 years. So think of it like that, first of all. And then in terms of actual investment approach, it's hard for me to really comment because I'm in my 30s.

2:12When you're 50 plus, the traditional logic is you start to de-risk at that point. so what you would look to do is not be fully exposed to the market because you want to retire and say 65 and if you're you know fully in bed with the stock market you might be susceptible to a crash if you've got nothing at 50 though you might need to dial up the risk a little bit and say okay well i'm going to invest in 100 equity so that i can produce some returns over the next 10 to say 15 years most financial advisors will say that 10 years is enough or you can do something quite meaningful in 10 years. I mean, my life's changed a lot in the last 10 years.

2:48What about yours? My life changed a lot in the last four years. Yeah, I think 10 years is actually quite a long period of time. And as part of the masterclass, we did this thing called cashflow modeling where we look at the impacts of if you save X amount and you do certain things like, what happens if I work for another year? How long does that give me? And what it showed was if you work for an extra year or two, It adds potentially 10 years to how long you can retire, in terms of how long the pot lasts. I think people need to, especially people that have started late, just think about it slightly differently.

3:21Don't think about retirement as I stopped working and off I go. Think about it as you may be a bit more flexible. You work part time, you become a consultant, you use the skills that you've learned in the workforce to continue to earn money throughout retirement. My granddad worked until he was 90 in some capacity. and the day he stopped working was when he deteriorated, you know, in terms of - My grandfather worked till he passed away. Yeah. But it was like, obviously, like you said, you tone it down a bit. So instead of going to the office every day, it's more consulting or like turning up to events and giving speeches or like different things, which are less time consuming.

3:54Let's be honest. Ideally, you would have started a bit sooner, but at the same time, the working life extends longer than it used to. And this notion of retirement being a hard stop date where, you know, at 65, I stop and I've got a pot of cash and I've got to live off that. I don't think that applies to many people anymore. My mum retired and she works for me now. She wanted something to do. She got bored of sitting around. And then also as well, have you got a house? Can you downsize that house? Is there other pots of cash in your life that you can lean on to boost your portfolio? In terms of actual investing approach, I can't tell you what to do, obviously.

4:29I would just say what I would do, and it's going to sound boring, but I'd probably still be in a global index fund, chugging away into that. I mean, like you said, de-risk. You don't want to lose all your money in your retirement and then realize you have to go back to work. Yeah. There's this thing called sequencing risk, which is this idea that if the market crashes as you're about to retire and you draw money out of your portfolio at that point, what you end up doing is really hurting the longevity of the portfolio. You kick it while it's down. It crashes 20 % and you take 4%. The impact that has on the life of that portfolio is really severe.

5:01So those first two years of retirement are key. This is why people tend to de-risk or approach that carefully, because the worst thing that can happen when you've just retired, if you've got a big pot of cash is the market crashes, or if you've got a big pot of assets. If I've got millions of pounds in the market by the time I'm coming to retirement, I probably will look to de-risk it or approach it carefully. So de-risk and put some of it in bonds and some of it cash? De-risk could be that I've just got two years worth of cash on hand. So I'm still 100 % equities until the day I die. But you've got a cash buffer.

5:34Yeah, I've got two years of cash. So if the markets crash, I lean on that. So I don't think it's, I don't like this old approach of by the time I retire, everything's in cash and bonds. I think we live longer. That kind of mentality comes from a period of when people would tend to die 10 years after retiring. I'm not fucking leaving. You know what I mean? I'm not fucking leaving. I'm coming right back, I'm still here. Yeah, yeah, yeah, yeah. You're not going anywhere. We'll still be pimping the podcast like age 70. This is what we invested in this week. Not if we keep going out for drinks after the podcast, mate.

6:06Just shaving years off my life, mate.

6:13Our next question is from Daniel. He asks a very topical and current question. How can we confront the massive cost increase of primary needs, housing, food, et cetera, without damaging our savings or our future too much? I've seen, like many people, my monthly mortgage payments almost double out of nowhere and the same with my grocery expenses and go from using 30 % of my monthly income to over 70 % and don't get me started on childcare costs. Daniel, don't get me started on childcare costs too. I've only got one. Damo, you've got two. Yeah, yeah, but I live up north. So, you know, it's not like the London 10k average, but it's still expensive.

6:51I mean, you know, we now appear to be started on childcare costs so sorry about that Daniel but the uh it's like before school and after school club which basically is like just so I can do a day's work yeah because otherwise it's some reason the school system's designed 9am till 3pm or something like this it's not helpful it's not useful but they want 15 quid for breakfast and 20 quid for after school so you're talking like 20 30 quid a day it ratchets up doesn't it it's hundreds of pounds nurseries in London cost more than some people's like salaries so it doesn't it doesn't make sense to send your kid to nursery sometimes if you're that we're not making enough.

7:25I read a stat the other day. So there's like, you know, you lose the free childcare places as soon as you earn over a hundred grand. That means that someone earning 140K in London is potentially worse off than someone earning 99. So it makes no sense to get that pay rise because you lose the 30 hours. So if you've got three kids and you get a pay rise into 105K, you just get hammered, do you know what I mean? Because you've got to start paying for the childcare.

