Top money lessons novice investors wish they had learned sooner

Saving early for retirement, prudent credit card use, budgeting and portfolio rebalancing are key topics to understand

Spreading saving for retirement over 25 to 40 years is much easier than trying to do it in 10 years, according to finance experts. Photo: Alamy

Thomas Emerson, 27, a British expatriate working in the UAE’s mining industry, started investing two years ago but now wishes he'd learnt some crucial money lessons earlier.

“I wish I had put a portion of my salary aside every month to grow and invest for the future and not lived purely for each day,” he says.

“I also wish I had been told how important it is to save for your older age and retirement because compound interest has more of an opportunity to work its magic. It could also mean retiring early rather than working an additional five years or so.”

Thomas Emerson, a 27-year-old investor, wishes he had been told sooner how important it is to save for older age and retirement. Photo: Courtesy Thomas Emerson

He primarily invests in equity funds and has a small share of bond investments. Mr Emerson has also dabbled in cryptocurrency investments in the past, he says.

A 2020 survey by US personal finance website MagnifyMoney found that the biggest regret among respondents is not investing sooner. Three in four respondents regretted not investing earlier, while 69 per cent of Generation Z and 77 per cent of millennials also said they should have invested sooner, the survey found.

The top five most common investing regrets were: not saving for retirement sooner (31 per cent), not investing in stocks sooner (24 per cent), not purchasing a certain stock earlier (21 per cent), selling a stock too early (16 per cent), holding on to a stock for too long and taking money out of retirement, both of which are tied at 14 per cent, according to the survey findings.

I wish I had put a portion of my salary aside every month to grow and invest for the future and not lived purely for each day

Thomas Emerson,
investor in the UAE

We spoke to personal finance experts for their advice on the top money tips investors wish they had known earlier.

It’s never too early to save for retirement

Saving for retirement is a big job but it is much easier when spread over a long period, says Rupert Connor, a partner at Abacus Financial Consultants.

Spreading saving for retirement over 25 to 40 years is much easier than trying to do it in 10 years. A catch-up strategy is difficult and unpleasant due to the cost of delay, he says.

“Most of us start understanding and fretting about our retirement funds when we reach our mid-30s or early 40s, however, it is best to start investing in your retirement fund in your 20s due to the power of compounding [interest],” Vijay Valecha, chief investment officer at Century Financial, says.

The sooner you start a retirement plan, the more benefits you are likely to enjoy later, experts say.

It is vital to contribute as much as possible towards your retirement plan and begin as soon as you start earning, Mr Valecha recommends.

“This will help you build a big corpus for your golden years. Look at this as a dependable way to remain financially independent for your entire life,” he adds.

Don’t be afraid to talk about investing

Sharing experiences and asking others for advice is a great way to help your investments grow, says Sophia Bhatti, a partner at financial advisory Hoxton Capital Management.

“Knowledge is power. The more you know, the better decisions you will make rather than just going off your own advice,” she adds.

Investors should also make an effort to learn about different investment options to obtain good returns.

To get started, you can keep money in your bank account and keep earning interest on it. However, to get higher returns, you need to learn about investing your wealth outside your bank account, Mr Valecha says.

It is best to start investing in your retirement fund in your 20s due to the power of compounding

Vijay Valecha,
chief investment officer, Century Financial

“It is essential to understand the various schemes available for investment, such as mutual funds, provident funds and equities, and invest in one of them to gain benefits. The earlier you start investing, the higher the returns you will get.”

Pay yourself and set a goal

To expand your savings, you should pay yourself an affordable amount each month, for example, 10 per cent of your income, Ms Bhatti says. Doing this means your savings pot will grow, she adds.

Looking at the basic breakdown of budgeting and saving, it is said that the 50:30:20 rule is the optimum way to manage your income and generate savings. In layman’s terms, you should spend 50 per cent of your monthly income on necessities such as food, rent, transport and other essentials, 30 per cent on things you want and 20 per cent on savings.

“It is also important to set yourself a goal, either monetary or a house purchase, for instance, so you know what to work towards,” Ms Bhatti says.

