Five easy ways to make money

Putting your money to work doesn’t have to be an effort. Here are five easy ways to start investing for effortless returns

1. Start a pension plan before you’re 25

You may not be able to spend it until you retire, but providing yourself with a good solid pension is something that is easily and cheaply done when you’re young and much harder if you leave the decision until you are already 50 or older. The facts are simple. A basic state pension won’t let you starve, but you won’t be able to afford much more than the basics. Retirement is likely to be 20-25 years of your life, and most us will be healthy enough to hike, ski or swim as well as eat out and travel. Wouldn’t it be a shame if you don’t have the cash to see the world? Pension provision is a huge subject, and regulations change, but here are five key points of principle:

Start young, even if you can’t contribute much, and get the benefits of years of compound interest The self-employed, particularly, need to make sure they don’t delay. They don’t get the reminders (or often compulsion) that employment brings Get a flexible pension that you can take from one employer to the next, and will allow you to contribute during periods of self-employment Even though generous final salary schemes are waning, the defined contribution schemes which are replacing them still allow for employers to make contributions on top of your own. Make sure they do Every pound of your taxed salary that goes into a pension gets a tax credit from the Government which boosts its value. Current tax rates turn a pound into 128.2p for a basic rate taxpayer, and 166p for a top tax rate payer. It’s the easiest money there is For a detailed guide to pensions see the latest article by Nic Cicutti on the state second pension

2. Contribute to a low-cost stock market tracker

This allow you a low-risk way of latching onto the stock market’s long-term returns. So long as you are looking to put your money away for ten years or more, you can expect to strongly outperform other investments. A tracker is just one type of fund, where your money is pooled with that of thousands of other people’s. While most funds have a well-paid investment manager to choose shares to buy, trackers merely own shares in a cross-section of the big companies that dominate the economy. The great advantage is not that trackers perform better. They perform about the same as managed funds on average, but charge you a lot less. Some pension schemes come in the form of market trackers.

A low-cost tracker charges a maximum of 0.5% a year in management fees, with no initial charge. Compare that with the average managed fund which charges 3.3% up-front, then 2% a year. The difference may sound small, but compounded over long periods can grow alarmingly. Just £100 invested in shares with an annual fee of just 0.5% would be worth £361 after 20 years, assuming typical annual returns of 7.5%. But with a 2% fee, you would have just £276. Almost your entire initial contribution would have been eaten up by fees!

Get started: why shares?

3. Look at NS&I’s Guaranteed Equity Bonds

These are National Savings & Investments products which require a five year investment. Over that period they typically offer you the same percentage return as U.K. share prices have risen. However, if the value of the market has fallen, you still get your money back.

This heads-you-win, tails-you-don’t lose is an extremely attractive investment option, and is guaranteed (unlike some other private sector products) by the Treasury. It should be noted, however, that you don’t get the dividends from shares in this product. Though there Is no Guaranteed Equity Bond available at present, there should be a new issue shortly.

You can register on the www.nsandi.com site to be notified about them (external link, window opens new browser)

4. Invest with Britain's best investor

Anthony Bolton has for 25 years managed a 20% average annual increase in the Fidelity Special Situations Fund he manages. Though his fund isn’t anywhere near as cheap as a market tracker in terms of charges, it has offered a consistently superior performance which justify the fees.

Almost alone among top fund professionals, he has beaten all the market averages for more than two decades. While you cannot rely on most fund managers to keep beating the averages, he is surely an exception.

For more details about Mr Bolton and his fund, see my profile of him

5. Own your own home

Being a first time buyer, unlike the other options, is rarely easy to begin with. Few of us manage to get on the housing ladder without a struggle, at least initially. Yet once the initial hardship is over, most who have bought their own home have probably been surprised by how quickly and effortlessly its value has increased over the years.

Owner occupation has been the bedrock of wealth creation for most of us over the last fifty years, and is likely to remain so. Nothing better illustrates exactly what we are trying to do with investment money than what we might call the ‘wealth surprise’: That moment when you pick up a statement, look in an estate agent’s window or read through the share price columns and are surprised by the increased value of what you own.

See also: Five reasons to buy property

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Please note that articles on this site do not constitute regulated financial advice, which recommends a course of action based upon the specifics of your personal circumstances. The articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. Call 0800 085 3250 for details of IFAs in your local area or click here to search online. Any statement regarding financial services products and tax liability is based on legislation and tax practices as at 1 January 2005, which is, of course, subject to change. The value of any tax benefits or reliefs depends upon the individual circumstances of the investor. When investment performance is mentioned you should remember that past performance is no guarantee of future performance. Where products have an underlying investment content, in many cases the value of the investment can fall as well as rise. For with-profit based investments, there is no guarantee as to the level of bonuses that will be declared, if any. Where mortgages or secured loans are explained do remember that your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it. All mortgages are subject to underwriting, status and are not available to people under the age of 18.