- Three ways to save money at Christmas without losing the joy
- How to apply the same strategy to investing via tracker funds
- Importance of looking at fund charges and the impact on long-term returns
“Christmas doesn’t have to be expensive and we’ve spotted three ways to save money and invest in your future,” says Dan Coatsworth, investment analyst at AJ Bell.
Cut-price Christmas idea #1 – save on the annual cost of a real tree
“Buying a Christmas tree on the first weekend of December is a ritual for households around the world, yet one month later it’s sitting on the rubbish heap waiting to be chopped up. There is a perfect solution – buy an artificial tree which can be used again and again.
“An artificial tree could easily cost £50, the same as a real tree, yet this is an investment that could save you big money in years to come. Looked after properly, an artificial tree could last for 10 years and save you £450 compared with paying £50 every year for a decade on a real tree. That saving could be even greater if you factor in inflation and assume the cost of a real tree increases every year.
“Going for the fake option might be a controversial choice in some households, yet once decorated with tinsel, lights and ornaments, an artificial tree still gives off the same warm and fuzzy Christmas feeling as a real tree.
“The money you’ve saved could be put into an ISA or pension to grow in years to come.”
Cut-price Christmas idea #2 – an alternative to crackers
“It’s not uncommon to pay £20 for a smart box of crackers to open on Christmas day. There is a cheaper way to get the same enjoyment, potentially saving you £16.50 which can be used to grow your ISA or pension. After all, saving little and often is a great way to boost your wealth over the long term.
“The best thing about a cracker is the popping sound when you pull the end off, and the jokes hidden inside. Both can be substituted with cheaper options.
“The cut-price Christmas strategy is to buy a bag of party poppers for £3.50 from the supermarket and print off a list of jokes for free from the internet. They will keep the fun going. The other bits of a cracker won’t be missed. The paper hats tend to rip after a few minutes’ wear and the gifts are typically uninspiring choices like nail clippers or a plastic comb. Most of these go straight in the bin at the end of the Christmas meal.
“Going down the alternative route instead of buying a box of crackers for £20 could save you £165 over 10 years.”
Cut-price Christmas: Idea #3 – shop for ‘pre-loved’ clothing
“Vintage clothes are all the rage and a reselling platform like Vinted or eBay could be a Christmas shopper’s best friend. Rather than going to the high street and spending £60 on a jumper, you could get a ‘pre-loved’ item for one tenth of that price. Teenagers, in particular, might love an old Adidas, Carhartt or Vans top that has a genuine faded look rather than something fresh off the shelf.
“Spending £40 on two vintage items could easily save you £80 versus buying two new ones – more money that could go into an ISA or pension.”
Applying the cut-price Christmas strategy to investing
“Anyone planning to use the cash they’ve saved from being festively frugal should pay close attention to charges imposed on investments. Tracker funds typically have lower charges than actively managed funds and the gap between the different types can be stark.
“For example, Amundi UK Equity All Cap ETF charges 0.04% a year while Purisima UK Total Return Fund charges 1.5%, with both providing exposure to the UK stock market. While these charges sound relatively small on their own, high charges can have a profound impact on returns over a longer period.
“Someone owning an active fund charging 1.5% a year would pay £920.65 in charges over 10 years, based on an initial £5,000 investment and achieving 5% investment growth a year. That’s £918 more than someone investing the same amount and achieving the same returns with a tracker fund charging 0.04%. The tracker fund investment would be worth £8,141.22 after 10 years versus £7,002.05 for the active fund. The difference is more than £1,100.
“Investors pay for active management in the hope of beating the market, but the Purisima fund has done the opposite. Over the past five years, the Amundi tracker fund has returned 33.9% after charges compared to 32% for the Purisima fund. That’s the equivalent of receiving a present for Christmas that’s full of promise until you open up the parcel and find a pair of socks.”
