There’s an increasingly mature trend for influencers and online social media marketing. Despite what I’ve said previously, I don’t totally disagree with marketing as a concept but I don’t believe you should be persuaded to buy a product just because a well-known personality endorses it and I don’t think there’s long-term value in you becoming that ‘personality’ as a route to earning your fortune by posting about a particular product. Anyone can create an account and start posting content but there are now millions of people out there doing this and the odds of you earning a significant return for the time invested are low. Despite this, I’m interested in how people react to posts and am intrigued by what gets picked up by others. I love old architecture and also keep bees, these being the most common subjects of my Instagram posts. Maybe others don’t find ancient architectural detail as interesting as I do but I get ten times as many likes and comments on almost any bee-related post. I’m all in favour of anyone posting about their passions but I don’t see it as an income generator. Enjoy it for what it is rather than doing it in the hope that it will give you a financial return.

Cryptocurrency

This deserves a special mention; if you’re tempted, do you understand what you’re investing in or are you just following the crowd? I’ve no doubt that there might be a new form of currency in the future that’s structured differently, particularly as physical cash is being used less often in favour of digital transactions. However, what that currency format will be, I don’t know. I learned a little about cryptocurrency while mentoring a colleague over the course of a couple of years. He was much more technical than me and understood about the blockchain technology that sits behind crypto. He’d invested in a number of different cryptocurrencies and they were doing very well for him, valued at many times what he’d originally invested. I was sceptical about the stability of his returns and suggested he might want to sell some (at least his original stake) and then overall he wouldn’t be out of pocket if it all fell apart. Rather than heed my advice, to my frustration he regularly invested more! He would try to explain his reasoning and the technical developments that were driving interest and therefore price but I never really understood it. This continued until he messaged me one day and said he needed to talk to me. He’d woken up in a cold sweat after dreaming it had all crashed and he’d lost everything. So, that morning, he sold his entire holding. He was exceptionally lucky, netting more than £300,000 in profits after paying a (large) CGT bill. A few months later, the value of cryptocurrencies fell through the floor, so his dream was a fortunate premonition.

As I write, the value of Bitcoin is still more than double what it was three years ago and others are nearly tenfold up on the same period but in my view, investing in crypto is still a huge gamble. Those who invested early may still make a reasonable return but as my grandfather used to say, ‘If you see a bandwagon and try to jump on it, you’re already too late.’ I wasn’t completely immune from the lure of huge gains but worked on the principle of only betting what I could afford to lose. I bought £1,000 in a handful of cryptocurrencies, took some profit when they increased in value but am 10% down overall and still have no real idea about how it all works.

It comes back to the fact that there will always be someone who has made a huge return but it’s usually either down to luck, timing or a detailed knowledge of the product. It’s highly unlikely that the average person can replicate it, so I wouldn’t recommend investing in something you don’t understand.

Reselling returns and unsold stock

About ten years ago, we investigated buying from a trade wholesaler and selling some items online. The first thing we learned was that there was a minimum order of £1,000, which we weren’t expecting but we decided to take a chance, buy some things we liked and see whether we could double our money within a year. The quick answer is yes, we did double our money, but we also learned a lot along the way. It was mainly about finding the right product to sell; we only sold out of half of the range we bought and were kicking ourselves for not buying more of it. The items that sold well were inconsistent; some items photographed well and looked ‘worth the price’ while others were heavy and awkward to ship and the cost of packaging and sending them wasn’t really worth it. In the end we offloaded our remaining stock as a bulk buy on eBay. It was a worthwhile exercise but proved there’s some luck involved in selecting something to sell and also effort in holding stock and managing the selling, not to mention time. Could we scale it up and do it instead of our main jobs? No, because although we enjoyed it and it was profitable, there was too much risk of ending up with dead stock, so we decided not to continue. Out of the 20 or so lines we bought, the best sellers (in terms of selling out and getting a good margin) were some ceramic and glass hurricane lights (none of which broke during shipping) and a fabric pig doorstop. Neither of us would have predicted these would be bestsellers.

A variation on this idea comes from the growth in online shopping and the associated increase in the number of items that are returned. For the retailer, processing these returns is expensive and they’re often sold straight on to third party clearance houses, which auction them off. You can buy these pallets as a bit of a lucky dip of stock to sell on and you can find some real gems in there but there’s no guarantee you’ll hit the jackpot. Unfortunately, the media only spins the one pallet that turns a huge profit rather than the many that don’t.

