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Kat Kuczynska talks about managing your own investments with Lynn Hart

Lynn
Hello and welcome to the Female Entrepreneur Show with me, Lynn Hart, on KWIB radio. Today we’re joined by Kat Kuczynska founder and owner of InvestedMe and we’ll be talking about manging investments. Hello Kat!

Kat
Hello and thank you for having me!

Lynn
It’s a pleasure and great to see you again. So Kat, having come through your own financial nightmare, you decided to take control of your own finances. Investments and finance can seem to be a rather male dominated and super-complicated business. Is this true?

Kat
It’s certainly the perception but I would argue that it’s not true. In terms of the data that we’ve got – yes it is true that men, in general, have got more wealth accumulated and savings but it’s certainly not because women can’t do it. Historically, finance was definitely a male orientated field but I think that for me, I’m quite passionate about the fact that nowadays as women, we have the same rights to go into investment and finance world – there is nobody to stop us from doing so. The actual finance world is not as complicated as sounds. It certainly uses an awful lot of smart words and all that but once you start learning a little about it, you quickly realise that you don’t really need to know all the smart words anyway. There are many different ways you can explain the subject without using the terminology necessarily. 

Historically certain fields like law and medicine always use complicated words to sound very professional. Yes, they do have education but it’s certainly nothing that an average person can’t get a very good understanding of.

Lynn
Can you tell us whey investing is better than saving and the different types of ways our listeners can – or should – invest if they wish to?

Kat
Okay, so the first thing that we all need to be aware of is inflation. Now, we are all given advice that we should all be saving. There are lots of sayings to encourage us to save but that’s only half of the story because saving on its own is counter-productive to say the least.  The modern world of money is essentially a world where our currency is losing value every single year. There are many complicated reasons why that is happening; one of them is that the Governments hate deflation – it is difficult for them to control – so to be on the safe side, they actually targeting 2-3% inflation. What that means for us is that £100 that I’m saving in my bank account will, next year – or a year from now – will only be able to buy me about £97 worth of goods. Over time, we have the devaluing of the currency. Over 5-10 years, that amounts to massive amounts which is essentially eroding your wealth.  You might be thinking that you’re doing a good thing by saving your money but actually, every day that you are saving your money without investing it and getter better returns than the rate of inflation (usually 2-3% a year), you are losing money.

Lynn
That’s shocking isn’t it?

Kat
Yes – it’s just the system we’ve got. In a way you could argue that inflation is good for debts as this is another way that Government do keep inflation. We’ve got massive national debt so if you think about £1bn that the Government owe, in 10 years’ time, that £1bn is only going to be let’s say £600-£700m which is better for the Government, right? That would obviously work if we stopped borrowing more money, which is certainly not the case looking at the data but the principle is there. If you’ve got a lot of debt, then certainly inflation is helpful. Governments will always want to keep inflation and will try to target 2-3% inflation. For us savers who think that we’re doing a good thing, but we’re really not.

Lynn
So what do you suggest if someone is just starting out?

Kat
In terms of starting out, there are different things that you could be investing in. There are different vehicles if you like that will provide a better interest rate than that 2-3% inflation.

You can invest in stock markets. You can invest in bonds which are essentially like loans to corporations or governments. You can invest in commodities – these are your precious metals and foodstuffs. Nowadays you can invest in weird and wonderful things like cryptocurrency and daily trading. There is a whole plethora of things that you can invest in. 

For someone starting out, it would be really, really helpful to actually look at what type of things they would enjoy doing. If someone has an interest in stocks and looking and companies and perhaps running some simple numbers and playing with the numbers, then the stock market would perhaps be a very good place to start.

If someone has got a huge amount of time on their hands and they’re very happy to take large risks then perhaps trading could be for them. Now, I never really recommend daily trading as there are way more people that lose money on daily trading than there is people that make it work but those that do make it work, make it work big! It is a full time job to really master that daily trading.

For example, investing in property is reasonably easy as well. There are certain areas of investing which are actually very forgiving so you can still make mistakes and make money on it long-term. Any type of investment you are making, whether it’s stock market or property, it’s essentially giving you this bubble of protection from inflation and it should be returning you better interest rates so then, that £100 that you’ve saved and invested, is actually growing every single year. Eventually, after a couple of years you will start to see the power of the compounding effect where you are starting to make interest on interest. When you start investing, it will seem really boring. This is something that I really want the audience to understand; investing isn’t supposed to be exciting. If it exciting, then the likelihood is that you are actually taking too much of a risk. 

Certainly in the first 5-10 years, it’s not meant to be exciting because that compounding effect is only going to be marginal but some wonderful things start to happen 5-10 years in when your money is growing year in, year out and without seemingly big sacrifices.

