Ex-Banker Explains: How to Invest Your First $10,000

If you had 10,000 sitting in your bank account right now, what would you do with it? Because your first 10,000 has the power to change your life. But only if you use it wisely. Get it wrong or do nothing at all and you can miss out on hundreds of thousands over your lifetime. If you're new here, hi, I'm Nisha. I'm a former investment banker turned financial educator. And today I'm going to talk you through firstly, why your first 10,000 investment is so, so important. Secondly, how to invest it safely and strategically. And thirdly, the biggest mistake that new investors make that could be costing them millions and how to avoid them. So let's start with the first. Why is your first 10,000 so important? Having 10,000 in the bank can feel amazing. It gives you confidence to make bigger life decisions. It makes it easier to walk away from situations, from jobs, from people that don't serve you. And it might make you feel more optimistic about the future because once you see that first 10,000 saved up and you start making progress, it's much easier to stick to the good money habits that got you to that point. But could that money be working even harder for you? I usually suggest a three-month emergency fund, three months of your living expenses saved up, if you only have yourself to think about. And around six months of your living expenses saved up, if you have a partner, if you have kids who depend on you financially, or if you want to be extra cautious, go for nine months. You might also want to keep cash aside for short-term goals, such as a holiday, a house deposit. When I was saving for my flat, for example, I had an emergency fund in one savings account that was easy to access. And then tens of thousands in another savings account for my deposit. It was comfortable to know that I had all the money I needed for the next two to three years. But at the same time, it was very unnerving as well. Because having worked in investment banking for so long, I realized that my savings weren't working half as hard as I was. And that is the thing. From a young age, we have it drilled into us to save, save, save. But no one tells us how much better off it would be if we invested. There are so many reasons for this. I'm moving on to the next section. The top three are firstly, savings are incredibly lazy. They sit there quietly, they look sensible and secure, but they're not really doing very much. In the UK and many other parts of the world, the best savings rate you can expect right now sits somewhere around 4%. You can find slightly higher rates of 5% in Australia and the US, but there's usually a cap on the amount that you can save at this rate and it might be reduced after a set period. Now compare that to the 8% you might earn from a diversified investment portfolio and the difference starts to add up fast. If you invested 10,000 and earned an 8% return, after 10 years, you'd have more than 21,000. Keep that same money in a 4% savings account and you'd have just under 15,000. The only thing that you've done differently is put your money to work in an investment account instead of putting it into a savings account. That is the only difference. The rest of your life has gone about exactly the same way. You've only made one single decision of a change and this is just showing you what may happen at the earliest stages. The longer you leave it, the bigger that gap gets. That's the quiet power of compounding and the sooner you start, the more time your money has to grow. The second reason is that investing helps protect you from inflation. Getting 4% on your savings might not actually sound too bad, especially if you live in a part of the world where interest rates have been much lower over the past decade or so. But don't forget that the price of everything goes up each year. Your groceries, your rent, your energy bills will cost more today than they did five years ago. And as the Bank of England's inflation calculator shows, goods and services that cost 10,000 in 2015 would cost just under 14,000 by August 2025. The US inflation calculator let us go back even further. A 10,000 purchase in 1990 would cost just under 25,000 today. And this inflation, it will slowly erode the value of your savings. So even though your bank balance looks like it's growing with the help of these savings interests, it's buying power in comparison isn't quite so impressive. But by investing your money instead, your money will keep up with the rising costs of living and you'll find it much easier to build wealth on top of that over time. And the third reason is compounding turns small steps into huge astronomical progress. Imagine you've invested 10,000 and you forget about it. I mean, I think very few of us would forget about that 10,000, but stick with me. Let's say this investment now grows at an average of 8% per year. The early years, this can feel pretty underwhelming. That's 10,000 with an 8% return. After one year, it becomes 10,800. It's good, but it's not life-changing. After two years though, you're at 11,664. Then after three years, just over 12,500. Each year, that original investment, you're not just earning returns on that original 10,000, you're earning returns on all of the growth from the previous years too. So those gains start getting bigger and bigger. By year five, you're nearly at 15,000. By year seven, you've crossed 17,000. And then the snowball keeps rolling. Year 10, you're at 21,600. By year 20, that original 10,000 has over 4X and grown to roughly 46,600. And remember, you never added another single penny after that initial investment. That is all thanks to something called compound interest, which is when your investment returns start earning their own returns. And this is probably the single most powerful force in personal finance because the longer you let your money do its thing in the stock market, the more dramatic that result becomes. It's also why people who start early, even with small amounts, often end up miles ahead of those who wait. Because with compounding, time matters more than timing. Okay, so now you know why you should invest. Let's actually go on to the main bit, which is where do you invest? First, before we even get to that step, you probably want to make the most of your workplace pension or retirement scheme, especially, specifically, if your employer matches your contributions. That is free money, and you'll never beat that kind of guaranteed return. Next, then open up a tax-free investment account if your country offers one, like the ISA in the UK, and try to max it out each year if you can. Only once you've done that step, then move on to the general investment account for anything above those limits. Just be aware of any tax implications in your country. Just to sidetrack for a moment, whenever I talk about stock market investing, people often say, Benisha, what about property? Can I start with property? Yes, property can absolutely be a great investment, but one of the reasons I talk about the stock market more is because the barrier to entry is so much lower than it is with property. Many modern investment platforms now let you invest with less money than you'd spend on a loaf of bread. Whereas saving for a deposit on a house can take years. It can be hard enough to buy a house to live in for yourself, let alone buy a buy-to-let property to then rent out to tenants. On top of that, property investing also tends to come with maintenance costs, with taxes, and with the