Returned and refurbished items are classed A, B or C, with ‘Grade C’ being the most common. Definitions vary, but might typically be: ‘Inventory has been inspected, tested and restored to the original manufacturer’s operating specifications. This fully functioning product is in retail-ready condition but with significant cosmetic defects (significant blemishes and/or significant scratches, dents or frame damage).’ In other words, it works, but may not look great. There’s usually also a disclaimer that says the inventory list might not be accurate and you buy at your own risk. Looking at a sample lot, one pallet of kitchen/electrical returns had 169 items ranging from a Black & Decker vacuum cleaner and DeLonghi coffee machine down to a photo frame, an ice-cream scoop and an egg timer. The retail value was £3,026 and the pallet was being offered at 18% of this or £544 plus delivery (£45), unless you went to collect it. There’s a rule of thumb when reselling most surplus stock that 10% (of the retail price) is good value – but that’s if you can find a buyer. It’s all down to risk; you could be lucky and get a pallet full of high-end branded items that you can sell at an attractive margin but a lot of it will be mid-range stock and cosmetically imperfect. For the reasons above, I see it as just too high risk and it also consumes too much time and space to recommend as a good money-making idea. If you have a passion for a product and find a good supply, I’m all for doing a little buying and selling – but it’s not for everyone.

Drop-shipping

If the risk associated with buying and selling is the physical stock holding (either in terms of space or being left with unsold items), then it follows that if you remove this risk, it might be more viable. Enter drop-shipping. I first came across this in a distribution company where we built a drop-ship agreement with a tool supplier. They traditionally sold their tools directly in shops and via a physical catalogue. We wanted to sell their tools but didn’t want to hold stock in our warehouse, so we listed their tools in our catalogue and when we made a sale, we sent an electronic order to them to ship to our customer but with paperwork quoting us as the retailer. We received a trade discount and the customer was none the wiser; the tool manufacturer received wider exposure for their products, we could offer our customers a bigger range and we made a small profit. It was win–win – more sales and very little effort.

This was in the pre-internet age, with only basic electronic messaging possible between systems, but technology has completely changed this landscape. You’re now able to set yourself up as a drop-shipper (Shopify is an established and popular choice for your sales platform), effectively listing products that someone else is selling. When someone buys from you, it triggers your purchase of the item but ships it to your customer. A difference against the traditional model is that you don’t need to have a contract with the ‘supplier’ and in many cases they may be completely unaware. Although you can build a business like this, and many have, I do have some reservations about the long-term viability of this new model. For example, you want to start selling shirts. You create your account and use the technology to find a range of shirts, set your price and list them. I’ve just searched for ‘purple shirt’ on Amazon and it’s returned 148 results – an extremely wide range for an unusual item. Consider whether a number of drop-shippers are now also listing the same items on their platforms. The physical range of shirts on offer stays the same but the (virtual) range of shirts on offer to the customer increases, all with small variations in price. Therefore I don’t believe this is a great experience for the customer!

Despite my reservations, it’s an emerging use of technology and I predict it will continue in some form – but I don’t see it meeting my criteria for long-term proven returns just yet. Yes, you can curate a range of products and sell through this channel but the margins are low and it does carry some risk.

Matched betting

Technology has also opened up a whole new world of potential quick wins that in theory can generate significant returns but, as is often said, ‘If it sounds too good to be true, it probably is.’ The sheer pace at which technology allows someone to develop an app or a platform means that it can be a while before companies close whichever loophole you might be taking advantage of. A good example is a concept known as ‘matched betting’. Online betting is a growing trend and bookmakers are chasing market share, often offering free bets after you’ve created an initial account and placed your first bet. Just searching for ‘free bets’ returned a number of offers: ‘Stake £10 and get £40 in free bets.’ The concept is simple; place two bets on a game between two players, each bet against one of the players winning. Obviously, one will win, and one will lose. You might not win much, but you won’t have lost, and you’ve ‘earned’ your free bets. You register twice, get two free bets and bet again on both players winning. One of them does and you’ve made a profit as you didn’t pay any stake money for the bet. I feel this is a little disingenuous and not in the spirit of betting on the outcome of a sporting match, so it’s not something I support despite the technical approach of generating free money. I also think such schemes will be closed down by regulators as they wise up to them but will be replaced by another equally cunning approach in a different industry. It doesn’t seem honest and isn’t something I’d suggest as a viable long-term strategy for your finances.

Summary

As a route to creating wealth, your primary lever is your career, followed closely by your pension. An option for many is leveraging a property, then a number of smaller approaches can yield a few thousand in additional earnings per year. Together with spending less, if you invest these savings into either your mortgage or pension, you’re on the way to improving your financial position. There are other ways to make some money ‘on the side’ but all involve a little effort and risk. I’m not saying don’t look at them but don’t bank on them being a core part of your strategy as there are no shortcuts to real wealth creation.

Key takeaways

Proactively manage your career and aim to make incremental steps, ultimately increasing your base salary.

