DO YOU DREAM of getting rich? Of waking up to blue skies and a private yacht, instead of grey clouds and a packed bus?
Well, unless you win the lottery tonight, you’ll need to get investing. We spoke to Maurice McCann of financial advisors LHW Financial Planning for his tips on helping your money grow… and grow… and grow.
Here he shares his expert advice on how to build up your bank account, while we crunch the numbers behind how much it would take to accumulate jackpot-level riches using investments and savings alone.
Tonight’s Lotto jackpot is €7 million, and this is what you’d need to do to get there without the help of those winning numbers.
There’s no easy answer to making money, but there is one major catalyst to the amount you save and that’s the ingredient of time:
My ultimate savings tip is that it’s pure mathematics – that the longer that you save and the more regularly, you can let time do the work for you. If you can discipline yourself to keep doing it regularly, the compound interest over time is huge. It all hinges on the amount that you’re saving or investing each month.
The same goes for investments says McCann, “with market based commitments, you have to be willing to commit for five years, a year is not enough to predict a positive return”.
However, even saving steadily, investing €3,000 a year with an interest rate of 5%, it would take 97 years to earn that €7 million jackpot.
Bad news for the risk-averse, but the truth of the matter is that it’s going to be very difficult to make money from what McCann calls ‘regular cash accounts’, ie your humble savings accounts. If you want to get a significant return, it’s time to invest on the market:
It all comes to the person’s attitude to risk and whether they need instant access to the money. If they feel that they have no choice but to use regular cash accounts, the truth is that they pay nothing, you’re just parking your money. If you are thinking longer term you do need to use market investment.
Unfortunately, McCann says: “In the current climate there is no return from cash – most banks have reduced their rates” to practically zero. This is something he sees as “the price you pay for having access to that money”.
McCann isn’t wrong: Looking at a 0.01% interest savings account and saving €500 a month, it would take more than 500 years to earn €7 million.
One of the most important aspects of investing wisely is not to make money, but to avoid losing it. There are two ways to avoid this says McCann. Firstly to invest small amounts regularly rather than a large amount at once. Secondly, to diversify your options – meaning to invest in a number of different assets.
I always say to clients to go for a really well-diversified portfolio rather than a big risk.
McCann says that after the market crash in 2008, there is a need to find less volatile investments, which “give up potential gain to have more steady growth.”
(Again, you’re going to be waiting a while for that yacht. But hey, you’ll be more comfortable along the way.)
If there’s one thing that McCann wishes all investors kept in mind, it’s to be realistic:
Markets work in cycles, they always do and always have. If you go into an investment fund that has a long track record of delivering 5 or 6% and it delivers 15% that is not normal and quite likely it can fall the following year. Long-term, they tend to fall in the same way, short-term they may change and you do need to understand this.
Even if higher rates were constant and you were able to invest €5,000 a year at a (very generous) 15% rate, it would still take 37 years to reach €7 million in savings.
For those who may have invested a few years ago and are hoping stocks will generously mature on their own, McCann suggests to be proactive about your investments.
You always need to be looking at what you hold and asking what risk is in these? Does that suit me? If they’re individual stocks you need to look at them and ask why have they performed. Do they still suit what I want? Do I need this money in two years? Life is constantly changing, do they still do whatever they did when I set them up?
Success in the market is not necessarily just about taking risks, it’s about regular investment and saving in order to invest:
If you can discipline yourself to save a regular amount every month – if you’re investing savings in the market every month it doesn’t matter, if they go down you’re buying in at lower prices. It helps to be doing it month to month, rather than putting, say, €10,000 into the market at once.
Although, even with regular investments (say €1,500 every month at a 5% return), it will take approximately 111 years to reach your €7 million.
Think you have a nose for the right types of investment to make? You should definitely still talk to an expert, says McCann:
This is something that is very hard to do yourself. Most investment firms offer a suite which are rated according to risk, for example an insurance company may have five of these funds and you can pick the version that suits your attitude to risk 1 and 2 being very low and 5 and 6 getting to be quite higher-risk, with potentially higher return.
At the end of the day however, McCann reinforces that when it comes to making money from your own savings, you must be patient, and that some investments may take up to ten years or more to mature, so it’s incredibly important to think long-term.
But we can dream…
Have you always dreamed of having your own jackpot level of wealth? Play the EuroMillions with Lottoland and go for the same prizes, including the jackpot for just €2! Europe’s biggest draw takes place on Tuesdays and Fridays in Paris.
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