Lynn
How do you hold your nerve is something is going wrong? If it’s not working, how do you keep at it? What would your advice be?

Kat
My best advice when it comes to the crashes – and the crashes do come whether it’s in property or stock markets. Stock markets do seem to have crashes more often than property but when property goes, it is more exciting for the media reporting on it! The best advice I can give is to observe the masses and do the opposite because an awful lot of people are very scared when the stock market or property is crashing because the media is basically saying that this crash was different than the last one and is worse and will go on forever. When you are in it as well, you have to remember they last 18 months. So for 18 months you might see your portfolio going down and down. When the crashes to happen, I would urge everyone to look at the history before they decide what to do. After every single crash so far, whether it’s property or stock market, they re-bounded and re-bounded way, way higher than they crashed from. 

Once you actually understand that it’s just part of the game; in investing you will never just make money. You will have days you will lose. So when you start to invest yourself, you will have an app that you can check every single day, but you shouldn’t be checking every day. You will see that it’s gone down and will get worried but actually, if you look at it over a long period of time, and if you know before you even start that at some point you will lose your money. And by lose, I don’t mean actually lose but, at some point, the value of your investment is going to go down, it’s just  part of the game. It’s not something that you can avoid. I think that understanding that and looking back at the history and how much drama we have had with the previous crash that actually we live and the stock markets have recovered. Nobody has died from the stress of the money and so, with that understanding, I think you really have that internal peace almost. You’re just sticking to your plan.

Lynn
That this is history and it’s happened before and will happen again.

Kat
Exactly, and with some of the crashes, everyone remembers the crashes of 2008. There were some big banks that were going bust and there was an awful lot disruption. There were a lot of people that lost money in that crash because people did panic. There were many experts that said if Wall Street had held their nerve, we wouldn’t have seen the crash that we did. It was the mass panic that made it worse. There were a few individuals who were buying like mad when everything was cheap. It was the end of the world for every single industry out there. It was almost like a boxing day sale out there for properties and companies – you could just go and buy everything for nothing!

Lynn
So was that a good thing to do then? Would you be doing that?

Kat
Absolutely. Yes. It’s something that you need to do. Something we need to remember is that we are not very rational when it comes to money.  We are very tempted to buy ‘the latest, the sexy stock, the one that is doing well’ so that we feel like we are doing the right thing, the fashionable thing etc. Every single company at some point – their stock will go down. So if you are buying that company when it’s as good as it could be, there is only one way to go – and that’s down. When you are buying the companies that, underneath, have good assets, but for whatever reason, they are unpopular, then that gives you a way better chance of actually making money long-term because most of those companies will recover, especially if you are investing passively in the market which is certainly what most people should be doing. They are not going to spend a huge amount of their life studying the actual markets. When you are investing passively, you invest in a basket of stocks so your risk is spread very evenly. Don’t get me wrong; you’re still going to feel the crash because most of the stocks are going to go down. But, overall, you’re risk profile is already spread so even though the heavens seem like they are crashing down and we’re going to see the end of the world, it doesn’t happen. The world isn’t going to come to an end; our economies are still going on after 2008 and after Brexit, we will still live. The companies are not going to crash hopefully. Even if it does, we’ve survived – the stock market has survived bigger things than Brexit and whatever else is coming our way.

Lynn
Cryptocurrency gets a lot of publicity as an investment opportunity. What made you choose this as part of your investments and would you recommend it to others?

Kat
Okay – so Cryptocurrency is an interesting subject. I’m not going to lie, Cryptocurrency is like the quantum mechanics of the financial world. There are very few people that understand it but there are some interesting aspects of cryptocurrency. The first thing that I want the audience to understand is that currently investing in cryptocurrency is a little bit of the Wild West. There are a lot sharks and a lot of cryptocurrencies are popping up. Most of them are not going to be here in the next 20 years but there some that will definitely stay here. I think that right now, there is an understanding that cryptocurrency is currency – or rather, almost like a replacement for money – but actually the technology of cryptocurrency  has got the power to do different things. 

So, just as a brief explanation – imagine a massive spreadsheet that lives in the internet and all the computers that are connected to that spreadsheet are called miners. They are maintaining the data chain, or code, that has every transaction in this cryptocurrency. For that reason, it is very secure because the minute the cryptocurrency inputs the transaction, all the millions of computers across the world have got that transaction. You can’t have it back because essentially all the computers in the world are checking that the code they have got is the right one. Cryptocurrency was designed in a very smart way because it encourages to people to mine, maintain and look after the code rather than trying to hack it. To hack it, you still need to give it your computing power but it’s very, very difficult – nearly  impossible some say – to hack. You might as well maintain the code and get paid for it. The cryptocurrency is based on the data chain technology. Whether the cryptocurrency as a monetary exchange will make it is interesting because it’s not governed by the governments. Right now the governments have a monopoly on money – it’s their business essentially. They ensure that people ‘play’ with their business because they make us pay taxes using their money. We can’t pay taxes using cars, bitcoin or stones or whatever else holds value because the government wants us to use their currency.

