Gearing up for a big spend over the retail extravaganza that’s Black Friday/Cyber Monday later this month? You’re not alone.
Last year, a survey by global management consultancy Oliver Wyman found that shoppers in the UK spend more over this period than anywhere else in the world (£327) — yes, even more than in the US from where the ‘tradition’ originated (£302).
And while the uncertain political and economic outlook may convince some to reign in their buying this year, there’s plenty more of us who will use it as an excuse to cheer ourselves up and/or get the Christmas shopping done and dusted, especially when faced with a barrage of cheap deals on electricals, clothes, homewares and, well, pretty much everything.
Now, don’t get me wrong. Black Friday can be a great way of bagging a deal, especially if you’ve been eyeing up items for a while and can afford to pay for them without accumulating debt.Â
Today however, I’m going to show you how avoiding the annual sales binge (which begins on 29 November) and investing this money instead could turbocharge your wealth over the long term.Â
Why you should empty your basket
Let’s keep things simple to begin with and say you choose invest that £327 mentioned earlier in a cheap fund that tracks stocks from all around the world.
Let’s also assume the average annual return on stocks is 7% (inclusive of any dividends), that this money will stay invested for the next 20 years, and you make no further contributions over this time.
According to my calculations, this would give you £1,265 by 2039. Whether that’s worth exchanging the pleasure you’ll get from what you’ll buy on Black Friday is up to you. But look at what happens when you increase the length of time you invest for. Stashing away the same amount for 30 rather than 20 years gives you just under £2,500.
Still not impressed? OK, what if you invested the same £327 every year for the next 30 years (split into 12 monthly contributions of £27.25)? At the same rate of return, this would leave you with almost £31,000.
Now, let’s make things extra interesting. Let’s suppose you had a high risk tolerance and chose to invest your cash in a similar passive fund that tracks smaller stocks (which research shows have a tendency to collectively generate bigger returns than market giants). Although nothing is guaranteed when it comes to investing, what if you now achieve an average return of 10% per annum? After 30 years, you’d have just under £54,000!
Remember, all this money has been accumulated just by choosing not to spend the average amount on Black Friday/Cyber Monday. Think about how much more you could accrue if you were able to add to your monthly savings.
As a guide, doubling that £27.25 to £54.50 and investing every month for 30 years at a 10% annual return will bring you close to £108,000. So long as you house your investments inside a Stocks and Shares ISA or Self Invested Personal Pension (SIPP), you’ll also retain most of this amount since you won’t pay a penny in capital gains or income tax (although bear in mind that tax rules can change!).Â
Black Friday can be a great way of getting things for less but the opportunity costs of splurging your cash are jaw-dropping. Keep this in mind before proceeding to the checkout.