There is no better time to start thinking about saving for our future than today, according to Mr Connor. “Begin investing early, be patient and let your money thrive over time,” he says.

Don’t use too many credit cards

If not used sensibly, credit cards could land you in unnecessary debt quickly, Mr Valecha says.

More than half of 2,475 US adults with credit card debt have added to it during the coronavirus pandemic, according to a CreditCards.com poll in January. The survey also found that millennials are struggling more than any generation — 56 per cent have gone more deeply into debt since March 2020.

“Experienced investors tend to advise to stay away from credit cards as much as possible and rely more on savings and earnings,” Mr Valecha says.

“While getting those free credit card offers, the banks and companies fail to mention the repercussions of missing even a single payment EMI.”

It is important to set yourself a goal, either monetary or a house purchase for instance, so you know what to work towards

Sophia Bhatti,
partner, Hoxton Capital Management

Watching the market and your portfolio doesn’t improve performance

Your investment portfolio isn’t something you should simply set and forget, says Mr Connor. It’s important to look at your investments every so often to make sure the portfolio you own is performing as expected and also to make sure you’re maintaining an efficient mix of investment instruments.

“However, checking your portfolio every day is potentially bad for your mental health and it could lead to making rash decisions. Short-term volatility shouldn’t matter if you are in a well-diversified portfolio and invested for the long-term,” Mr Connor recommends.

A Vanguard study found that there is no optimal frequency or threshold when selecting a portfolio rebalancing strategy. The investment adviser recommends checking your portfolio every six months or at least once a year.

Save for rainy days

A majority of mature investors wish someone had told them to save for rainy days, experts say.

The rule of thumb for emergency savings is often three to six months’ worth of living expenses. This money could be kept aside in a bank account to pay for large, unexpected expenses, such as unforeseen medical or education expenses, unemployment, major car fixes or home-appliance repairs or replacements.

“If we start saving in our 20s, our money could grow exponentially due to the effect of compounding. Build a monthly savings goal and add any extra amount that you earn towards your savings or rainy-day fund,” Mr Valecha recommends.

Start saving a small part of your income initially and increase the amount steadily over the years, he adds.

Set a monthly budget

A budget allows you to create a spending plan each month to ensure you have enough for the things that are important to you, Ms Bhatti says.

“A budget also allows you to track your financial goals by allowing you to organise your spending and ensuring you put money aside. A budget also allows you to have an emergency pot for those unexpected outgoings,” she adds.

In an April survey of more than 1,000 Americans by financial adviser website Debt.com, 80 per cent said they have a budget. The survey found that 88 per cent of respondents who budget managed to stay out of debt. Users are not budgeting for minor expenses such as coffee shop runs, but are instead doing so for holidays and special events before time.

Create your monthly budget and give yourself a spending allowance that you can use on material purchases

Rupert Connor,
partner, Abacus Financial Consultants

The majority of Americans (61 per cent) use old-school budgeting methods such as pen and paper, 17 per cent use spreadsheets, 10 per cent use mobile apps, 8 per cent use bank tools and 4 per cent use a financial adviser, the survey found.

Creating a budget doesn’t mean you have to stop spending money on things that you want or like, according to Mr Connor. Create your monthly budget and give yourself a spending allowance that you can use on those types of material purchases, he suggests.

Get life insurance when you are still young

Getting a good life insurance plan can help you deal with unexpected emergencies or losses financially, Mr Valecha suggests.

Life insurance is the top financial priority for individuals after Covid-19, according to a survey of 1,000 residents in the UAE that was commissioned by Zurich International Life in June 2020. The survey showed that almost five in every 10 respondents indicated that life insurance was increasingly important to them in the current environment.

“As we grow older, we start understanding the need for an effective life insurance and medical plan. However, if we get life insurance when we are still in our 20s, the premiums will be much cheaper. Investors in their late 30s have to pay much higher premiums towards life insurance policy,” Mr Valecha says.

If you have a policy with a high value, you can use your life insurance policy to take a loan, he adds.