What’s interesting about cryptocurrency is that they are not governed by anything so governments don’t really like it. It can’t really stop it so there is this social aspect of cryptocurrency where perhaps the current money system that we have in the world might not be here forever. We might get to the point where we have different financial systems that work interchangeably. So, if you do happen to think and believe that our world will change in the way that our politics and our governments are run, then certainly cryptocurrencies do offer some interesting prospects for that. Now, what I want to make clear is that, at this point in time, it is speculation – it’s not investing. You shouldn’t be putting £10,000 into your cryptocurrency account tomorrow if this is all you’ve got because that would be silly; it’s gambling. However, if you’ve got £1million in your account, putting £5,000 or £10,000 into cryptocurrency is not going to hurt you as it’s a very small percentage of your wealth that you can afford to speculate.  A very interesting part of cryptocurrency is actually something that’s called smart contracts.

Our current system of certain solicitors and certain purchasers is very inefficient. So, for example, when you buy a house, it takes about six weeks. People that have been buying houses and have perhaps been divorced are saying that buying a house is just as stressful as getting a divorce. I can absolutely understand because you’re trying to buy a house and you’ve got your offer accepted and you think you’re there; you’ve made it! Then the solicitors move in with absolutely no sense of urgency and their laid back attitude and it takes forever. What they’re doing is redoing exactly the same work that the solicitors did when you were buying the property. The same, or different solicitors, are doing the same work two or three years later but nothing’s changed. But the customers are paying for it; it’s such an inefficient and expensive way of doing things. Now, a smart contract is when we make an agreement let’s say that I’ll give you £10 and we encode it in a contract. Once it’s in a smart contract, you can never turn around and say that I didn’t give you that £10. One day, with a smart contract type of technology, we might have a situation where we might be buying big complicated things like a companies or properties instantly and I think certainly where the technology comes in. Forget about cryptocurrency but think about the blockchain technology. I think the blockchain technology will definitely flourish even if the cryptocurrency doesn’t find its way into the financial system, although there are many experts way smarter than me that do seem to think cryptocurrency is going to form part of our future. But right now, investing in it is very risky so it absolutely shouldn’t be the main part of your portfolio unless you are really, really keen to take massive risks for potential rewards.

Lynn
That’s amazing. It really is. What did you say it was .. block…?

Kat
Blockchain technology. Essentially it works like a chain. This is what the crypto(currency) is based on. It’s such a fascinating world that we are living in right now because our current banking system, our political system and money system is very outdated. We are now living in a world where we haven’t figured out the best way to move forward. The technology moves on so quickly that we as a society haven’t really caught up with what’s possible out there. With so many changes, if you have a portfolio, then you might just as well put 1-2% of your overall portfolio towards these speculative options if it is something that you like doing.

Lynn
So do you think cryptocurrency is the future and something worth doing?  

Kat
I believe that the data chain technology certainly is and I do think that cryptocurrency will be challenging the current monetary system. What I also think is that a lot of these cryptocurrencies that are out there are not built for long-term growth. Right now it is, as I say, a very “Wild West” way of investing. It is certainly not something I’d be recommending everyone to do. Certainly if you are a bit of a geek – and there are people that believe we should have a different system – those type of people I think will find some merit in investing in something new, an innovative technique. You should certainly do some digging and understand what it is. That’s true of every single investment.

Lynn
It sounds like you think it is the beginning of something quite different for the future?

Kat
Yes, I do. I absolutely do, however right now with cryptocurrency there is one problem that we haven’t overcome yet: that’s the computer power it requires. For example, with bitcoin, it’s been going on for about 8-10 years now. It’s got a huge number of transactions so the longer it’s going, the more data it holds, the more expensive it is to maintain the code. Right now, we already have the technology to do smart contracts and instantaneous house purchases, but what we don’t have is the ability to make these technologies cheap to use. I think the next stage is deciding and figuring out in our head how the heck we can implement it into our current way of life –  actually deciding what type of transaction we should use the blockchain technology for. It is likely that right now we simply don’t have the computing power to use the blockchain technology for every Starbucks purchase! But for business, however, who are, for example, doing large international transactions, the banks are acting as a mediator. They are effectively saying “yes, this person has given me £50k and we gave it to this person in this country”. We pay them an awful lot of money to just be a mediator and say that the actual transaction took place. Cryptocurrency, or blockchain currency, does that automatically without the need for the bank. Certainly some of the solicitors and types of solicitors in the future will have a different type of job as their jobs will change drastically as we are trying to make the world more efficient. It’s not something that’s going to be available in the next two years and I can imagine that many banks are going to try and stop it and slow it down even more. It’s certainly a very disruptive technology and not something that we’ve got figured out yet.  Because it’s a very decentralised way of controlling it (nobody is really controlling it), it’s not something that we’ve done politically, financially and banking-wise for a very long time. The governments are very set on just having a very few people making decisions that are then filtered through societies whilst cryptocurrency is offering the complete opposite. It seems that society and the public are certainly standing behind it and investing in it so I certainly think that some parts of it will form our future, but there is no way of knowing how that is going to be joined to our current money system. It is not like our current system is going to fall one day as there is too much set up already but we might end up with a hybrid system of various banking systems that work together. Certainly for big international payments and soliciting large money transactions, perhaps purchases of property, businesses, land etc, I do think that in 5-10 years’ time that this malarkey  of 6-8 weeks of contracts, checks and unnecessary spending that we are doing right now won’t be happening.