Pensions have two big wealth-creating levers: free money from either tax breaks or employer contributions (or both) and being invested over a long period of time.

Your own property can be wealth creating but be mindful of the cost of servicing that investment (your mortgage).

Declutter and sell things you no longer need or want.

Select one or two purely passive loyalty schemes and don’t try to chase every offer going.

Whatever you do to earn more, think about the time and effort it consumes to evaluate what’s the best value; aim for zero time (totally passive) or big benefit (pensions) and ignore ideas that take too much effort with too little reward.

Be wary of schemes that sound too good to be true – they probably are.

"How does the stock market work?"

Chapter 6

Investment basics

This chapter is going to cover the meaty topic of investments – but don’t worry, it’s not going to be overcomplicated or maths heavy. It’s intended to show you the range of investment types out there, how they work, their pros and cons, and help you decide what might be suitable for you. I’ll reiterate that I’m not a professional financial advisor and these are only my opinions based on the approach we’ve taken to our investments.

I’ve also had years of experience of being a workplace pension trustee, tracking my own investments and talking to financial providers, quizzing them on how their products work. And I’ve talked to many friends and colleagues, who have often said they’ve had some financial advice but didn’t really understand what it meant. As mentioned previously, I support seeking independent financial advice, but since you generally have to pay for it, I’d like to think this overview of personal finance will help you ask the right questions for your situation and also help you to better understand the answer (options or proposals). I want you to feel you’ve had value for money and information that’s useful to you. I’ll share some of the investment decisions we’ve made but it’s by no means a recommendation to follow them – it’s purely to illustrate how we have created our own investment strategy.

Pensions

As previously mentioned, pensions are a great long-term investment, not least because of the tax advantages but equally because you can’t dip into them if tempted. Private pensions are either personal or company based. Company, workplace or occupational pensions are also split into two – defined benefit (DB) or defined contribution (DC). Defined benefit pensions are generally older schemes or from public sector employment such as the police, NHS or civil service. They’re based on the concept of a long career within the service and when you retire you receive a defined benefit or guaranteed pension payment, normally a percentage of your final salary in the job (hence these are often referred to as final salary schemes). These schemes are great if you have one but a headache to the organisation providing it, which is why they’re less common nowadays outside the public sector.

It’s all down to risk and certainty of investment performance. These schemes take in variable contributions from employees but guarantee that a specific pension value will be paid out – and given that investment returns are never guaranteed (values can go down as well as up), would you take that risk? I know I wouldn’t! Funding these schemes is expensive, which is why the employer contribution in public sector jobs is high – because it needs to be. If you do have a DB pension accumulated over many years, it’s worth keeping and planning your career accordingly, as it could provide a significant boost to your final pension.

The DC pension is much more common. In this type of scheme, contributions (inputs) are defined rather than the benefits (payouts). In a company pension, both you and your employer contribute (including your own company, if you’re self-employed), whereas for a personal pension, it’s just you making contributions. The personal pension is also referred to as a self-invested personal pension (SIPP). Changes in legislation in 2015 allowed you to start drawing from your SIPP at 55 (rising to 57 in 2028), while DB schemes will specify a retirement date (more likely nearer state retirement age)

Whichever type of pension you have, you put money in, it’s invested over time with the intention of growing in value and then it provides an amount (your pension pot) that you can withdraw as a pension. This is in addition to the State Pension, which we’ll cover shortly. You might also find that you end up with several different pension pots as you move jobs because each company scheme manages investments slightly differently. It can be a challenge to keep track of them, particularly if you move house as well as jobs. Company pensions are now tightly regulated and generally well run. However, having several smaller investment pots can attract multiple management charges and they may also be investing in duplicate or conflicting funds. Therefore, if you do have several pensions, it’s worth tracking them down and consolidating them into your own SIPP. Many SIPP providers offer help with tracking down old pensions, so even if you’ve lost the paperwork, it’s not that difficult. Company pensions invest in a set number of funds with little choice for you as an investor, whereas in a SIPP you need to make that investment selection yourself – but you don’t need to be a financial wizard to make a sound investment choice. I believe it’s better to have one single pension scheme by the time you reach retirement as there are a couple of alternatives for how you take out your money and it’s easier to manage one pot.

Traditionally, when you retired, you’d look at your pension pot and take out an annuity, which is a financial product bought for a fixed price (your total pension value) that pays you your pension. There are different ways to get that pension paid and since it’s a commercial product, you can get quotes from different providers. By way of an example, if you had a pension pot of £200k at age 60, you could (at current rates) be paid a guaranteed pension of £8,725 a year for the rest of your life. Alternatively, you could be paid £17,175 a year for ten years and then take a £20k final lump sum (by which time you’d be receiving your State Pension), or you could take it all as a cash lump sum, which would be a total payment of £139,154 (after paying £60,846 in tax). There are many more alternative payment variations and this final taxation also comes with options; you’re entitled to receive 25% of your pension tax free (the rest is taxed as income) but you can either take it as a lump sum at the start of your pension or incrementally as you take monthly pension payments.

