A Simple Guide on How to Invest
The Rise And Fall
Taking the first step
I’m writing this article for people with little to no understanding of investing. This is going to be a straight-to-the-point, no-fat-on-the-bone, idiot's guide. I’ve read a lot of investing for beginner's books and even these can be a little difficult to understand after the first 20 pages.
Investing in stocks and shares really isn’t as difficult as most people think it is. It’s actually as easy as ordering your food shopping online. It’s just that the topic of money seems to make people go dead-eyed and switch off. Money and your future are some of the most important topics in life and most people seem to sweep them under the carpet for another day. You really should take control of your money and your future.
To start with I’ll state that I am not a finance or investing expert by any stretch of the imagination. This isn’t investment advice. I’d say seek advice from an independent financial advisor but they don't always have your best interests at heart. Just their own pockets. The one thing I will tell you is to start by investing in yourself and the best way to do that is read. I’ll be recommending a few good reads that changed my perception and set me on a path to financial freedom at the end of this article. No sales pitch or agenda. Just genuine advice.
So to start...
I'll be straight to the point with this one. Think about your life as it is right now. Good or bad. Now how does the thought of your life being exactly the same this time next year make you feel? Or the same in 2 years or 5 years? The exact same job on the exact same wage moving towards the exact same retirement age at 70. We all think we’ll be better off year after year but without making any changes in our life, you could be doing the exact same thing day in day out for the next 35 years. So to avoid this you’ll need an end goal and a path to that end goal.
What your end goal will is, will be entirely personal. It could be for retirement, a house or to create income from collecting share dividends.
So tell yourself you'll make a small step today. One small manageable step each day and in a year you'll be on a better, more fruitful path in life. I promise you.
Before l move onto the next bit l just want to say this about saving vs investing. Rich people don’t save money. They invest Money. They grow their money. If you save £10,000 then it'll always be £10,000. With the rate of inflation, that £10,000 will get you a lot less in 10 years' time than it will today. Rich people take £10,000 and turn it into more, They turn it into £15,000 or they turn it into something that generates cash flow. Something that makes them money in return. And this is what I want you to do.
Where do I start?
To start, you’ll need to find a broker. A broker is basically a service where you can purchase shares. There are a lot of brokers out there. For the purposes of this article, I'm going to talk about the website & app called trading212.com. This isn’t a recommendation. Far from it. I just find this the most user friendly and it has no commissions or fees to use. And more importantly, Trading 212 is regulated by the FCA and protected by the FSCS up to £85,000. But again, I always encourage people to do their own research. I’ve used this app for a while and I’ve been perfectly happy with it.
So get yourself over to the website and sign up. That can be your one small step for the day. You don’t have to put any money into your account. Just sign up.
In order to sign up for a broker service, you do need to input your national insurance number. Your account is usually verified in less than a day. Once in you’ll be given an option of CFD or investing. For the purpose of this article, we’ll just ignore CFD. You really don’t need to know what it is.
It’s worth noting that this site/app has a "demo mode” which gives you $50,000 practice money so you can learn the ropes. Try it. It's fun and you’ll learn something.
Who do I invest in?
This is probably the biggest question. You’ll have many schools of thought and opinions on this. I’ll tell you what my strategy is and my logic behind it. Then you decide if it makes sense to you.
So the first rule to investing is to take all emotion out of it. Don’t choose a company to invest in just because you like the products. Just because you like the product doesn’t mean the company will perform well enough for the share price to rise. What most books and investment advisors tell people to do is research companies (due diligence). Look at the health of the balance sheets, look at the forecasted profits ect. And for the most part, this is good advice. But for most people who don’t understand what those numbers mean, this will just either put you off or set you up to fail.
So my strategy for investing is to buy shares in an ”ETF". What is an ETF you say?. One example would be the ”Vanguard S&P 500 ETF”. Buying shares in this basically spreads your money across the 500 largest US companies. With this, you're getting shares in companies like Google, Apple, Facebook, and Microsoft. So what’s the benefit of an ETF over buying individual shares in your favorite companies? Well for a start, nobody on earth, not even Warren Buffet can predict the rise and falls of the stock market. So even with the greatest due diligence in the world, you always take risks in selecting individual shares. I’m not saying don’t do it. I even buy individual shares myself. It’s served me well. But I know there's always risk. So the reason an ETF like the one mentioned above is safer is because you’re spreading your money across hundreds of companies. So then if a few fail or fall then it won't make too much of a difference. The high performing ones like Microsoft, Google, and Apple counter those losses and continue to make your ETF a steady investment. A comforting statistic is that the US stock market has grown by on average, 9% a year since the 1930s. So it’s reasonable to expect somewhere in the region on a 9% growth on your ETF on average (give or take). That’s certainly better than the 1.5% you’d get in an ISA.
So what next?
My advice is to just take the small step. Go on the website (trading212.com) or any other broker you want. I’m not selling anything here). And just open an account. It’s free and by doing this you're already one step ahead of where you were a week ago and one step ahead of 90% of the rest of the population.
Then when you’re ready, just invest a small amount into a share or ETF. You don’t even have to buy a full share. Trading 212 lets you buy part shares. So If you only have £10 then you can invest just that £10. You can even set up a weekly or monthly direct debit to buy shares automatically in your chosen company or ETF. And It is all as simple as that.
Things to look out for
There are some of the things you need to look out for that people often fall victim of.
First off, don’t invest money you can't afford to lose or money that you might need in the next 12 months. If you sell shares 6 months after you buy them it’s unlikely you’ll make any money. You might even lose a bit. Even though share prices trend upwards over time they do go up and down on a daily basis. You might sell on a day it drops and lose money.
You really do need to be in this for the long haul. The longer the better. When Warren Buffett (the most successful investor of all time) was asked when the best time to sell shares are his answer was ”never”. The longer you keep them. The more they'll grow in value and the more compounding interest you’ll benefit from.
Don’t keep checking the share prices. When most people start out they check the share prices multiple times a day. This will only stress you out and make you lose your nerve. Keep adding small manageable amounts to your account and get on with your life. Check maybe once a month or once every 2 months. Your investments will go up in time. Just treat them like seeds. Plant them and just let them grow.
Don’t let dips in the market scare you. If you look at the chart of the US stock market going all the way back to the 1930’s it’s only ever gone up. You’ll see dips in the market after the great depression, Black Friday, The dot com bubble, 9/11, and the financial crash in 2008. But what happened in the years and months after these events? The market recovered and continued to go up. As it always has done. You just have to hold your nerve and keep investing. You'd be surprised at how many people panic when they see the market drop and start selling their shares. If anything, these times are a good opportunity to buy more shares at a discount price and wait for them to go back up in value again.
One last word
So a lot of people who are educated on investing will probably point out that I’ve missed a lot of key information out. Things like compounding interest and cost dollar averaging. I’ll be writing about these in a few days so look out for these.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.