Money is a difficult and personal topic. Often you want to help others, but what's the best way to do it?
Well the first thing to note is it's very difficult
to help people who don't want to be helped. On top of that, money is often a very personal topic.
Nonetheless, if you have a situation where a friend or relative seems a bit lost and wants advice, here are some ideas for how you might point them in the right direction.
Teaching Them How To Fish
As the saying goes, it's generally better to teach someone how to fish than to give them a fish. If they don't learn how to do it for themselves, they'll keep coming back for advice, which may take up more of your time than you're able to give and doesn't help them really understand their investments, which can help them for the long term.
So, in that spirit, here are some broad and simple rules to keep your friends and family on the right track with their investments, without getting too specific.
1. Keep Costs Low
Few principles are as powerful in investing than keeping your costs low. Remind your friend or relative that lower cost investments do generally perform better, and that hot and expensive financial investment may not be hot 2 years from now, but it will more than likely still be expensive. By keeping costs low you get to keep more of your money as you aren't giving it away in fees.
In terms of implementing this idea, it depends exactly what you're getting, but typically costs of investing are falling, and it's now possible to get your investments managed including all costs for around 1% a year or less. We'd be very reluctant to pay anymore than that.
2. Spread Your Bets
With investing it's important not to have all your eggs in one basket. That means spreading your money across assets (such as stocks and bonds), countries (such as the UK and Japan), and sectors (such as car makers and banks).
Even though any individual investment in a share or bond can (and do) go wrong, if you have lots of investments that are really different the chance of them all going wrong together is generally quite a bit lower. This means that putting all your money in shares or your employer, or an investment idea from your brother-in-law is probably a bad idea.
To put this rule into practise, we generally think that low cost Exchange Traded Funds (ETFs) are a good way to diversify. That doesn't mean that all ETFs are good, some are too narrow or too expensive, but generally speaking an ETF that costs 0.20% a year or less and tracks a broad index of stocks and shares can be a helpful part of a portfolio.
3. Save Steadily and Early
If you start saving early, because of something called compound interest, in a good market your money can grow faster than you might think. The longer you invest for the more compounding can potentially help. So starting saving today, even with a small amount, can be really helpful for the future. Plus saving is a great habit to get into.
The simple rule here is just to start saving today. Don't wait until next week or next month, saving is far too important to delay.
Now, finance and investing is complicated at the best of times. So you also don't want to overwhelm people with advice, but if you can share the three rules above you will hopefully be nudging your friends in the right direction without overwhelming them with jargon. These rules are relatively easy to understand, should hold up well over time, and are fairly easy to implement.