Welcome to my investment guide where you will learn everything you need to be a good investor, make money investing and achieve your financial goals.
Are you ready? I hope so, because here we go!
If you’ve come here it’s because you’re interested in making money through investing, but you’re not quite sure how. Don’t worry, I’ve been where you are now.
I remember how I felt a few years ago, when I started investing. I didn’t know much about how the economy worked, but I did know I was capable of saving, and I wanted to earn some income with my savings.
When I started looking for information on how to invest money in UK I felt lost, due to the huge amount of investment information I found on internet. I had a few simple questions:
- What is the definition of investment
- How to make money investing
- Best way to invest money in UK
I’m sure you had very similar ones, right?
The amount of data I found on internet flooded me. There were too many investment ideas.
I didn’t know who was right and who was wrong, what to believe and what to throw away.
Lucky for you I’ve already been through that learning process, and I know what needs to be done to invest and make money.
I’m going to share with you all the information I’ve learned about economics, mutual funds, stocks, bonds, real estate and much more.
If you want to learn how to make money investing, just keep reading!
What does the word investing mean? If we take a look at my favourite dictionary, Wikipedia, we get the following definition
To invest is to allocate money in the expectation of some benefit in the future.
What is the benefit we want to get? Money
What resources are we going to use? Capital (money)
If we focus on the financial concept of investment, it means to use capital to generate more money.
This is for me the best definition of investing.
One of the keys to investing is that you need to have capital to start investing.
So, to start investing you first have to save money. Saving is not only necessary to start investing, it is key to being able to continue investing.
Every good investment strategy is focused on saving a significant part of your income.
UK investing: how to invest money
Investing money in UK is becoming very popular. Maybe as popular as credit cards. Ok, maybe not that much. People still use credit cards too much.
My opinion about credit cards is very bad, because I don’t like to get money through loans. I am against any type of debt.
I always buy things with the money that I have now, not with the money that I will have in the future. My financial advice is to stay away from credit cards
The typical investment products in the UK are:
- Cash ISAs
- Regular savings
- Investment trusts
- Stock market
- Real Estate
- Peer to peer lending
There are many different portfolios you can build, depending on your risk tolerance, income and financial situation.
My portfolio is mainly invested in the Stock Market. I have an Stocks and Shares ISA account, where I try to invest as much as possible since all the gains are tax free.
If you want some tips on how to build your portfolio, take a look at my portfolio analysis on April 2020.
My advice is to always use your ISA allowance on your Stocks and Shares ISAs accounts before putting money somewhere else.
In the long term, not paying taxes will be a key factor to help you increase your wealth.
I would like to point out that investing in savings account is not a good idea. Even if your money is 100% guaranteed, the returns you will get will be very low.
This will prevent you from generating enough gains on your investments.
We all like to think we are smart, but I am afraid to tell you that most of us are not smart when it comes to investing money. I believe it all comes down to a poor financial education.
We are not properly educated about economics and money in school.
Money is just a tool to buy goods and services. But it is a powerful tool. Everyone works to obtain a salary (= money). So we are trading our time for money.
Wouldn’t it be great to be able to have more money, so we could work less? That’s where investing comes into play.
But again, we are not educated about investing money at all, so it’s very difficult for us to invest properly.
Smart investing is about making your money work for you. It’s about finding the best investments where you can put your funds and obtain good returns.
If you invest smartly and follow a long term strategy, after some time you will be able to generate income with your investments.
But you have to be patient. No big changes will happen in the short term. Warren Buffett didn’t become billionaire overnight, and neither will you.
In order to start investing, first you need to save money and build your emergency fund.
An emergency fund is an amount of money that can cover your expenses for 6 months. It’s aim is to be your lifeguard when you face issues in the future (losing your job, big expenses,etc).
Once you have your emergency fund, you have proved yourself that you can save, so you are ready to carry on saving and start investing money.
There are many ways to start investing (roboadvisors, stock market, fixed rate deposits, etc). Let me go in more detail in my next section.
