This week’s blog is focused on personal finance, specifically on the topic of ‘investing’.
Investing has been something that I’ve been wanting to do for a while but never made time for it, which is why this week I decided to dedicate all my free time on learning how to invest.
There are many different types of investment vehicles: Property, Stock Market, Business, etc.
However, the investment vehicle that I wanted to focus on was ‘stock market’ investing.
I purchased a course called Investing Made Simple by MamaFurFur, a personal finance youtuber that I follow, and spent the week learning all about investing and how to get started.
By the end of the week, I had opened up an Individual Savings Account (ISA), chose what product I wanted to invest in (Index Fund), and deposited a sum of money into the account.
The plan is to deposit 10% of my income into the account every month as I explain in my blog.
In this blog, I want to talk you through what I have learnt in terms of stock market investing.
If you’ve wanted to invest for a while, hopefully this blog will give you the push you need!
What is Stock Market Investing?
There are basically 2 types of investing: investing for capital growth & investing for cash flow.
- Investing for capital growth is where you plan on growing your money significantly over time.
- Investing for cash flow is where you invest to create a reoccurring income every month, etc.
I decided to focus on investing for capital growth, where I plan to grow my money over time.
“So why would I invest my money in the stock market as opposed to just leave it in the bank?”
In a bank, the average interest you could get on your savings is 0.1% a year, which is nothing.
Whereas in the stock market, you could expect to see returns of 10% a year, a big difference.
“But isn’t the stock market risky? I’ve heard that your investment can go up as well as down.”
That is true, if you were to invest your money into a single company, that would be very risky.
But if you were to invest in say the 500 biggest companies in the US, that would be less risky.
Wait, does something like this exist? Yes, a collection of companies is called an ‘Index Fund’.
All the personal finance books out there praise the benefits of investing in Index Funds.
Index Funds are way less risky than choosing individual stocks, and also cost less to invest in.
If we take the ‘S&P 500’ (which is the Index Fund name for the 500 biggest companies in the US), you will see that on average it has grown 9.8% year on year (YoY) over the past 100 years.
So this is route that I have decided to go down, as it is less risky and also cheaper to invest in.
Investing will always put our money at risk; our goal is to minimise risk as much as possible.
How to get Started in Stock Market Investing?
The first thing you’ll want to do is choose a platform: Vanguard, Hargreaves Lansdown, etc.
The one I have chosen is ‘Vanguard’. Why? Because again that’s what all the books suggest.
Please note that Vanguard isn’t available in all countries, so see what is available in yours.
Opening up an investment account is as easy as opening up a bank account.
In a bank, they ask you what kind of account you want to open: current, savings, credit, etc.
In investing, there’s also a few options: Individual Savings Account (ISA), general, pension, etc.
The option you want to go for is an ISA (or a Junior ISA if you are below 18 years of age).
An ISA allows you to deposit £20,000 every year, without having to pay any tax on the profits.
You can also withdraw money any time (unlike a pension) without having to pay any fees.
You then choose which type of product you want (Index Funds), whether you want to invest for capital growth or income, and then you select how much money you want to deposit.
And that’s it. After a couple of days your account will be up on running.
After that, you just keep topping up your account by however much you want to every month.
Every now and then, you can log to see how your investments are doing. Just remember that investing is for the long term: some days your money go up, some days it will go down.
What can you Expect from Stock Market Investing?
There are a few variables when it comes to stock market investing: time, money, and interest.
- Time: The longer you leave your money in there, the longer compound interest will grow it.
- Money: Obviously the more money you deposit per month, this will affect the rate of growth.
- Interest: The more interest that your investment gains per year, the faster it will grow.
The following graphs demonstrate the power of these 3 variables when it comes to investing.
Two of the variables have been fixed (time and interest) as they are unlikely to change much.
The only variable that does change is how much money is deposited per month/year.
Please note that these figures are in GBP, but obviously they also apply to any other currency.
- By investing £100/month over 30 years with 9.8% YoY growth, you’re looking at over £200k.
- By investing £500/month over 30 years with the same interest, you’re looking at over £900k.
- By investing £1667/month over 30 years with the same interest, you’re looking at over £3mil.
Please keep in mind that these figures are not guaranteed; Investing is never that ‘perfect’.
This is just a representation of the power of investing when you deposit money consistently over a long period of time, where your money experiences a significant year on year growth.
Final Thoughts
There you have it, a brief intro into the world of investing, specifically stock market investing.
I wish I would have started sooner; who knows where I would be had I started 10 years ago.
Nevertheless, better late than never, at least I have something to look forward to in 10 years.
I think stock market investing is the easiest entry way into the world of investing.
In a few years’ time, I plan to also start investing in real estate/property, businesses, etc.
In 30 years’ time, I hope that the money I would have made through investments will serve me during retirement. It’s good to not only rely on a pension, but also on other investments.
Who knows, with my investments, I may be able to retire much earlier than expected!
