96. A Beginners Guide To Investing - Simplified So You Can Start From Today

In this episode, we delve into the basics of investing and explore the significance of clear financial goals, the necessity of an emergency fund, and various investment strategies. From buying individual stocks and shares to pouring your money into investment funds, we've got you covered. 

INVESTMENT PLATFORMS MENTIONED:

• Wealthify - https://www.wealthify.com/
• Hargreaves Lansdown - https://www.hl.co.uk/
• Plum - https://withplum.com/
• Freetrade - https://freetrade.io/
• Trading 212 - https://www.trading212.com/

ARTICLES TO FURTHER YOUR INVESTMENT KNOWLEDGE 📚

• 4 Investing Myths That Aren't True - https://www.penniestopounds.co.uk/post/4-myths-around-investing-that-simply-arent-true
• How Do You Invest? - https://www.penniestopounds.co.uk/post/investing-via-individual-shares-or-funds-how-do-you-invest
• Tips To Start Your Investment Journey - https://www.penniestopounds.co.uk/post/top-tips-to-start-your-investment-journey

Transcript

Speaker 1: 0:00

Hey guys, welcome back to the Penny's the Pounds podcast with your host Keir, and this is a podcast we aim to disbar your myths, simplify difficult finance jargon erect for your own personal problems. Happy Monday, everyone. I know it's been a few weeks since she last heard from me and I haven't missed you all. I am much better, as you can hear. I have completely recovered from COVID. I'm feeling fresh as a daisy and I'm ready to get back into it and give you guys episodes. So today's episode is going to be all about investing. Now, if you're not new here, you will know that we've covered investing before, but I want to bring it right back down to the basics. So we'll be discussing investing for beginners, and this is specifically tailored for anyone who is looking to get started, whether you dabble in investing before but want a refresher, or you've never taken a plunge and this is the episode for you. Before we get into the set-rasic process, let's understand why investing is so important for everyone, but especially for young people. Now, when it comes to investing, it allows us to grow our wealth over time, we are able to take advantage of compounding returns and work towards our long-term financial goals. To give you a quick story for me.

Speaker 1: 1:09

When I started investing, I was 20 years old, in my second year of university. I'd heard this word investing before. I didn't know what it was, but I knew it was something that I should look into, and I spoke to my dad and he'd been investing for a long time, but the platforms that he was using was a bit more old school, to put it simply. So I had gone out there and I'd decided to go and learn about investing. What do all these words mean? Bonds, etfs, how should I invest? I have found a platform that allowed me to invest for what? All I was putting was at least one pound, and we'll get into platforms a little bit later in the episode. But that's what I did, and I became completely obsessed with my investment, my 20 pound investment that I put in. I became completely obsessed with it, and that meant researching, understanding what it meant. I think that was just the beginning of my investment journey, and I'm so glad that I did it. So if you want it to be YouTube, we're gonna go through step by step.

Speaker 1: 2:01

Step number one is to set clear financial goals. Now. This is so key. There is a clear difference between investing and trading, so investing is when you put money away today for the long term, and when we took the long term, we're talking about the next five, seven, 10 years time. Trading, however, which is where people often get confused, is when you put money in today and you expect to get a return tomorrow or within the immediate future. We're not doing trading today. We're doing all about investing. So to begin investing, you need to understand what are your clear financial goals. What are you investing for? Is it for a house deposit? Is it towards your retirement? Is it starting your own business? Whatever your goals are, you need to establish that from now, because that is gonna influence your investment journey. It's gonna influence what you invest in, how long you invest for and your risk level.

