Investor Views: Nudges to Save Small Change Can Boost Long-Term Investments

Private investor Natasha Burr is looking for innovate ways to boost her savings and help get her on the housing ladder

Emma Simon 29 May, 2019 | 11:41AM

Piggy

Like many people in their 20s, Natasha Burr’s main financial priority is to get on to the housing ladder.

The 26-year old, who currently lives with her parents in Essex, has been using cash savings to build a nest egg, which she hopes to use for a deposit. But Natasha also wants to start investing for the longer term, so has started to look at other investment options alongside cash savings. 

Burr, who works as an account manager, says that after months of saving up for a deposit, she has started to put small amounts into an investment plan as a means of boosting overall returns. 

Rather than invest a lump sum at the end of the month or tax year, Burr invests on a regular basis via an innovative technology platform known as Moneybox. This effectively ‘rounds up’ all your loose change and invests this into one of its ready-made investment options. She has chosen to link the account to her debit and credit cards so that 'round ups' are taken from her spending on both. 

Burr explains: “Each time I make a purchase there is the option to round up the price to the nearest pound. This app then collects this money and makes a weekly deposit into my investment plan. There is also the option of making an additional fixed deposit each week. I have opted to do this so there is a regular sum paid in on top of these round-ups.” 

Although the sums look small, Burr says it's a "painless" way to save as you don't notice the small sums disappearing on a daily basis. Over the long term, she hopes they will add up and help to boost the value of her savings. She also likes the idea of saving as she spends, rather than waiting until the end of the month and finding there is insufficient money to salt away. 

Vanguard Passive Portfolios

When it comes to her investment options, Burr has decided to opt for one of the more “adventurous” portfolios as a way of increasing overall returns. While she appreciates this is a higher risk option than solely keeping her money in cash, Burr is still young so can afford to keep her money invested for the longer term, which will help her ride out any volatility in equity markets. 

Burrs has split her money across a number of different funds, including an investment into the Vanguard LifeStrategy range of funds. 

Vanguard is known as a low-cost index fund manager. Its lifestyle range of funds offers five different portfolios, which are matched to different risk ratings; the more adventurous the risk rating, the higher the proportion of funds in equities. 

Morningstar analysts say: “This [Lifestyle range] is part of a range of five fixed-allocation funds. Launched at the end of June 2011 the UK range follows the same approach as the longer-running US version, whose funds each have a Morningstar Gold analyst rating. 

They add: “As with the US version, the team implements the strategy using Vanguard’s highly-regarded passive [funds] to minimise costs. Most of these underlying funds are rated positively by Morningstar’s fund analysts.” 

Burr has opted for one of the more risky portfolios, which consequently has a higher proportion of assets in global equities. But the fund isn’t solely invested in the stock market; it also has some exposure to property and cash holdings. 

These aren’t Burr’s only investments. She also has a Help To Buy Isa, which she is using to help build a deposit for her first home, and a workplace pension, into which she has been automatically enrolled and saves a fixed proportion of her salary each month. She says this has been a good thing for her savings, as she may not have got around to starting a pension otherwise, particularly when there are other demands on her money. 

Useful Nudges

Burr says nudges from the Moneybox app have also proved a helpful prompt to to keep investing. She says: “I have messages pop up on my phone from time to time encouraging me to put more away. These might be linked to recent events or holidays.

"As a Tottenham Hotspur fan, my favourite one recently was a ‘Never Give Up’ message, which had a “Add Moura” button, which obviously referred to Lucas Mouras hat-trick, which helped get Spurs into the Champions League final.”

Burr is conscious that many people her age get bombarded with marketing material encouraging them to spend more or take out credit cards and payday loans. She says it would be a good thing if more financial companies used these kind of tactics to encourage people to save and invest more instead, particularly for the longer term. 

Recent research undertaken by Fidelity has found that women in particular are more likely to respond to these “nudge” tactics, whether it's to encourage regular saving or to exercise more via a fitness app. 

The research found that many first-time investors are also keen to use apps and online tools to track savings and investments and to encourage them to save more. This technology can make investing more accessible, less time-consuming and encourage people to start earlier. Given that women often have far smaller pensions than men, starting to save earlier can make a serious different to their overall retirement outcomes.

Burr says: “This kind of technology has certainly encouraged me to save more and has made me think more about money management. I would like to go travelling soon and hope these funds can just sit there and continue gaining in value while I am away.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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