This is a complex area and subject to changing tax legislation but the trend is moving away from annuities (because they’re not paying out as much as they used to) and moving towards a flexible drawdown. I won’t go into detail about how to choose the most efficient way to be paid your pension but it’s worth understanding the variables, not least because knowing how you spend your money and what you spend it on will help you formulate a plan for how best to draw your pension. When you reach this stage, it’s definitely worth seeking independent advice, but to get the best value from that, you need to have an idea about what your retirement expenditure might be.

One of the most difficult financial exercises we had to do was about five years ago when we did some cash flow modelling with an advisor to sense-check whether we really could afford to stop working. It was all very well having a vague plan of ‘more travel, new car, downsizing the house’ but it took time to develop a strong idea of what that retirement spending might look like and in particular the timing of changes such as downsizing. For some, retirement holidays might include a cruise and skiing every year, while for others it might be exploring Europe in a motorhome. Similarly, it might be treating yourself to a Range Rover or a Porsche, or going from two cars down to one. Everyone’s plan will be different but the basics of building that plan are the same.

If you were born after 1978, you’ll be entitled to a State Pension from the age of 68 (although this may change). A full State Pension is currently worth approximately £205 a week or just over £10k a year. However, it depends on you having made National Insurance (NI) contributions throughout your employment. If your NI contributions fall short in some years, you may receive less. If you do one thing after reading this book, it should be to go online and check your current State Pension forecast (www.gov.uk/check-state-pension). It will estimate your pension and flag up any years you’re missing NI contributions. You may be able to ‘buy back’ those missing years and increase your eventual payment. This is invariably worthwhile as the State Pension is (currently) protected by a ‘triple lock’ agreement whereby it increases each year by the average increase in earnings, inflation or 2.5% – whichever is higher. In 2023, there was a generous increase of 10% due to inflation being high, so it’s worth filling in any gaps. I predict this arrangement will change as funding the State Pension is a huge burden on the government but I believe there will always be an intent to keep it in line with cost of living increases.

To sum up, pensions can be complicated but don’t ignore them – they’re a valuable tool in your kitbag to help you shape a financially stable future. It’s worth noting that there are several safeguards when it comes to pension investments. Company and occupational schemes are usually protected by the Pension Protection Fund and SIPP investments are protected by the Financial Services Compensation Scheme (up to certain limits).

ISAs and other tax-free investments

Individual savings accounts or ISAs are second to pensions in terms of tax-beneficial investments. Again, these are subject to change but I’d expect there to be some element of tax efficiency with any new scheme. Whereas pensions are effectively tax free to contribute to (but money taken out is taxed), ISAs are the reverse – you invest your (taxed) income but when you withdraw money, any gains are totally tax free. There’s an annual investment limit (in 2024, £20k a year) and you can withdraw money at any time but you can’t reinvest beyond £20k in any given tax year. You can save into a cash ISA but these are generally on par with the best savings accounts so aren’t that attractive. You can also invest in a stocks and shares ISA and select the same types of funds as you have in your pension.

There are also two further variations on the ISA theme. A lifetime individual savings account (LISA) can be used to help save for a home, retirement or both (the government provides a bonus of up to £1,000 per year until you reach the age of 50); and a junior ISA (JISA) is a long-term savings plan that can be opened by a parent or legal guardian to invest in a child’s future, allowing them to receive a tax-free lump sum once they’ve turned 18. Successive governments may change any of these schemes and their limits or allowances. Although you could view an ISA as just another savings account, don’t discount its potential as a highly effective, tax-free option. HMRC figures suggest that there were more than 4,000 ISA millionaires in 2021 – in other words, investors who have contributed to their ISAs each year and now have a total investment value of more than £1 million. This number has grown significantly year on year and is nine times more than in 2016.

The three-way investment choice

For many years, we’ve taken a spring holiday in the Canary Islands and always set aside a few hours in the sunshine to chat over how we’d invest any ‘spare’ money before the end of the tax year. The three-way choice was usually:

pay some more off our mortgage to reduce the overall interest

make some additional pension contributions, get the tax benefit and let it grow over the long term

use up our ISA allowance for the year in the knowledge that any gains would be tax free.

There’s no right answer here and over the years we’ve picked them all, or more often split any money we have between all three on the basis that doing something was better than doing nothing.