responsibilities of being a landlord. So whilst I'm definitely not discouraging anyone from going down that route if they have the time and the money to do so, it is a great option if that is what you want to do. But I do want to say that you'll usually find stocks and funds are far easier to get into and much, much more passive. All you need to do is open a tax advantage investment account, automate your investments, and get on with your life. When it comes to what to actually invest in, if you are a beginner starting to invest, you want to keep things simple with broad, globally diversified funds. An S&P fund or an all-world index fund is a really solid starting point. It gives you safety in numbers through diversifying across hundreds, if not thousands of companies, but also through diversifying across geographic regions. And when you're looking at what fund to invest in, what S&P 500 fund or what all-world index fund you want to invest in, you want to pay close attention to the fees. How much does it cost you to invest in that fund? Because although it's going to return you money over time, the difference in fees is going to massively impact the return that you get. This can make a huge, huge astronomical difference over the long run. By the way, I'm going to go into a lot more detail on all of this in my upcoming free workshop. It's on Sunday, the 26th of October at 5pm UK time. It's completely free. Doors for the waitlist close midnight the day before. It's 40 minutes long and we will walk through the exact system you need to start investing with confidence. You can sign up at nisha.me forward slash invest. It's also linked in the description. We'll go through everything from how much to invest, when to invest, the best time to invest, how to know what funds to pick and what fees to look at. Completely free nisha.me forward slash invest. Now, before you get started with actually picking your funds, we need to talk about the biggest mistakes new investors make and how to avoid them. Because making any one of these mistakes can cost you thousands or even millions, but they're all totally avoidable once you're aware of them. Mistake number one, procrastinating. I can't tell you how many people message me to say that they've got money sitting in savings but they're scared to invest it. They say things like, I don't really know what I'm doing yet or I'll start once I've learned a little bit more about investing or I just want someone to confirm this is okay. And I get it because I was also at one point in the same place. You don't want to make a mistake with your hard-earned money. But while you're waiting to feel ready, time is moving on and you're missing out on years of potential growth. Let's say you've got an extra $10,000 sitting in your savings at the age of 25. That's on top of your emergency fund, on top of your short-term savings. You know the right thing to do is invest it in stocks, but you're terrified of getting it wrong. So you buy the books, you download the podcast, you promise to start investing once you know what you're doing. And before you know it, you're 35 and you're only now opening an investment account for the first time. If you invested that $10,000 at 35, you'll have about $68,000 when you turn 60, assuming you didn't do anything or invest anymore. But if you invested at 25, you'd have more than $100,000 by your 60th birthday. That's again, without adding another penny to it over your working life. And my point here isn't to tell you to fling your money at any old investments, but you don't need to find the perfect investment from day one. You just need to start. Start small, stay consistent, and you can end up with a life-changing amount over time because in investing, time in the market matters far more than timing the market. If you look at the long-term performance of the S&P 500, for example, investors who've invested for a 20-year period almost never lost money. Even considering all the setbacks, the Great Depression, the tech bubble, the financial crisis, investors would have experienced gains had they made an investment in the S&P 500 and held it uninterrupted for 20 years. The second mistake that a lot of people tend to make is they follow trends. I've seen people make this mistake again and again. It's almost a rite of passage for new investors. When you first start learning about investing, you can easily get swept up in the excitement and the thrill of it all. Who doesn't love the thought of making money while they sleep? But investing isn't supposed to be exciting. It should actually be quite boring and quite repetitive. But it's only natural for ambitious new investors to just get carried away here because suddenly everywhere you turn, people are pushing the next hot stock on you or the next crypto coin or the unmissable opportunity. And the next thing you know, you're digging out your bank card and investing in a company that you've probably never heard of before. It is not your fault. This happens to almost everyone at the start. You learn a bit about investing, you understand the basics, and suddenly you feel like an investing expert. This early confidence, it is dangerous because you think you know enough to spot opportunities when in reality, you've only just scratched the surface. Psychologists call this the Dunning-Kruger effect. Basically, you don't yet know enough to realize how little you know. That's why so many new investors jump into whatever's trending, convinced that they found the next big thing, only to watch the value drop as soon as they buy it. If you do want to invest in individual stocks, do it, but do it with a tiny portion of your portfolio. Think of it as your fun money for your investments. Enough to learn from, but not enough to lose sleep over. And then mistake number three, materializing your losses. This is one of the most expensive investing habits you can fall victim to. When markets fall, our instinct is often to pull the money out, but that just locks in your loss. The best investors do the opposite. They stay calm or even invest more during downturns. And the thing that gives you the confidence not to sell but to invest instead is, and surfing back to the start of this video, is the things that we did at the start, building a solid emergency fund and setting cash aside for upcoming expenses. That way, even when the market's down, your emotional brain isn't going to take over. Your logical brain, your investor brain is making the right decisions. So main things I want you to take away, don't build your house on weak foundations. Have your emergency fund and your short-term savings in a high interest account so you won't be tempted to panic sell at a loss. Second, it's also a good idea to pay off any expensive debts before you start investing. Otherwise, it'll just be a case of one step forward, two steps back. And third, open and prioritize workplace pension schemes and tax-efficient accounts first because your money will grow so much quicker if you have your employer's help and no tax to pay. Fourth, automate your investments and log out of your accounts if the market fluctuations are making you nervous because you don't need to monitor your investments like a hawk. This isn't a second job. The whole point is to make your investments do the heavy lifting so you can eventually kick back, have fun and focus on actually enjoying your life. And fifth, it won't happen overnight but once you've got that first 10K in investments, you'll be amazed at how easy the rest is to build.