Your Bank is Stealing Your Money

Ever wondered what’s in it for the banks? Why would they store your money for free? Well, my dear reader, let me explain…

Banks keep your money in a ‘safe place’, and in return, they use it to make a profit by lending it to others.

“So…” you ask, “what’s in it for me?”. That’s it — your money is stored in a somewhat safe place.

But what banks don’t tell you is that inflation decreases it’s value by 2.5% every year. Let’s say you have £100,000 in the bank today, in 5 years it will be worth £87,500. Criminal, isn’t it?

Picture inflation as a leaking tap. Now think of your money as the head of a Guantanamo Bay prisoner, positioned under said tap.

To begin with, you hardly notice the dripping on your forehead — you even find it quite pleasant. But as time passes, the droplets turn to thumps, and every drop feels like a nail hammering into your skull.

That’s the impact inflation has on your bank account, denting your net worth one drop at a time.

How can you stop this from happening? The answer is quite simple, and one you’ve heard before: investing.

Amarii Bell, the footballer of Luton Town, made £30,000 in the last two years by doing next to nothing. I know, I know, the word investing is scary and you’ve been led to believe your money is at risk.

But safe investing is the total opposite. The riskiest thing you can do is leave your money where it is.

I’m about to explain this all in a way that will have your future self thanking the day you found this article.

Poundcake

The only way to create true wealth is to stop trading your time for money. Of course, I understand high-paying jobs are a good way to get rich, but if your income is dependent on the time you put in, you’re stuck on a hamster wheel. In a few years, you’ll retire and the trade of your time for money will start all over again.

Compound interest breaks this cycle and is the first step towards financial freedom. The beauty of it is, when you earn interest in a fund, that interest then earns interest on itself, which compounds over time to add more interest. Still with me?

Back to life…

…back to Amarii. He simply deposits his money into investment funds instead of a bank. Part of his monthly salary goes to:

• Vanguard lifetime ISA, which helps you save for your first home or retirement, offering a government bonus of 25% on the money you save.
• Vanguard LifeStrategy fund GIA (General investment account)
• Individual GIA accounts for both his sons.

Who?

Vanguard has operated for over 45 years and has grown to become one of the biggest asset managers in the world. They are famous for their index funds and driving down costs to make investing accessible for all. You pay Vanguard £2.20 to manage your fund for every £1,000 you own, per year.

Quick maths

Let’s go back to our first example. You have £100,000 in the bank. The difference now is that you’ve read this article.

You invest an initial £50,000 (which is pretty conservative) into a LifeStrategy fund. Each month you deposit £1,000. After 5 years, your £50,000 becomes £160,000. You just played a reverse card on inflation!

Isn’t compound interest beautiful?

The S&P 500 index delivers an average annual growth rate of 10.7% per year. Use a compound interest calculator to work out your returns.

Choosing your fund

With Vanguard LifeStrategy funds, you don’t have to worry about building a complicated portfolio. Funds are diversified across thousands of shares (aka equities), as well as government bonds.

Buying bonds means you lend the government money for an agreed amount of time, and in return, they pay you back with interest. Sound familiar?

Simply set up a direct debit, sit back, and watch your money grow.

Below is the full range of equity/bond split:

• If you’re willing to bear a lot of market-related pain in the pursuit of higher returns, you may pick the LifeStrategy 80% Equity fund.
• If you’re more cautious you may choose the LifeStrategy 40% which is less risky but also has a lower return expectancy.

Amarii is currently under the LifeStrategy 60% Equity with all his accounts. This is the industry default. Although he may want to consider increasing equity, especially for his son’s accounts —the youngens have less to lose.

A common rule of thumb is 110 minus your age = your equity holding. You can then round up or down to the nearest percentage. This would make the 80% Lifestrategy fund the most suitable for Amarii.

Needless to say, this won’t make you a millionaire overnight. It will, however, set you well on your way. You can rest assured, knowing your tap isn’t leaking.

Vanguard isn’t paying us to write this, although they probably will in the future. Right now, this is all for you. Stop losing money and invest in an index today.