In the bleak midwinter, Nina Kelly finds wise words for beginner investors among the synthesisers and guitar riffs.
I like many things about the 1980s: I was born, it produced some of my favourite films - Blade Runner to name just one - but I am particularly fond of the music.
My Dad played lots of 1980s songs (loudly) on long car journeys when my brother and I were children, and as a consequence we can spout all the lyrics to tracks by The Pet Shop Boys, Level 42 and other bands in the way that some people can recite poetry.
Imagine my delight, then, when I realised that some of the decade’s tracks hold lessons for beginner investors, such as myself. Here is a playlist of five instructive songs, plus the odd bonus track.
Money for Nothing, Dire Straits, 1985
This song is about auto-enrolment, right? Prance around your flat enjoying Mark Knopfler’s guitar intro all you like, but it’s pretty clear: if you opt out of an auto-enrolment workplace pension scheme, you are saying no to free money – or money for nothing – from your employer for your future.
For some people, Money’s Too Tight to Mention (as Simply Red sang in 1985), and they have no choice but to opt out of auto-enrolment. But if you can afford to pay into a workplace pension, you should know that many employers will match your contribution rate up to a certain limit. You also receive tax relief on contributions, which can be thought of as more free money, but from the government.
Compound interest, which Albert Einstein allegedly remarked was the eighth wonder of the world, helps your pension pot to grow in the background. In a nutshell, compound interest refers to the way investment returns themselves generate gains.
For instance, if you invest £1,000 into a fund returning 5% over one year, you’ll earn £50. Assuming you don’t withdraw any money, the next year you’ll earn 5% on £1,050, which is £52.50. This doesn’t sound like much of an uplift, but as each year passes, the compounding effect multiplies.
Rising life expectancy also means that you will likely be surviving on a pension for potentially three or four decades, so it makes sense to take all the free money you can get. Just think what you could buy with it in the future: “a microwave oven, a custom kitchen de-liv-er-reeeeeeeeey”.
Brass in Pocket, The Pretenders, 1980
You don’t need a lot of money to start investing and I’d like to “make you, make you, make you, notice [that]”. Despite the fact that I’m in my late 30s, I didn’t realise until recently that you could invest small sums in an investment fund through a stocks and shares Isa, and I’m convinced there must be others like me who think the investment doors are barred to them unless they have some gargantuan sum to play with.
So, save that brass in your pocket and consider investing monthly. Regular investing has benefits, one being that it alleviates the ups and downs of the stock market, given that over time you will be buying a bit of your chosen investment when prices are high, and at other times when they are low. In essence, it all works itself out in a process called pound-cost averaging, to use the jargon. Gah!
Opportunities (Let’s Make Lots of Money), The Pet Shop Boys, 1986
Now, Domino Dancing (1988) is my favourite song by the former Smash Hits assistant editor and his hat-wearing keyboard-playing partner, in case you were wondering, but I couldn’t pass up the duo’s track Opportunities for the message it clearly presents: there are myriad investment options.
If you want to examine a few, there’s a wealth of articles about investing on the Money Observer website, from investment trusts and ethical options to shares and ETFs, and staff recently tipped nine non-boring money books. As Neil Tennant sings: “You've got the brains, I've got the books [OK, looks]”, let's make lots of money.”
If you already have a cash Isa, research whether a stocks and shares Isa might make sense. With the Bank of England base rate currently at 0.75%, you should really be asking your cash Isa provider: What Have You Done For Me Lately? (Janet Jackson, 1986).
I Can't Go For That, Hall and Oats, 1981
When it comes to investment risk, you need to be able to say “no can do” when you have to. If you have any interest in higher-risk investing, say, cryptocurrencies, do you truly understand how they work?
If you don’t, Money Observer’s production editor Gary Macfarlane is also an award-winning crypto writer. You can read some of his articles here to see if you can get you head around it before you even think about investing your money.
When it comes to risk, you also need to think about goals and time horizon – are your wants and needs short-term (a long-haul holiday next year) or long-term (your retirement)? If you are hoping to achieve your goals within the next three years, put investing in shares, funds and investment trust on the back-burner. Stock market fluctuations mean that investing rewards long-term players, so think five to 10 years.
Everywhere, Fleetwood Mac, 1987
The Mac – with Stevie Nicks and Lindsey Buckingham in the line-up - are a particular favourite, so I couldn’t leave them out. Fortunately, I’ve identified an investment subtext in Everywhere. In fact, the message this songs holds is so vital, I’m willing to “speak a little louder, I'll even shout” to stress the importance of diversification.
When it comes to asset allocation (what your money is held in, i.e, shares, funds or other products), my colleague Kyle Caldwell says that “the theory is that different types of investments are unlikely to all outperform or underperform at the same time, which therefore reduces that volatility of your overall portfolio”.
In other words, don’t put everything in shares, for example. Geographical diversification is key, too. For example, if you have a yen to invest in China, ensure that all your investment eggs aren’t in the Far East basket in case regional recession strikes, or the US/China trade war truce never materialises. Ideally, any investment portfolio will be more Everywhere than in a single place.