Speaker 1: 2:54

Number two is to build an emergency fund. Now, if you are not new to any financial literacy, content or information, you all know that emergency funds are so important. An emergency fund is a pot of money that you create to cover yourself for life's unexpected things. This is typically in case you lose your job, for example. That's that pot there that is set to cover you and your expenses for a period of time that, for example, you were out of work. Now, the general rule of thumb is to have around three to six months' worth of your wages saved up in that pot. Obviously, the more that you have in there, the better it is. But you want to make sure that you have that safety net because, like I said, we're investing for the long term, but we can't have all of our money put into investments. If something happens today, we can't be looking at cash denier investments right now to cover us. So it's really important to make sure you got that safety net there, because that will give you peace of mind and also protect your investments from any potential setbacks that could come your way.

Speaker 1: 3:52

Number three, and a very key one, is to educate to yourself. Now, if you were listening to this episode, you are doing just that Educate to yourself, understand what investing is. I made a point to go out there and understand what investing was, so I'll give you a quick overall breakdown and some of the key terms and phrases that you'll probably come across in your investment journey. So I'm going to break it down again in terms of how you can invest and the platforms in just a second. But when you come to invest, you'll be looking at various different things, but the likelihood is that you'll go to a platform, you will join a platform and you'll be presented with a number of different options on how you can invest. So you can invest in individual stocks and shares. So that's when you actually go out there and you say you know what, I'm going to invest in a share of Apple, for example, or I'm going to buy one share of Amazon. That's when you're actually buying one share in a company.

Speaker 1: 4:48

An alternative way, in the way that we're going to talk about in more detail in a second, is through investment funds. Now, this is a predetermined portfolio to someone. A portfolio manager, for whatever platform you've chosen, has put together this portfolio and it's got a range of different companies within there. So let's say, you've gone to a platform and you've chosen a tech fund. So you know this fund is going to be full of tech companies that could be invested in Amazon and Microsoft and Apple and any other tech companies that will win within that fund. So instead of buying one share of Amazon, you'd put that money into your investment fund and that gets split across all of the companies that are within that fund. The good thing about this is that you don't have to sit there and have detailed knowledge about one company. For example, if you put, uh, let's just go with Apple share, you might want to invest in Apple because you've got knowledge on it or because you want to invest for XYZ reason, but that puts a lot of pressure on your investments. Instead, you put money into this fund, which gets spread across. So if one of the companies within that fund I don't know has a bad week or gets bad press and their share prices drop, you should be covered because you spread out your risk across the different companies. So that's what you're looking at.

Speaker 1: 5:58

We also have something called bonds. Now, the easiest way to explain a bond is like an IOU. Typically, bonds are issued by governments and this is a way, for example, the government to raise cash when they're wanting to do something. So let's just take the British government, for example. The British government may put out a bond. So that's them saying we are selling this bond, let's just say, for five pounds, and within that bond we'll have different stipulations, so it would tell you how long the bond term is. So let's say the bond the five pound bond is for three years. That means they're borrowing the five pounds that you invest when you buy that bond for three years, it will also have an interest rate on them. So let's just say it's two percent. So that's the British government saying we want to borrow five pounds for three years and at the end of the bond term, at the end of the three years, we'll pay you back your five pounds plus two percent interest on top.

Speaker 1: 6:51

This we're going to talk about risk in the second as well, but this is typically seen as lower risk because the likelihood of these companies as governments paying you back is very, very high. But it also means that you don't get a lot of interest back. But it's a safer way to invest. You know, investments are never safe and I wanted to kind of just preface that as much as investments can go up, they can also go down, so you can lose your money or get back more than you invested. As soon as a safer in quotation marks way to invest and it's something called ETFs they're also known as exchange traded funds, so they're very similar to investment funds I mentioned in the beginning, where it's a cluster of companies put together in this one, this one fund, the difference being that you can actually buy an ETF like an individual share. So, instead of a fund, where you're investing in this fund and it's all in these companies, these, this ETF contains a number of different companies, but you're buying it like a share. So that's just top level. Probably some of the words you're gonna come across when you start your investment journey, and hopefully that makes sense. That's just to get us covered. So it's all.

