Millennial investor: the financial diary of a twenty-something’s quest to invest her way on to the property ladder
Being confined within your four walls is even harder when you don’t own them.
I’m painfully aware how precarious my situation is as a renter at the moment. While homeowners struggling financially because of coronavirus are able to take a three-month break from their mortgage payments, tenants still face being evicted if they can no longer pay their landlord.
The pandemic has only made me more determined to get myself out of my pokey rented flat and into my own home as soon as possible. But that might take longer than I thought.
Overall the money I had invested to pay for my house deposit, which at one point had risen in value by 20pc, is now down by around 2pc. The full economic impact of coronavirus is yet to be determined but leading analysts have said a recession is coming and it could well be worse than the 2008 financial crisis.
On the hunt for a safe haven
I’ve been searching the internet for something that could protect me from further downturns. Called “safe havens” or described as “defensive”, they stop you losing too much of your money when stock markets bottom out. You can spread your risk by holding a range of these alongside your stocks and/or funds, as they rarely all fall in value at the same time.
The classic safe haven is gold. The problem is the gold price jumps up and down like a bucking bronco and is currently very high, so I wouldn’t get good value if I buy in.
Another thing people used to consider a safe bet was bonds: you lend a country or company your money and they pay it back after a certain amount of time with interest. However, the amounts paid back on bonds are now at historic lows. In Germany, investors actually have to pay the government for it to borrow your money.
What’s more, it doesn’t even seem that in this case they have helped investors to spread risk. Since the pandemic started stocks, bonds and gold have all taken a hit.
Avoiding the scammers
While doing this research, I’ve started being bombarded by dodgy-looking emails from investment firms either trying to sell me their services or direct me to other people’s.
Some send me photos of people who have “bounced back from bankruptcy” by investing in things like cryptocurrencies. They claim that even those with absolutely no investing experience can cash in on the “Bitcoin boom”.
A few look fairly legitimate but others come from gibberish email addresses and a quick internet search of their name reveals a number of articles suggesting it is a scam. I’m not sure how these companies got my personal email address – I don’t give it out lightly – and hate to imagine how many other people have been receiving messages promising to make them a millionaire in four months, particularly at a time when people are losing their jobs and desperate to find any way of making some money.
The dangers of crypto
Previously cryptocurrencies could only be bought via specialist brokers, but in the past few years a number of more mainstream trading platforms, including broker eToro and digital bank Revolut, have started offering them. Even R&B singer Akon has got into crypto, creating his own cyber currency, Akoin.
The danger of these digital currencies “going mainstream” is that people start thinking they are as safe as any other investment. Crypto fanatics will even insist that they’re safer than traditional investments as they aren’t affected by the decisions of central banks.
Cryptocurrencies first came about in reaction to the last financial crisis, and some investors are now jumping on board in the hope that they will help them through the next one. According to eToro, the amount of money its users put into Bitcoin more than doubled between January and March this year.
What you have to remember, though, is that when buying cryptocurrencies you have none of the protections you would when investing in a fund, for example. If a firm managing one of my funds went bust I would be protected by the Financial Services Compensation Scheme (FSCS) and could get up to £85,000 back. Whereas if a crypto firm collapsed – or disappeared mysteriously, as has happened before – you would most likely get nothing.
You also have almost zero chance of getting your money back if hackers steal your digital “coins”. Up to $10bn (£8bn) of cryptocurrencies has been swiped by online criminals, according to analytics company Coinfirm. Both Revolut and eToro told me they communicate to investors the risks of buying and selling cryptocurrency and work hard to prevent crime, but some other platforms do not.
I’m starting to realise that the only real safe haven is cold, hard cash. Yes, its value will be eroded by inflation – but that risk is minimal compared to others I could be facing.
When I started investing I made sure to put aside six months’ worth of spending as an emergency safety net, should the worst happen. Now I’m going one step further and shopping around to get myself the best interest rate possible.
I’ve opened a savings account with the bank Marcus which offers one of the best rates on the market at 1.3pc, and moved my safety net funds there. It still doesn’t beat inflation but it’s a hell of a lot better than what I was getting before.
Did I make the right decision? Let me know by emailing email@example.com