Lynn
That has to be good – that’s progress. What other things can listeners today do to improve their future?

Kat
Okay, for me, to improve your financial future there is a few things that you should certainly do. The first thing to do is to really look into every single aspect of your finances. So, I know that the idea of budgeting doesn’t sound sexy or appealing or cool but actually this is the very basics of what we should be doing because all, or most of us, have the type of spends that we do but are not really aware of. So, really look at your finances – where is your pension? Who is controlling it? Where is it held? Where are your savings? Start to get a big overview of all your finances. What would happen if you couldn’t work? What would happen if your partner, husband, wife was looking after your money as a family and something happened and they weren’t there? Certainly it’s a tragic situation but it can happen; relationships can breakdown and usually there is one person who ‘does the money thing’. But then the other person is left in a situation when they really don’t know where they stand and are left with some potentially problematic situations. The very first thing is to really look at where your money is and what are you doing towards your future.

Certainly pensions are again something that doesn’t seem sexy, attractive and exciting but it’s not supposed to be. It is something that certainly you do need to have. If you are an entrepreneur for example, and you want to retire early. It has been historically the case that the retirement age keeps creeping up. Call me pessimistic but by the time I am due to retire, the government will expect me to work until I’m dead! So if you are expecting to retire early, certainly pension is not the only thing you need to be investing in. You need to have the type of investment that will allow you to take the money out before your retirement age – things like stocks and shares, ISAs, property. There are other ways of being able to keep your investments in a tax efficient way and to actually be able to draw them out when you want them rather than when the government tells you that you can finally enjoy your life without work. 

Thinking about your future plans is important. Whether you’ve got kids, the power of compounding effect cannot be under-estimated, especially over a long period of time. If you’ve just had kids, even saving and investing £50 a month will mean that your child by the time they are 25 or 30, they are going to have a massive start in life. Normally you wouldn’t be able to give them that start in life, so it is small things like that you should be looking at. 

Imagine what you want your life to be in 10-20 years’ time. It’s not something we do naturally as we tend to think about today and instant gratification that our current society is very keen on. It’s very fashionable these days.

Looking at the future and what you want from your family, your retirement and for your kids is really important. Start to work back – what do you need to have in place now to start? I would encourage everyone to just start looking into these. The world of investing is not as complicated as we are perhaps made to believe. It is certainly within everyone’s reach to be able to invest and manage their own money that then translates into massive savings over a long period of time. Certainly with the state pension, when it was designed it was not designed with the current advances in medical system we have. As humans we were not supposed to live as long as we are and that is not going to stop so I would really encourage people that if you do want to be able to have the heating on in winter when you get old, then you really can’t be relying on the state pension. They are not built for what they are designed to do. As a family unit, we all need to be responsible for our own life in the future. Like I say, investing, even though it sounds difficult and complicated, it really isn’t and you don’t need to know it all to be able to make it work. As a runner for example, you don’t need to know which tendon attaches to which bone to run – you can run with quite basic information and you can run pretty well with basic information. That’s certainly valid for investing. You can achieve a lot with not a huge amount of time. Investing is not something that someone who doesn’t have an interest in the subject needs to be spending an hour a day on. Absolutely not. Once you get your head around it – which can take a reasonable amount of time, say 10-20 hours to actually learn about it – all it takes after that is about an hour, two hours a year to maintain it. If you don’t have the interest, you really don’t need to make it into your next hobby.

Lynn
And if listeners want to find out more about InvestedMe, where should they go?

Kat
So, you can find me on Facebook or Instagram and you can always find me on my website at www.investedme.com. Reach out, send me an email and I will always reply to any questions.

Lynn
Thank you Kat. You’re so passionate about what you do and it really comes across so thank you. It was a real pleasure to meet you again. That’s all we’ve got time for today on the female entrepreneur show on KWIB radio. Please join me the next time.

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