Speaker 1: 7:50

It's so important to educate yourself to understand the basic concepts, which we're gonna go through in a second risk return, diversification, assets. What does this all mean? So have a look online find resources, books, podcast like this one, which you can dedicate your investment Education and just general financial education to. Number four so we've gone through all of this. One, two, three. We've gone through all of that. That's almost like the pre investment stage. Now You've decided right, I've educated myself, I've got my emergency fund, I've got my clear financial goals. The next thing you're going to do.

Speaker 1: 8:22

Number four is to choose a platform now there are so many different platforms out there to begin investing. I think this is really the best time for anyone who's beginning their investment journey to start investing, because it's becoming a lot easier for the average consumer to invest back in the day, back in our parents day, grandparents day, the people who could invest with those who could afford to. You know it was a high start up you had to have 25,000 100,000 pounds to actually start investing. Now there's so many platforms which allow you to start investing with just one pounds, so it's never been easier to start investing. Even though it is easier, there is a lot of different options that you can choose from, so it can be hard to decide what platform to choose. Now.

Speaker 1: 9:05

When it comes to picking a platform, it is a very personal choice because it depends on your preference. There are many things that are going to make up your decision. It could be based on the platform, fees, what products they offer, transaction fees, how easy it is to use. So whatever platform you use may be different to your friends, your family, but it is important that you have a look and research and see what is best for you, based on how you want to invest, how long you want to invest and how much that is going to cost you to use the platform. If you're a beginner, there are a number of different platforms you might want to have a look at, such as welfare, fire, hard groups, lands down, plum, free trade and trading two on two. Don't worry, all the links are going to be in the podcast episode description so you can have a look and do your research to pick what is your favorite.

Speaker 1: 9:50

Me personally, as a beginner, I started off with plum. I put in my money, as I mentioned, and I found it really easy to use. And when I went to buy individual shares, I use free trade. But, like I said, please do your research, find out what's gonna be best for you based on the things I mentioned platform fees, transaction fees, products on offer and how easy is to use and make a decision based on that. So now you've chosen your platform, you've decided where you're going to invest your money. Now it's all about determining your risk level. How much risk are you willing to take with your investments? Similar to choosing the platform, this is a very personal choice. The reason being is that it all depends again, it's back to number one your financial goals.

Speaker 1: 10:39

So let me take me, for example. Let's say that I started investing because I'm investing for my retirement, because I'm so young I'm in my 20s. I might say you know what? I'm going to put my money into high risk investments, why I'm young. If there are any downturns, I can weather that storm. I've got so much time until I'm retirement age that I'm not really going to notice. If you know some investments do dip, I don't need the money anytime soon. I've still got over 40 odd years until I get there. So I'm happy to do that. So I may choose to put my money into high risk investments, such as I don't know stocks or investment funds at high risk, because I don't mind, I've got a lot of time. But you listening may say right, I'm investing, but I want to get an appropriate amount in the next 10 years and this is money that I'm going to use. I'm going to cash out my investments in 10 years time for my first house.

Speaker 1: 11:29

Now, because of that, you need that money to come back. You can't risk that money not coming back or not getting back as much as you initially put in. So you may want to choose something a bit more medium risk. You know 10 years is still some time, but you don't want to take too much risk on your money because you want to pretty much make sure that you get the money that you put in back. The term in your risk level is all very personal. It depends on what your financial goals are and what you want to do with your money. So when considering your risk level, make sure you consider your financial situation, your time horizon, how long you're going to invest for, and your emotional readiness. Investing can be quite emotional, so how much risk are you willing to take? How much are you willing to take on when you come to invest? This will help you to choose the investments that align best with you and your morals and your risk tolerance. I would definitely recommend anyone who is starting investing for the first time to start off with investment funds.