7:52So I wish there was like an answer that I could give that was like, do this and it will fix your problems. But there isn't, you know, the increased costs are the increased costs. What I would say is don't let the wheels fall off. You know, maintain those costs. You have to pay them. Maintain your essential costs and all of those things and try not to use debt to fund that because that's just going to compound the problem long term. you know we saw what we saw in um covid was costs went up massively but then wages started to catch up as well we've had this period of of high wage growth i know people will say it doesn't feel like that and i know people will say it doesn't make up for years of stagnation and that's true but what tends to happen over time is things catch back up and balance out in the long run and i think we're in at this inflection point where everything got so expensive so quickly and and we're still not really caught up properly.

8:46I do hope that things like around mortgages, as an example, I hope that interest rates will come down and steady on a bit. A lot of the sharp jump that we saw in mortgage rates was because people were anticipating rates going higher and higher. We've seen mortgages start to get a bit cheaper now. So hopefully that provides some respite. But we are moving from a period of low zero interest rates to now we're going to be three, 4 % long-term. And this is kind of the new normal in terms of borrowing costs. You know, for me, if I'm sitting in a house going, I can't afford this house, I'm not going to sit there and wait forever.

9:21I'm going to say, can we afford this house long-term? You know, is this where we should be living? I know a lot of people bought houses where I live for ridiculous amounts of cash. And I see the sale for sale boards going up now because they can't afford them anymore. You know, the 0 % rates aren't coming back. I think in terms of long-term savings, just do what you can. Most say that if you save 10 to 15 % of your total income and that include the gross income, that includes pension contributions from your employer as well, which, you know, get you to like 4 % of that. So then you're doing okay long-term.

9:54I don't think Daniel can save 10 to 15. I think he's saying like, it's hard to save now because everything's so expensive. So yeah, I think it's just a tough time. I was looking at even the job market as well. You're saying like wages haven't caught up. They definitely haven't caught up. They haven't caught up and they haven't made up for 10 years of stagnation, but wages have risen faster than any period and certainly in my lifetime. One of the key concerns of the Bank of England was the wage growth because it speaks to the inflation problem. The price wage spiral or the wage price spiral, whatever you want to call it, is this idea that prices go up and people ask for more money so that they can pay the prices and then the prices go up again.

10:37A lot of people will say it doesn't exist, but it's certainly something the Bank of England thinks exists. And we note it, they look for wage price growth as a key indicator of how sticky the inflation problem is. And they were concerned about it. So what I'm saying is wages have ramped up a little bit and hopefully in the long run, we'll see that balance come through. Speaking of wages though, I think when someone sat there going, I can't afford my life and I can't afford this one obvious area that I don't think people talk about much is going and try and improve how much you earn your incomes.

11:08Ask for pay rises, look for a better job, you know, try and increase that side of it. Cause there's only so much you can cut back on. You can cut to the bone and then there's not much further you can go. And I think this whole thing of like, save, save, save, you start to decrease your quality of life to a point, you know, if someone's got to walk an hour to work every day, it's not, it's not ideal. or cycle an hour to basketball in the rain. Yeah. That was fun. But on the wages thing, if you can ask for a raise or you can just, best way to get a raise is to - Move companies. Move companies. Yeah.

11:38It seems like the job market's still relatively tight because there's millions of people that are just economically inactive. I was saying it, it's almost 10 % of the workforce are just on long-term sickness, right? So there still seems to be a relatively tight labor market. And what that means is talent is in demand and they can go and they can within reason kind of demand a better wage. If someone's looking for staff at the minute, they're probably relatively desperate. So use that to your advantage. Daniel says there he's gone from 30 % to 70%. I'm not clear if that meant that his food bill or his mortgage has, but what is he saying that I've gone from only spending 30 % of my income on my total expenses to now spending 70%.

12:21So does that mean before he could save up to 70 % of his income? That's kind of how it reads. I think it's horrible when the amount you can save a month goes backwards. It's certainly been the case for me. You know, I can't save as much now as I used to in a way, you know, as a percentage of my income. Because I've taken on more responsibility in the home. You know, like my contribution to the house has more than doubled. So that affects, I used to save like 80 % of my income, mate. You know. I think you're in a very small minority. Yeah, obviously, obviously. But at the same time, I was living in a house share with four other lads where I rented the place and rented the rooms out.

12:58I would work, I would earn a hundred grand a year and then work a delivery driver at a Chinese takeaway and then only live off the Chinese takeaway money. Do you know what I mean? So I was, that's why, and now I've got this four bed detached house with two kids who just bleed money out of me. So I look at it and I'm like, I used to save more then than I do now, even though I earn more, but that's okay. I'm still saving. I think, so the most important thing I think would be to make sure you're saving, try and save every month, even if it's gone less, hopefully. Being your auto enrollment scheme, you know, that gets you to 8 % of that 10 to 15 % and then took a bit away from the salary.

13:33There is no magic answer in it. You know, I can say, oh, just go earn more money. And you come across as a bit insensitive, but if there's not enough money, you either cut costs or you earn more. That's all you can do. And I hope over the next five to 10 years that we see things just balance out again. Who knows? who knows sorry Daniel a bit of a shit answer no good news no optimism hopefully it's going to get better that's what I hope yeah I mean I'm always optimistic I feel like you know hanging out with you too much

14:09this is not financial advice like we say a lot on the podcast investments can fall and rise in fact it's almost a guarantee remember past performance is no guarantee of future results so your money is at risk with investing Also, remember other fees may apply.