Transcription
So, you finally got some money saved, maybe even your first 20,000. And you know, you should probably be investing it. But if you're new to this, it can feel very confusing and really overwhelming. So, this video is the complete beginner's guide to investing your first 20,000. And I'm going to split it up into five parts, so feel free to skip around if you want.
Part one is why you should actually be investing. I'll keep this brief. Part two is how your money actually grows when you invest. Part three is the two things to do before you invest. Part four is what I'd actually buy as a beginner, comparing different investment options, and also what I wouldn't buy. And then part five is all about strategy. And I'm going to go over some of the most common things I see that trip people up.
If you are new here, hi, I'm Nisha. I'm a charted accountant, which basically means my advice is regulated by an official board. So everything I say regarding money has to be high quality and accurate. And another thing, if investing is your main priority this year, I'm releasing my completely free investing workshop this Sunday, teaching you everything from how to invest to what to invest in in even more detail than I'm going to go through in the next 15 minutes. It is completely free. You can sign up at nisha.me/invest or click the link in the description to sign up before the doors close.
So, let's dive in. Starting with the basics, why invest at all? The main reason is you don't want to be the only one working and making money. You also want your money working for you so that your money makes you more money. Think about it like this. Say you've got that first 20,000 right now. You've really only got three options. You could spend it. You can hide it somewhere in your home. Or you can leave it sitting in a bank account. The problem with those last two is something called inflation, which is making your money worth less every single year. Think about your regular coffee order. A few years ago, it might have cost you 2.50. Today, the same coffee, maybe closer to four. Same drink, probably same cup. The only thing that changed is your money buys less of it. Now stretch that across everything. Your food shop, your rent, your bills. Goods that cost 10,000 in 2015 would cost, according to your inflation calculator, cost you over 14,000 today. So money that just sits there still is actually going backwards. Investing on the other hand fixes both problems at once. It grows your money and it protects what you already have from inflation. So that's the why.
Now the interesting bit. How? How does your money actually grow? There are two ways your money grows when you invest and I want you to properly understand both. The first is ownership. When you invest in something like an Apple stock, you own a tiny slice of Apple, the actual company. So if Apple does well, they open more stores, they sell more iPhones, they make more money each year. Then Apple, the company, becomes worth more. So which means your slice becomes worth more too. Your money grew because the business you part own became more valuable over time.
The second way is what's often called the eighth wonder of the world, compound interest. Compound interest is simply the returns you earn on top of your returns. So, you're not just making money on the original amount you put in. You're also making money on the interest that you've made on the original amount that you've put in. Okay, this sounds really confusing. So, let me just show you what I mean with numbers. Let's say you invest 1,000 a month and earn an average rate of return of 8% a year. Your first 100,000, which let's say is your first milestone, takes about 7 years to get to. Now, that's a decent chunk of time. But when you really see the power of compounding is when you get to the second milestone and beyond because the next 100,000, the time period to get there is dramatically shorter. That's because now you're earning that 8% on a much bigger pile. You're earning that 8% on your first 100,000 and on all the interest that that first 100,000 has accumulated. So now it only takes 4 years to reach that second 100,000 milestone, which is about half the time that it took to get to your first milestone. And then the third 100,000 milestone, that takes around 3 years. And then each milestone comes faster than the one before. And the time it takes you to reach 100,000 milestone after that is shorter and shorter because of compound interest. And by the time you're approaching one or million, you could add an extra 100,000 roughly in one year. That is why it's called the eighth wonder of the world. The snowball doesn't roll at a steady speed at first, but it accelerates later on. Which is also why your first 20,000 matters so much more than what people realize. It's not really the 20,000. It's a seed of every milestone after it. This is also the reason why people who start early, even with small amounts, end up miles ahead of people who wait. Because with compounding, time matters more than timing.
So now before we get to what to actually buy, there are two things I'd want you to get sorted first because these are the difference between investing with confidence and investing with fear. And that difference will matter a lot later in this video. So first, expensive debt. If you're carrying anything with a high interest rate, a credit card at 20% for example, clearing that comes before investing. Paying off a 20% debt is in effect a guaranteed 20% return on your money. And no stock market on earth will promise you that. Otherwise, investing while paying that kind of interest, it's like filling a bucket that has holes in the bottom. Fix the holes first.
