Investing can be a tricky subject, and everyone has their own opinion on how best to go about it. The problem is that a lot of the people you see on Instagram, YouTube or even on here will try to convince you to risk it all and sell the idea that you can read the market.
I’m not going to convince you that you can do that, I’m going to give you 4 practical tips to start your investment journey. If you then want to learn more about stocks, great! You will be able to go into that with a solid foundation, and backup strategies if needed.
This is boring, won’t excite you, sounds too sensible and who likes sensible things?
Well, turns out, this is actually a very important tool you can have in your belt for when things don’t go your way. The idea behind an emergency fund is for there to be a sum of money, which is earning interest but is also easily accessible, to use when you need it most. This can be used for things like if you were to lose your job and need a means to pay your bills and your rent. If your car were to break down and you need £700 to fix it but you don’t have that in your current account, you can fall back on your emergency fund without it impacting your daily life. You have a family emergency and need to travel to the other side of the world immediately and the only flights available cost you an arm and a leg. Emergency. Fund.
When you research emergency funds, some say have 3 months worth of living costs saved, some say 6 months, but what I suggest is that you build it up over time, put in as much as you can to start with and put £100 in every month after that until you reach your desired figure. As with most things, it will be very different for different people and their situations. You may only need £1,000 in there to cover yourself, or you may need £15,000, this solely depends on your situation. It’s food for thought and is something that I would suggest you think about when diversifying your portfolio.
Investing, and where to invest, is again a very personalised thing and should be treated with many hours of research, consideration, and professional recommendation. Do not be influenced by these ‘online gurus’ telling you to invest in yourself by purchasing their course on how to invest in the stock market as this is probably not a direction you want to take, but that’s for a different article.
This tip is all about working out milestones that your finances will help you reach. These can be both short and long term milestones, and there are ways of investing for either. Short goals would be something like; “I want to travel to Bali within the next 5 years”. Investing for a short term goal would usually require higher risk investments as to receive a return quickly. Investing in a mid to high risk portfolio with Wealthify or Betterment might be a reasonable choice for this (do your own research before investing).
Long term goals usually relate to retirement and later life, so this would mean investing in a Pension Fund or Index Funds and playing the waiting game, waiting for that sweet compound interest to work its magic.
The point here is to make sure you’re investing for what you want to achieve or receive, either soon or further into the future. It’s also important to remember that there is nothing wrong with focussing on what you as an individual want, your life is what you make of it. Make sure to help others along the way, but you will gain more respect for focussing on achieving your goals than if you’re achieving those of someone else.
Boring, I know, but your later self will thank you. You should be enrolled in your employers pension scheme, as all employers are required to provide a workplace pension scheme. This is called ‘automatic enrolment’. There are some conditions that you need to match to be automatically enrolled in your employers pension scheme, these are;
- you’re classed as a ‘worker’
- you’re aged between 22 and State Pension age
- you earn at least £10,000 per year
- you usually work in the UK
The pension system is obviously different for those of you around the world, in the US you have a 401k which follows a similar employer contribution system, I believe you can invest up to $19,000 pre-tax in there as of 2019, with your employer matching up to a certain percentage. Nonetheless, building up a pension fund is a great way of passively increasing your portfolio and if you are eligible, should start as soon as possible.
What the Instagram Stock Brokers will often try to teach you is how to time the market, spot trends, buy low and sell high, whilst only having to pay them £299 to hear this advice. Bargain, right? Well, potentially … yes. This actually works if you’re open to taking high risk decisions whilst also having the capital to match that. Stocks can be a lucrative way for you to make a quick buck. But they can also be a great way for you to lose all your money and be back to square one if you put all your eggs in one basket.
If you’re more risk-averse, just starting out or not inclined to risk your money because maybe you don’t have the resources at the moment to enable risk, investing in Tracker funds is often a better way for you to diversify your portfolio without actually buying individual stocks.
A Tracker fund tracks the performance of an index and offers its investors a low cost way of gaining exposure to an entire index; for example the FTSE 250 in the UK or the S&P 500 in the US. So instead of forking out $280 for a single Apple Stock, you can invest that same $280 into Tracker fund that has itself invested in Apple but has also invested in Microsoft, Tesla, Alphabet (the parent company of Google) and many other companies. This allows you to spread the risk across different companies and has historically proven to be a fruitful way of long term investing. So this way, if for some reason the Apple stock tanks, you don’t lose as much as the Tracker fund looks at the entire Index, not a singular stock.
Build a foundation with your finances, thinking about both your short term goals and your long term goals. Do a lot of research, work out what is best for you, and work at a pace that meets your situation. Always consider that the money you invest does not guarantee a return, your investments will fluctuate, and it’s wiser to play the long game.
*Disclaimer; I’m not a financial advisor, any decisions you make should be done so with thorough research and, if necessary, with the guidance of a professional.
*Disclaimer on the behalf of everyone else offering financial advice; don’t rely on people on the internet for advice, always do your own research and do what is right for your situation.