It took me about 15 years before I actually turn my theory investment plans into practical works. For this article I want to help you take the next step and actually start your very first investment!
When I was 19 I had a list of companies I would like to invest for long term shares. The final five on the list was Sony, Amazon, Nokia, Apple and Nintendo. Yes I was a techno and gaming teenager. If invested in £1,000 each. I would have lost Nokia completely. I would have at least 15-20 folds in Apple and Amazon.
End of the day I spent my money on cds, iPhones, headphones, consoles and plenty of drinks. I wish I could return to the past and slap myself hard. I had no one to turn to for advise then. No one gave me the next six steps on buying your first share. Let me share my six steps to your first investment.
1. Find a stocks and shares online broker.
It is 2017 and you can find a reputable stocks and share brokers online without leaving your front door. This assumption is also valid providing you have internet banking, taxation ID and valid electronic documentation for verification purposes. This is easy for places in Europe, USA, Canada, Japan and other first world countries.
*Please be responsible for the information provided, this blog bears no responsibility for money laundering, identity fraud, internet phising scam and more.*
Many countries may not have local reliable and reputable online brokers available yet. Please DO NOT just sign up for some TOM, DICK and HARRY app from your phone and send your money away without researching about it.
You need to find out the rules of investing in your local country and what brokers are available. I have friends from Brunei, Malaysia and Singapore struggling to find an investment platform. The local banks offer index and funds which have ludacris high fees. Read Dan Chew’s recommendation for additional info .
In the UK you are allowed to use your ISA as a stocks and shares account with many brokers.
2. Decide on a Financial Budget.
You need to decide on an amount you are willing to invest for a long term. Which means you do not need this cash for a potential rainy day activities like mortgage, school fees or future tax payment. You need to commit to a good amount to enable to decide on a portfolio strategy. It’s varies from person to person, their age, personal circumstances etc.
Please be warm that this capital amount is at 100% risk which means you can lose it all.
You need to strongly consider two key points after.
- Dividends reinvestment
- Annuities top up. Regular monthly or yearly payment
Both these key points will strengthen the compound factor and help potential exponential growth over a long period. This means if you initial investment is £5000, with an annual top up of £1000, dividends reinvested at 3.5%, at an average yearly yield of 7% over 15 years can give you a generous amount of £55,738.83 (total invested £15,000).
If you left it for 25 years you will generate £168,426.79 (£30,000).
Read about Katie for more dividend reinvestment benefits.
3. Decide on a portfolio strategy and stick to it.
A financial advisors normally have a template for investment against the risk level. Sounds like a simple manageable plan. One thing you need to realised is the fees over the period of time. In 2017, we live in the world with easily accessible information and control of our finance via our simple app and phone. To simplify, you don’t need a financial advisor to coordinate your investment, just try to control it yourself.
I would recommend two easy strategy.
1. Three piece pizza (formation by Booglehead)
Three low cost funds
- US equities
- EU/UK/World index equities
- Emerging market index china/India/Latin America
- Global brand index. Good dividend, very slow growth
This strategy is good for investors with low initial capital and preparing for a regular monthly payment plan
2. Simple 4-4-2 formation.
- 40% defensive good dividend returns shares/funds/index
- 40% growth shares
- 20% risk and cash combination
The dividends and cash are important in times of market corrections and crisis.
Growth shares will be the cyclical equities in your portfolio which will provide the most ups and down waves. Their goal is to grow your capital to a significant yield each year.
Risk shares are short term buy low and sell high principal.
4. Save, Save and Save
This is a difficult part. Savings is key to a good long term investment plan. Many investors fails to save well enough and forced to sell at a wrong market timing breaking the compounding interest factor.
Also good amount of cash during a financial correction period or upset is the best time to purchase stock and shares and discounted price. These are the period where a millionaires are made if you have a good amount of storage cash.
During the cash saving period it helps to manage a good budget to ensure we only spend on the things we need and not want. A brand new sports car or bike is beautiful, fast and depreciates in value too.
5. Stop watching your portfolio and Read instead.
Investment portfolio can be like a drug and makes you look at it every single day. It’s perfectly normal. Do you know all the millionaire and billionaires in the world do not even bother looking at their portfolio once invested because they know it’s all for a long term? All the short term buzz are just noise which can deter and provoke unwanted action.
Warren Buffet, Bill Gates and Ellon Musk spends most of their days reading about new ideas, philosophy and emerging articles. Most of the investors reading this blog are most likely a non economist major or non financial related major. In all honesty, the theory of cash flow and financial credit market is far easier to understand than efficiency of a solar panel or basic fundamental of open heart surgery.
Read about Hakuna Matata Investor for more advise
6. Pat yourself on the back and return to point 3.
Investment is a long term plan. If you expect a quick get rich quick scheme I would suggest you to try the casino, poker or online sports gambling. They are shorter duration and sometimes multiply your capital too (if done correctly of course).
Keep saving and investing for your long term growth. Utilize this knowledge and hope to gain some financial returns while you sleep. I have grown to learn that investment helped me save more money. Just like my Rolex Daytona Portfolio project where I rather invest my savings than paying the premium price for a beautiful watch piece.
Thanks for reading. If you need further advise feel free to email me.