If you are new to Kaldi since our last newsletter then welcome to the Kaldi tribe!

Kaldi is backed by MasterCard and the British Business Bank, and we are determined to help ordinary people discover investing in a safe and accessible way. If you are already signed up then we promised you interesting information about the world of investing which wouldn’t make you feel stupid or nervous about investing. So here goes!

At Kaldi we have a vision for a much better way to do things. We want to allow you to invest effortlessly into world stock markets without even thinking about it, as part of your everyday shopping habits, and at the lowest cost we can manage. This is because small sums really add up if you invest over a long time period.

Just £20 of cashback invested every month into a global index fund over your whole adult life (18 to 67) would be enough to give you a pension lump sum of £200,000 at retirement. That’s basically just investing free money from everyday discounts, without you adding a penny of your own, which is more than triple the average UK pension pot. That’s because over the last 50 years the best performing global index funds have seen growth averaging 9-10% per year. Compare that for a moment to what banks are prepared to give you.

Pensions might seem too far away right now, but if you are 18 or older you will be able to invest for a house deposit through Kaldi and by your mid-20’s you should be one of the lucky ones putting down a deposit on your first house, no longer queuing up to rent something expensive and not very nice. We want to help you to feel in control of your life and a little bit of planning can significantly reduce stress levels.

Too many UK consumers (apart from the rich ones with financial advisers) are trying to save by putting money away in the bank, or in a cash ISA.

Savings accounts are great if you need access to rainy day money quickly, or if you are saving for a nice holiday or a new car. They are not a good way to save for things in the longer term, like house deposits and pensions.

That’s because the interest rate on savings hasn’t been as good as the return on the stock market in most years. That just means the long-term average amount that the stock market has gone up over the years and normally that calculation assumes that you have re-invested your dividends each year. The reason why banks can get away with paying you less interest is because your bank balance doesn’t go up and down like share prices. In the short term that wiggling about that the stock market does (which the pros like to call volatility) is a problem. If you are saving for a car and you’ve managed to save £5,000 you don’t want to wake up one morning and find it's only worth £4,000 on the day you’re going to the used car auction!

Once you start saving for longer term things like house deposits, that volatility doesn’t matter so much and what does matter is that average return you are getting on your money, because the stock market tends to have a lot more good years than bad years.

For example, imagine that you can get 5% from a savings account but 10% in a global stock market index fund. If you are worried about the short-term you’ll take the savings account. If you want to grow your savings then you’ll take the stock market index fund.

This is because of compounding.

In year one you make 5% with a savings account but 10% in the stock market. If you invested 100 quid then one account is worth £105 and the other £110 at the end of the first year. Imagine what happens in year 2. The 105 quid gets an extra 5% added but the £110 gets another 10% added. By the end of year 2 the accounts look like this; £110 versus £121. Imagine that difference building over decades!

It’s easy to visualize it actually. If you planted a 6-foot baby tree in your garden on your 18th birthday and it grew like a stock market index fund for your whole life, when you retired that tree would be 640 feet high – that’s 1.5x the height of the London Eye!

🔥 HOT TIP: There’s another easy way to do it which is to divide 72 by the growth rate.

For some reason it works and it’s a quick and very useful hack to tell you how long it will take for your money to double. So, if you’re getting 5% in the Building Society your money will double every 14 years, but it will double in only 7 years at 10%.

Now you can see why we love stock market index funds at Kaldi!

Next month we’ll cover how you’ll be able to use Kaldi to earn decent cashback, and how you will be able to invest that cashback into the stock market. We’ll show you how to make a couple of hundred pounds a year without too much effort, but we’ll also show you how you could make much more if you were really determined to shop for the best deals.

Support us as we shake up the world of finance, which hides poor service and high fees behind complicated jargon which is designed to make perfectly sensible people feel stupid and inadequate. You’ll find none of this stuff with us.

Till next time,

Mark