Second, you want your emergency fund. I usually stress 3 months of your living expenses saved up if you only have yourself to think about, around 6 months if you have a partner or dependence, or if you want to be extra cautious like me, go for 9 months. Keep it somewhere easy to access where you're earning high interest. You'll see exactly why this matters when we get to part five.
Then once those things are sorted, one more thing before you open any old investment account, which is if your workplace offers a pension or retirement scheme where your employer matches your contributions, look into it, take it, take all of it. That is free money. You will never be that kind of guaranteed return that really gives you a head start on your investing. And then after that, use a tax-free investment account if your country offers you one because your money grows so much quicker when you don't have tax to pay.
So, foundation's done. Part four, what should you actually invest in? Now, let's move into what should you start investing in with your first 20,000. And this is one of the most common questions I get. Should I invest in the stock market or should I invest in property? So, I want to very briefly cover the pros and cons of both cuz I have done both. Let's start with yes, property can absolutely be a great investment, but one of the reasons I talk about stock market more is because the barrier to entry is so much lower than it is with property. Many modern investment platforms let you invest with less money than you'd spend on a loaf of bread. Whereas saving for a deposit on a house can take years, and it can be hard enough to buy a house to live in for yourself, let alone then buy a buy-to-let property to then rent out to tenants. On top of that, property investing also tends to come with so many other costs like maintenance costs, taxes, the responsibilities of being a landlord. So whilst I'm not discouraging anyone from going down that route if you have the time and the money to do so, it can be a great option if that is actually what you want to do. But I do want to say that you'll actually find stocks and funds are far much easier to get to, much more passive, and a lot more predictable. I actually speak on the diary of a CEO episode where I talk about how I've invested in both stocks and property. And one of the properties I invested in has actually generated me way less returns than if I just invested in the stock market at the same time. So feel free to watch that after this video.
So, all you need to do is open a tax advantage investment account, automate your investments, and get on with your life. But when it comes to actually what to invest in, let's go into that because for many people who are just getting started in investing, their first thought is to look at the stocks that performed best in the past few years and invest in those. But that would be a big mistake. The past doesn't always represent what will happen in the future. And I'm going to prove it to you. Nokia was a leading phone brand back in 2010. They owned about 37% of the phone market share. But by 2020, in just 10 years, their market share dropped to less than 1% and their stock price fell by almost 70%. Anyone who bought Nokia, because it had dominated the past, would have watched that logic completely fall apart in real time. And if we go back in time by about 40 years to the 1980s, the biggest companies in the world looked very different from now. Back then it was mostly big companies. General Motors are the main oil and gas companies. Even if you go back just 20 years to the early 2000s. The biggest companies again looked very different from today. There was Exxon, Walmart, Cisco, etc. But nowadays, some of the biggest companies are Nvidia, Tesla, Google. In fact, the only company still on that list today compared to the early 2000s is Microsoft. The point is, investing based on what stocks performed well in the past really is not the smartest strategy because just because a company did well in the past doesn't mean it's going to do well in the future. And as a beginner, you're really better off not investing in individual companies or individual stocks because it concentrates your risk and your entire outcome now depends on one business. It's the oldest warning in the book. all your eggs, one basket, one stumble, and everything cracks at once.
So, what should you invest in instead? The quickest and low-effort way for a beginner to start investing is to look into index funds. They're a great option, especially if you want to achieve financial freedom and build wealth without requiring you to put in a lot of effort or getting exceptionally lucky and also without knowing about the markets much either. It is like the easiest way to make a lot of money. So investing in an index fund allows you to pretty much just set it and forget it. So if I were investing my first 20,000 today, this is exactly what I put it in. And a large part of my investment portfolio today is still this. Just to make this real, this on the screen is what one looks like. I'm not telling you to buy this fund, but this single fund holds thousands of companies across roughly 50 countries. One purchase, that is the whole idea of diversification and investing in an index fund.
Now, in terms of what fund to actually put your money in and what you should look for and how to analyze fees and how much you need to invest to stop working, there's so much more to go into. So, if you want to take this even further, I'm releasing a completely free workshop this Sunday. I held this workshop in November. I held it again in January. We've had over 75,000 people registered. And we asked people to fill in a survey afterwards where 96% of people said they felt so much more confident about what to invest in and how to invest and actually took action after this workshop. So, I'm now releasing the workshop. You can sign up at nisha.me/invest. I'll walk you through how to invest, how to choose what to invest, how to accelerate your investment returns over time, the single biggest mistake new investors make and how to avoid it, and how to calculate what you need to eventually never work again. Again, it is 100% free. You can sign up at nisha.me/invest anytime before the doors close. That's nisha.me/invest or click the link in the description.
Now, I want to cover some of the main things that I see trips people up time and time again. and I want to cover it because the biggest risk in investing isn't actually the market, it's your own behavior. And so, here are some of the things to look out for and make sure you are not doing.
Mistake number one, procrastinating. I can't tell you how many people message me to say that they've got money sitting in savings and they're scared to invest it. They say things like, "I don't really know what I'm doing yet." Or, "I'll start once I've learned a little bit more about investing." Or, "I just want someone to confirm that what I'm doing is okay." And I get it because I was also at one point in the same place. You don't want to make a mistake with your hard-earned money. But while you are waiting to feel ready, time is moving on and you are missing out on years of potential growth. And my point here isn't to tell you to fling your money at any old investment. But what I am trying to say is you don't need to find the perfect investment from day one. You just need to start small and stay consistent and learn as you're going. And you could end up with a life-changing amount over time. Because in investing, time in the market matters far far more than timing the market. And if you look at the long-term performance of something like the S&P 500, for example, investors who have invested for a 20-year period almost never lost money. Even considering all of the setbacks along the way, the Great Depression, the tech bubble, the financial crisis, investors would have experienced gains had they made an investment in the S&P 500 and held it uninterrupted for 20 years. Now, obviously, this is assuming you will wait 20 years, but depending on your age, your risk profile, your tolerance, you'd want to pick and choose the types of funds you invest in. It wouldn't necessarily be just the S&P 500.
The second mistake a lot of people tend to make is that they follow trends. And I've seen people make this mistake again and again. It's almost a right of passage for new investors, and that is when you start learning about investing, you can very easily get swept up in the excitement and the thrill of it all. Who doesn't love the thought of making money while they sleep? But investing isn't supposed to be exciting. It should actually be pretty boring and pretty repetitive. But it's only natural for new ambitious investors to get carried away here because suddenly everywhere you turn, people are pushing the next hot stock on you or the next cryptocoin or the unmissable opportunity and the next thing you know, you're digging out your bank card and investing in a company that you've probably only heard of yesterday. That is not your fault. This happens to almost everyone at the start. You learn a little bit about investing. You understand the basics and suddenly you feel like this investing expert. This early confidence, it is dangerous because you think you know enough to spot opportunities when in reality you've only just scratched the surface. And psychologists call this the Dunning Krueger effect. Basically, you don't yet know enough to realize how little you know. That's why so many new investors jump into whatever's trending, convinced that they found the next big thing, only to watch the value drop as soon as they buy it. So, if you do want to buy individual stocks, sure, go for it. Do it. But do it with a tiny portion of your portfolio. Think of it as your fun money for investing. Enough to learn from, maybe make a bit more money from, but not enough to lose sleep over.
And then we have mistake number three, materializing your losses. This is one of the most expensive investing habits you can fall victim to. When markets fall, your instinct is often to pull that money out. But that just locks in your loss. The best investors do the opposite. They stay calm or they even invest more during downturn. And the thing that gives you confidence not to sell but to invest instead is being confident about what investing is step by step. And again, that's what I go through step by step in the free workshop linked below. Nisha.me/invest. is so much more detail than what we go through right now.
Ultimately, getting good at investing, getting confident at investing doesn't happen overnight. But once you've got that first 20,000 in investments, you will be amazed at how easy the rest is to do. Thank you for watching. Don't forget to subscribe if you haven't already.