Things to Avoid as a New Accumulator

In the last couple of blogs, we’ve talked about things you shouldn’t do when you start investing. Here are another couple of things I’d recommend you try not to do if you want to succeed with wealth-building.

Don’t get Side-tracked

It can be really easy, when you’re starting out as a New Accumulator, to get side-tracked into a load of things you don’t need to get involved with just now. You can imagine, can’t you? You’re developing an interest in finance and investing, starting to read more; your ears prick up when you hear conversations about it at work or in the pub. It can be all too easy to start thinking about investigating new ‘opportunities’ that cross your path. Previously you would have ignored them, but now you’re interested.

My suggestion is that you try not to get distracted by things. Instead, stick to your chosen approach until you have a tidy sum behind you. The next question of course, is ‘how much is a tidy sum?’ It really is up to you, so whether it’s £20k or £50k, or £10k you’ll know when you get there.

Even then, though, don’t be tempted to spread yourself too thin and experiment with money here and there. Firstly, it’s hard to keep on top of, and secondly, it’s not a focused approach. Remember the core and satellite approach: the vast majority of your liquid investments (the core) should, I believe, be held in passive multi-asset type investments.

They’re just the easiest way to access the great companies of the world, plus some other asset classes as necessary, without you getting too involved in the process. Stick with that and you will not go far wrong, I promise.

Vast majority, the core of your portfolio, means at least 75% of your total liquid money excluding your emergency fund, and even then, only when you’re established. Don’t even think about satellite holdings when you’re well-established. Keep the bulk of your money in that core, and only experiment around the side.

As a quick reminder: three to six months’ expenses in an emergency fund, plus any cash you’re likely to spend in the next two or three years, say to change the car or have a holiday.

Everything else should be invested in pensions and ISAs in passive multi-asset funds, and once you’re established you could consider adding some satellite holdings around the side based on personal interest or experimentation.

Don’t Fall Prey to Lifestyle Creep

Most New Accumulators will be at the younger end of my blog readership, I imagine. I don’t want to come over all condescending and fatherly here, but one of the biggest dangers lurking to derail your future financial success is lifestyle creep.

This is where every time you get a pay rise or some kind of windfall, your expenditure rises to meet it. Before you know it, you’re earning twice what you were six years ago, but there’s still no money left at the end of the month.

This takes discipline to master, and again, the key word is to be intentional. When a pay rise or a bonus comes in, sit down and DECIDE what you’re going to do with it. If you want to spend it, do so, but do so intentionally. Don’t fritter it away on crap you don’t need.

Sit down, and decide how much will you save and how much will you spend. Don’t forget to live a little, for sure. I’m not going to say how much you ‘should’ save or spend – it’s your money and your life, so live it according to your rules.

Do the same for payrises. Once you know how much extra you’re going to get each month, decide how it should be budgeted. Can you sacrifice some or all of it into your workplace pension? If it’s an extra £150 per month, do you enjoy half and save half, or a different proportion? It’s your call.

Our costs always rise each year – that’s inflation, and it’s healthy and normal. But when your expenditure rises in line with your income, you can find yourself still putting the same £50 a month into your pension that you were when you were bringing home £1,500 a month, even though you’re now bringing home £4,000 month. So be on guard against lifestyle creep – don’t let it rob you of future security.

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