Speaker 1: 12:22

Now. Here in the UK we have an amazing thing called a Stocks and Shares ISAR, and this is essentially a fund that you can open up. You put money into, you choose the funds, like I mentioned earlier that you invest into your tech fund, your healthcare fund, your hospitality fund, whatever you choose Put money into your stocks and shares ISAR and that gets invested into your chosen fund on your behalf. But the beauty of the Stocks and Shares ISAR is that any interest or any kind of returns that you earn within your Stocks and Shares ISAR on any amount up to £20,000 per tax year is tax free. Now, it's not often in the UK that we get things for free. So when there are things we can get free money, you get kind of tax breaks. We want to take advantage of this. So I would definitely recommend to anyone who is starting their investment journey to have a look at investment funds and make sure that you open up a Stocks and Shares ISAR and take advantage of that tax free wrapper that you have around your investments. So there's a whole range out there. So you want to make sure you're looking at the right investment fund for you. A lot of them will show you the risk level depending on what you choose. Again, you can tell it out to your preferences. I think an investment fund is a lot easier for you to begin understanding what investment looks like before you take the plunge and invest in individual shares, for example, number seven.

Speaker 1: 13:34

What you want to do is make sure that you automate your investments. This is something that I always talk about here on Penny's Pounds Automate your investments. It makes your life so much easier. I am a big fan whenever payday comes along. I do like sitting down with my finances and plotting it out and budgeting and no one put my money. But when I've got things automated, which I do have my savings and my investments automated. It takes the load off me. I like to call myself a lazy saver and investor. That's to set my investments or my savings and completely forget it. So it'll work on its own every month on the day that I've chosen. It will invest on my behalf and it'll save on my behalf. And that means I'm still growing my money, putting money away, but I'm not having to physically do your manual labor or remembering it. It will make everything so much easier. You can set up your automations via Derek Debit from your bank account to your investment account, and it will make sure that you're consistent and you're able to just invest without having to manually be hands on with it.

Speaker 1: 14:34

And then, finally, number eight is to stay consistent and think long term investing. Like I mentioned in the beginning, investing is a long term thing. We're not here, we're not day traders. We're not sitting down and saying, right, I'm putting in money this morning and I'm going to take it out this evening. Right, we're not trying to get a return that quickly. We're putting money away so that we can actually, in 10, 15, 20, maybe even 40 years time, we can benefit on those returns. So it's all about staying consistent, picking a regular time that you're going to contribute Maybe you're going to do a lump sum once a year into your investments. Maybe you're going to do monthly deposits, maybe it's every two weeks. Whatever your frequency, pick it and make sure that you stick to it. That's the only way you're going to see your investments grow, the way you're going to benefit from compound interest and the way you're really going to reach your financial goals.

Speaker 1: 15:22

So make sure you always think long term of your investments, be smart and also don't be afraid to amend your investment strategy as life goes along. So let's again back to me. In my mid-20s I'm high risk, but let's say, in five years time I have a child. Now my risk level may change. So even in my investment strategy for the past five years has been high risk, high risk, high risk. I may want to alter that based on my life circumstances. It's changed. I've got things to think about. I can't take as much risk as I could before, when I was a single person, and now I have dependents. So don't be afraid to amend your investment plan if your circumstances change. That is what personal finances are all about. It's personal. It's you deciding what's right for you at that specific time, and it's so good to review it and make sure that it's still good for you.

Speaker 1: 16:11

Thank you so much, everyone. That is your episode for today. If you have enjoyed it, then please do make sure that you hit follow and share it with your friends. You think this will benefit. We have a lot, a lot of resources live on the pennies to pounds website, so go and have a look, especially with investing. We've got jargon busting. We've got myths that aren't true. We've got platforms for you to have a look at. Make it all simplified for you to begin your journey. So make sure you search wwwpennies2poundscouk and you'll find it all on there, as well as our Instagram page. If you're not already following, that's pennies to pounds pod on IG and everywhere else. We've got so much content. We'll be back again next week Monday with another episode for you. But yes, thank you so much and I hope you have a great rest of your week.