Where to start as an investor?
“Investing, That’s complicated isn’t it?”
I think that is the most common perception of investing to the average Joe who hasn’t started their investing journey.
But does investing really have to be that difficult? Many make it complicated but actually, the simpler you approach it, the higher the likelihood of your success will be.
I would argue that if you feel confident enough to open a bank account and manage your money then you are competent enough to manage your own investments also.
In this blog post, I want to go over some basics so that you know where to start. This can act as a sign post for those people trying to get to grips with their investing literacy.
Why do you want to start?
So firstly, you need to ask yourself the question why do I want to start investing?
This is important because it may determine your risk profile. For example, if you want to invest to build up a pot for buying your first home and you expect that you will need the money within the next year or two, then you may want to consider taking less risk. From my experience, if you are investing in stocks, you have to be willing to keep your money invested (and not required for other purposes) for 5 to 10 years. Investing for this period of time will reduce the risk of a crash in the stock market significantly impacting your returns.
Investing is not a get rich quick scheme. It takes patience and will power. You need to be someone who is willing to sacrifice today for the benefit of tomorrow.
How much money do you want to invest?
This is a very personal question. It has a lot to do with the goals you have in mind for investing and when you want to achieve these by. At the beginning, when compounding has not yet had time to do its magic, the amount you save (and invest) will be the most important factor. You should have a play around with a compound interest calculator to understand what might be achievable (start with an assumption of 7% return on your investments for example).
I personally try to save and invest as much as I can each month. However, I realise you need to live your life a little too. Do what feels comfortable for you. At the start of your journey, you may want to start with small amounts until you gain confidence.
What should I invest in?
There can really be no argument that index funds are likely the best investing approach for most people (if not everyone). Index funds have been proven to work and have been the reason for the success of a significant number of people building enough wealth to retire. You should take a look at my recent blog post don’t be an ignorant investor to understand why index funds provide the highest probability of repeatable positive returns over the long-term.
"Don't look for the needle in the haystack. Just buy the haystack!" - John Bogle
You can thank John (or Jack) Bogle for the invention of the index fund. He was a pioneer for low-cost investing. My favourite index fund investment is the FTSE Global All Cap Index Fund - Accumulation.
Which platform should I use?
The inventor of the index fund thankfully was also the founder of an investment platform. The platform is called Vanguard. Vanguard is owned by its investors and continues John Bogles’ philosophy of steady investing and keeping things simple. I personally use Vanguard and I feel safe investing my money with them.
Other than Vanguard, there are many other platforms available for investors in the UK. From my perspective, it is important to keep your fees as low as possible. Platforms like Trading 212 actually offer “no fee” investing. If you want to sign up for them, why not use my affiliate link here.
Should I use a financial advisor?
I think the answer is no. There is plenty information online that you can read about investing to try and familiarise yourself with the basics. Then by selecting index fund investing as your strategy of choice, it couldn’t be any simpler. Just buy and hold. I don’t see the need to pay a financial advisor a percentage fee each year to do very little. At the end of the day, no one is going to care more about your money than you.
When do I sell?
Preferably never. Yes you heard that right. OK, so maybe not exactly never (as you may need to live off your investments at some point) but during your accumulation phase, there are very little reasons to sell your investments. The longer you hold them, the more time they have to compound and accumulate.
An example of compound interest is Warren Buffett - see net worth at each age below:
30: $1million
39: $25million
52: $376million
59: $3.8billion
72: $36billion
83: $58.5billion
If you sell and come out of the market, it is likely that you will have to buy in higher. This is because in general terms, the stock market drifts upwards over time.
How do you calculate how much you need to live from investments?
You should check out the following blog posts to find out more about that:
