Transcription
Investing is portrayed as this glamorous thing that only the rich and the wealthy can afford to do. We've all seen the movies with the people in expensive suits in Ivory Towers shouting and screaming at each other while these charts flicker around them, green and red.
When really, investing isn't as complicated as everyone makes it out to be. And actually, most of you listening to this are already likely investors. Who, me? Yes, you. If you have a workplace pension or have ever had one, you guys are investors. So you've already done the hard part already.
But for some reason, when it comes to our own money, as in money that lands in our own bank accounts, we freeze. When it comes to investing in ourselves, and this I can totally understand because in a workplace pension, it's usually done for us. When it comes to our own investments, there's endless information that's marketed at us from every single angle, topped off with these banks and financial institutions using language that sounds completely alien. And then, when we weren't taught this stuff in school. I mean, I can tell you who won the Battle of Hastings and what the square root of 49 is, but when it comes to investing and growing our money, we learn nothing. I know nothing.
So deep down, we know that investing is important, and we know it would be good for us. But we just get analysis paralysis about where to even start. So in today's video, that's exactly what I'm hoping to solve for you, giving you a step-by-step guide right from the start for beginners, so you can hopefully walk away from this feeling a little bit more confident. We're going to unpack the investing basics, funds and stocks, the right accounts to use, how much you should be investing, how small amounts can grow into massive fortunes, how to manage our investments over time, and even make our first investment together live on this video, so you can see how easy it really is.
Now, first up, why should you invest? Well, when it comes to investing, we're trying to grow our money more than the interest the banks will give us for saving with them. And historically, this has been a pretty good decision for many people. Why? Well, because we have something called inflation. And this is where goods and services increase in value over time. Essentially, the pint of milk you buy today is more expensive tomorrow. On average, inflation increases at around about 2.5% a year. And when our banks are paying around that in interest, yes, I know, right now it's a touch higher at around about 5%, our money is essentially either stagnating, decreasing in value, or growing by a very small percentage. For example, between 2009 and 2020, you'd be hard-pressed to get more than 2% anywhere from your savings, and inflation was averaging above this, meaning your money was actually losing value sitting in a savings account, even though you're seeing the balance increase. So to beat inflation, we really have one option, and that is to invest.
And secondly, the growth of our money. We want to see it grow. And investing in simple indexes like the S&P 500 or Global Index has provided around about 8 to 10% on average a year since their inception, meaning you're earning more than you are from your savings over the long term.
Next up, before we go anywhere, we need to know where we're heading. And so we need to understand our goals. Now, I like to identify both short-term and long-term goals. And I use short-term as 5 years or less, and long-term as 5 years or more. This keeps things super simple for me and just means that when I get paid, I can easily attribute a percentage of my money towards both short-term and long-term goals.
Now, the key point here is, do not invest the money that's going towards your short-term goals. Simply because 5 years or less, it's a lot harder to predict what's going to happen in the stock market. But in the long term, do I think the world's economy will increase? Yes, I do. So I'm happy to invest that money for 5 years or more.
Now, the stock market is volatile in the short term. And while nobody has a crystal ball, studies by Schroder's showed that if you invested in the US market over a one year, you had a 52% chance of making money. And over 10 years, this goes up to 98%. So short-term for the 5 years or less is things like saving for a house deposit, or a new car, or a holiday. We're not investing this money. And then long-term is things like your investment pots, your retirement pots, a second home fund, or whatever you guys decide. Some people like to set that number, and they go for that. Personally, I do, and mine is at 1.5 million.
Now, make sure you've got this dialed in because when the markets drop, and they will do multiple times over your investing journey, more on this later, having your north star, or your long-term goal, dialed in will absolutely help you when that happens.
Now, next up, I want to talk about the basics of assets. When we're talking about investing, what we're doing is really, really, we're buying assets. These are things that we hope to grow in value over time. Now, the most common ones that you're going to hear about are stocks, funds, bonds, property, and maybe even cryptocurrencies as well. But let's keep it simple for most beginners. We're going to just focus on two things, and those are stocks and funds.
So stocks, when you buy a stock, you're purchasing a small ownership stake in a company. If that company does well, the value of your stake increases, and you can sell it for more than what you paid for it. Essentially, you're saying, "I believe in this business and its future." For example, if you think Apple or Microsoft are onto something, you could own a small part of their success. But obviously, if that company struggles, your investments can lose value as well.
Now, funds are like boxes of chocolates. So I like to see them as lots of companies all wrapped into one. So we're not putting our money into one company. And a fund spreads it across many. It's a collection of investments bundled together. So even if one underperforms, others might make up for it. Now, funds give you that built-in diversification, and that's where they're a fantastic starting point. However, they still have risks because if a country or a global economy has a downturn, all the businesses inside it could go down. But they're much more robust than individual companies.
Next up, I think let's talk about something which I think everyone needs to know about, and that is risk. Now, when you invest, yes, there is risk. And this is where most people start to panic. Risk can feel like this big, scary thing, but it's actually very manageable if you understand it. There is short-term risk, which is when the markets are up and down and left and right, and those dramatic dips and spikes, they can look quite terrifying and quite feel quite terrifying when you look at the monograph as well. And then for me, there is also long-term risk, which is the danger for me of not investing at all and letting inflation eat away at your savings.
The key takeaway here is that the longer you stay invested, the less risky it becomes. Over 20 years, your risk goes down to 0.01% chances of losing money, so 99.9% chance of making money. This study was done around the S&P 500 as well, so it's not just some random individual stock. So it's essentially tracking the US stock market. Now, why is that? Well, that's because over time, markets tend to trend upwards, despite the short-term volatility that you might see. So don't let those short-term swings scare you off. The real risk is missing out on long-term growth.
When it comes to investing, I like to think in decades rather than days or months or even years in some cases. And adopting this mindset means you start to feel less attached to short-term volatility that you and every other investor on the planet experiences.
So how do we get started? Well, I think next, let's focus on index funds and ETFs. Now, these are the simplest and most effective tools to build your long-term wealth. An index fund simply tracks the performance of a specific group of companies. For example, the FTSE 100 tracks the biggest 100 companies in the UK. This is names like HSBC, BP, and Unilever. And the S&P 500, that tracks the 500 largest companies in the USA, so giants like Apple and Google and Microsoft and Tesla. By investing in an index fund, you're betting on the overall growth of an economy rather than trying to pick individual winners. You might have also heard of the Vanguard FTSE Global All Cap or All World. They're often named different things, and yes, they sound very complicated. But really, what these guys do is a global economy approach, investing into quite literally thousands of companies from all over the world. And this actually forms the backbone of my own portfolio, as I'm then buying the entire world, the entire market.
ETFs, or Exchange Traded Funds, work similarly but trade on the stock market just like a regular stock would do. They give you the same diversification as index funds but with more flexibility because you can buy and sell them throughout the day. With ETFs, they're a bit more flexible, and these can be similar to indexes, or they can be themed. So they can focus on sectors, for example, like green energy or electric cars, or AI, or tech, for example. So if you really think a sector is going to pop off, then there's likely an ETF that is already covering it.
Now, the beauty of index funds and ETFs is how simple and cost-effective they are. You're not paying expensive fund managers to pick stocks for you, or expensive financial advisors to try to manage these things for you. It keeps your fees low. Plus, you get instant diversification, so your money is spread across hundreds or even thousands of companies, which is reducing your overall risk.
Now, I know what you're thinking, "What about individual stocks? That's where all the fun is, right?" And yes, picking individual stocks can be exciting, but it is also riskier. When you buy an individual stock, you're putting all of your faith in that one company. And if it thrives, great, you could see massive returns. But if it stumbles, you're in trouble. For example, you might love Tesla and believe in the future of electric vehicles, but if something unexpected happens, like a brand new competitor or a leadership issue, for example, Elon does something crazy, then your investment could take a hit.
So here's my advice: treat individual stocks as like a little bit of fund money. For example, keep it to a small portion of your entire portfolio, maybe 5 to 20%, whatever you're comfortable with. But just make sure you really understand the companies that you're investing in. Are they profitable? Do they have a solid future? Now, Warren Buffett said, "If you can't tell me what the business is doing in 10 words or less and where it's going, you really shouldn't be investing in it." So definitely do your research into individual stocks. And remember, if it's too good to be true, then it likely is.
