Here’s one New Year’s resolution worth trying: Becoming a billionaire
A new year has rolled around again – a time for many to put their thinking caps on and set some life goals.
A gym membership is one of the most popular resolutions, but is also one of the worst-kept (ask a gym manager how busy Februaries are compared to Januaries).
For the less active members of society (among whom I count myself), reading goals are a fun, gentler pursuit, and for the overzealous Christmas drinkers (me again) dry January brings health benefits.
But here’s one really invaluable goal: saving. It is one that shockingly few Brits think about. According to FCA data, around one in three adults have either no savings at all or less than £1,000 in cash – leaving them in a financially precarious state in the future.
For even the lowest earners, saving a little can go a long way. Digital bank Monzo, for instance, offers an annual 1p savings challenge each January. Sign up and you’ll pay in 1p on your first day, with the daily contribution growing in size, by 1p. By the end of the year you’ll have almost £700 – do this annually, and, with interest, you’ll have saved around £8,000 after a decade. Not bad.
But why not set a more ambitious goal – like becoming a billionaire? It might seem far-fetched at first, but even for moderate earners, billionaire status is not quite outside the realms of possibility.
One man who is giving this a real go is investor Tim Taubman. A former PwC accountant and Credit Suisse derivatives trader in the City, Taubman quit his day job and now focuses entirely on running his own personal portfolio.
Last year, he set up what he called “The Crazy Plan” – a plan to build an investment portfolio worth £1bn through small monthly contributions.
As Taubman points out, the plan is not quite as “crazy” as it first appears. Via a carefully-selected portfolio of equities ( whether they’re any good), he is aiming for an ambitious average annual return of around 15 per cent. At that rate, a monthly contribution of just £50 – less than £2 a day – would get him to £1bn in a mere 87 years.
That may be a little too long to enjoy the spoils of his efforts – but Taubman hopes to pass the baton on to future generations when the time is right. For those looking to hit billionaire status a little sooner, however, a daily contribution of £30 would take 64 years, and a daily contribution of £150 would take only 53 years.
The upshot: you really don’t have to have a £1m income to aim for billionaire status. A little goes a long way.
I sat down with Tim and asked him a few questions on how to get started in investing.
What are the big mistakes that people make when they are new to investing?
One mistake is not having a plan. Writing down a simple plan means you will be more likely to succeed and achieve your goals. The plan could be as simple as: spend one hour a week on your finances; save 10 per cent of your income every month; invest in a broad stock market fund; and start to draw an income at age 60. Your plan will evolve but if you don’t have one you are like a ship without a rudder.
Another mistake is trying to pick single stocks. This is high risk even for professional investment managers and so why would someone completely new to investing, doing it part-time, be successful? Social media plays a large part in this with the latest “hot” stocks or themes pulling people in but investing in single stocks is hard. A far more successful strategy is to use broad stock market funds which leads on to the third mistake.
The third mistake is not thinking long-term as building wealth takes decades and there is no short cut. Long-term returns from stocks are around 10% a year and so people need to be realistic and recognise upfront, as part of their plan, that building wealth will be a lifelong journey.
The final area that most people underestimate is psychology. When stock markets sell off 30 per cent it can be very difficult to maintain belief in your plan and to stay disciplined. Making yourself aware of the history of stock markets and particularly drawdowns will help you stay the course. Also, overcoming the challenges of boredom and frustration are also often underestimated.
Do you worry that there is too much of a consumption culture?
There have always been savers and spenders and young people have always been tempted by consumption. It was no different when I was starting out and of course it’s the savers who can look forward to a bright financial future. There are two fundamental shifts though that have made it harder for young people and they are advertising and social media.
We are now constantly bombarded with advertisements trying to get us to consume and there are a lot more things to buy nowadays. Overcoming this temptation to spend is one of the hardest parts of building wealth and it is a real challenge not just for young people but for everyone.
Secondly, the rise of social media puts immense pressure on young people. From people only putting their “best bits” on social media to influencers with incredible lifestyles, young people think this is normal. This normalisation of consumption prevents people from seeing the reality which is that wealth is a choice, you either consume now or you choose to create a bright financial future.
The Chancellor is to launch a new “tell Sid” campaign to get more people into stocks. Are you enthused and do you think it will pay off?
I am enthusiastic as I believe that investing is the most important factor in creating a bright financial future. With the right education, I believe that anyone can set out on a journey to wealth but there are a number of challenges a campaign will face.
One challenge is that just telling someone to do something without them really understanding why might not convert as many people as hoped. The reason we are providing so much education to our followers at The Crazy Plan is so that they understand why they are investing. This means they will be far more likely to commit to a long-term plan for building wealth and will be able to see through the large and long drawdowns that will be faced.
Another challenge is understanding why the “tell Sid” campaign and its “Busby” predecessor didn’t create an investing culture. You can’t just spend a year or two telling people to invest and then stop as wealth takes decades to build. Any campaign should be permanent and in our lives essentially forever. This should start at school with a comprehensive financial education and then the campaigns are the constant reminder.
A third challenge is the issue of sending a confusing message. People who have been responsible and have saved and invested are constantly set back by increases in tax. Capital gains, dividends and interest have all seen significant increases in tax and now changes to cash within ISAs are coming. Tax policy should support people becoming financially independent but it does the opposite which does not help sell the message.
These are real challenges but the more people that can be encouraged to think about their financial future and start on a journey to wealth the better and the campaign will help to do this.