So, right now, you know your options. So how do we actually go and buy these funds or stocks? Well, we need to talk about accounts. Now, I want to talk specifically about Stocks and Shares ISAs. These are the best starting point for UK investors because they're tax-free. So no tax on your gains, no tax on your dividends, everything you make stays yours. You can invest up to £20,000 per year into an ISA. And while most of us won't ever hit that limit, even small contributions will add up.
And when it comes to choosing an ISA provider, I have two favorites for you. The first is Trading 212. This is perfect if you're a DIY investor who wants to pick both funds and individual stocks. The app is incredibly user-friendly. There are no platform fees for ISAs, and you can start investing with as little as a pound. Then there's InvestEngine, which is excellent for fund-focused investors. It's one of the lowest-cost platforms in the UK right now, and it's great for long-term, set-and-forget type strategies.
Now, fees are a big deal when it comes to investing. Even a small difference in fees can cost you thousands over the long term. And that's why Trading 212 and InvestEngine are excellent. They keep the costs low, so more of your money goes towards your growth. You can actually grab a free share worth up to £100 with Trading 212 right now when you deposit just £1 using the code GAINS on sign up.
All right, so now let's actually make our first investment together. And I'm going to use Trading 212 to do that. Now, if you have the app already, you can open it up and follow along. And if you don't, you can just watch on screen. I'm going to bring it up here. So I'm going to search for the Vanguard FTSE All-World ETF. This is a brilliant option for beginners in my opinion because it gives you that exposure to thousands of companies across the world. When you find it, tap buy, and start with a very small investment, let's say £10. And you can see how easy this is, even in small amounts. And then basically, you just press send buy order. And just like that, you're an investor.
Now, setting up a regular contribution to your ISA is a massive hack for me. Why? Because life happens, man. And you skip one month, you're quite likely to skip the next. And so getting things automated as much as possible with a direct debit, so things just happen like clockwork for me, is just super important. And there's a method to this madness, and it's called pound cost averaging. You'll also see it called dollar cost averaging as well. And this is where you put your money in, and let's say you're buying a global ETF or index, and you buy like clockwork every single month. You're buying when the market is up, down, left, right. And over time, it averages out, as you can see from this graphic right here. Now, my average line goes straight through the middle of these points. So over time, that means you can forget about the noise and just stick to the plan. Markets are up, I don't care. Markets are down, I don't care. I am sticking to the plan.
Now, let's talk about the common mistakes to avoid, because trust me, everyone makes them. First, do not try to time the market. Even the pros can't do this consistently. Focus on staying invested for the long term, using a dollar or pound cost averaging strategy. Secondly, do not panic when the markets dip. These dips are very normal, and in fact, they're actually very healthy in the long run. Things can't just go up. And so selling them during these downturns locks in those losses. And if you don't sell, you don't lose any money. So stick to the plan and keep investing. Then you've not lost anything, and the markets have always rebounded. Going through this the first time, trust me, is really hard, and it does get easier. And in fact, I actually welcome these drops now.
Now, third is, don't put all your money into one stock or one single sector. Diversification for me is important, and a solid index fund strategy is a great place to start with this.
Now, if this is all making sense, but you want to take things to the next level, then my program Stock Market School can help you learn everything you need to know about the stock market in just 6 weeks. If you want to learn how to invest with confidence, how to grow and manage a portfolio of investments with just 15 minutes a month, and how to make the most of them with the right accounts, then this is your chance. There's over 50 interactive lessons that we deliver once a week to you with quizzes, checklists, and resources for you along the way. I've left a link in the description if you want to check that out. And if you've got any questions on it, you can also let me know in the comments.
But if you're staying on YouTube, then I think the perfect next step would be to watch my "How I Grew £130,000 Investment Portfolio in 7 Years and How You Can Too." And it should be up on your screens right now. And I'll see you guys over there so we can continue learning together. And for now, it's been a real pleasure. And if you have any questions, you can always drop me a comment below, and I will do my best to help. For now, see you soon on the next one. Peace.