Where to invest your money
Once you know that you want to generate income with your savings, the next step is to find out how.
When you start looking for ways to invest, you come across the following questions:
- Where to invest money to get monthly income
- How to invest money safely
- Where to invest to get good returns
- Where to invest money in UK
Investment questions don’t usually have a simple answer. We would all like to be given the magic formula for knowing what to invest in to make money.
I wished there was an article that would tell us the best ways to invest and make money, without any risk, 100% guaranteed. Unfortunately when it comes to investing things are not so simple.
It all depends on your personal finance, your risk tolerance, your financial education, and many more factors.
If you don’t want to spend too much time thinking how to invest your money, you can always hire a financial advisor. But I strongly recommend you to carry on reading and find out how to make money investing.
I have already mentioned before the most popular investment produts in UK (ISAs accounts, stocks, bond funds, real estate, peer to peer lending, etc).
The hard part is knowing where to invest the money to get good returns, while reducing the risk.
Where to invest money without risk?
This is a good question, and the answer is that when you invest there is always risk of losing your capital.
If you don’t want to put your money at risk, you must leave it in your bank accounts. But if you do that, you can’t make money with it.
I am sure you are wondering right now: how can I know which are the best investments in UK?
Let’s start by stating that the key to investing well is to understand where you invest your money so you reduce the risk of losing money.
If you understand all the data and information surrounding your investment, you’re increasing your chances of succeeding.
Investing is a matter of probabilities.
If you reduce risks and invest in a high-return products, you will likely earn money investing
When you invest properly, you are able to generate income without working. That’s wonderful!
In my opinion, the best way to start investing is on the stock market. Let me tell you the benefits of investing in stocks, where you can invest in markets, companies and business of all around the world.
Advantages of investing in stocks
I’m sure you’ve seen Wall Street on the news, and you’ve thought: I would like to learn how to invest in the stock market.
You may also have thought that investing in stocks and shares is very difficult, only available to very smart people who after years of training are able to make money buying and selling shares.
Well, I am here to tell you that none of that is true:
- Anyone can make money investing in stocks
- You don’t have to be a genius to make money in the stock market
- You don’t need years of training. Just 30 minutes a month
Really? I can make money investing in shares spending only 30 minutes a month?
The answer is yes, you can.
In UK the most important index is the FTSE 100, which contains the 100 largest companies in United Kingdom.
I’m sure you’ve heard of HSBC, BP, Royal Dutch Shell and British American Tobacco. They are the most important companies in the UK economy, and therefore the most important financial assets in the FTSE100.
If the price of these companies drops, the FTSE100 is dragged by them.
Now when you hear someone on the radio or on TV saying “the FTSE100 is down 2% today,” you know what they’re talking about.
When you invest in the stock market, there are many advantages over other investment products.
Do you want to know these advantages? You sure do 🙂
The Stock market has been operating for many years. US Stock Exchange has been running since 1790. That’s over 220 years.
This tells us that the stock market is not a recent investment method, and therefore likely to disappear in the event of a major crisis.
Bitcoin is a very young investment product, it has been around for only 10 years, so it poses a higher risk.
To the question “how to make money with bitcoin” I always answer: with bitcoin you will most likely lose money.
Personally it seems to me that making money with bitcoin is very risky, so I recommend to avoid investing money in cryptocurrencies.
The S&P500 index has achieved a 9% annualized return over the past 150 years. If you invest in this index periodically, in the long term you should get an annual return of 9%.
This is a proven investment strategy, which has yielded results for 150 years.
Both bonds and gold have a historical annual return close to 4.5%.
Why are you going to invest in gold, getting 4.5%, when the stock market gives you 9% (the double)?
The stock market is formed of companies, which provide goods and services.
A share is what Warren Buffett calls a productive asset.
Gold produces nothing. If you bought all the gold in the world, you’d only have a huge cube of gold in your living room.
That’s why buying gold as an investment doesn’t seem very useful to me.
Low time required
You don’t need to keep an eye on your investments at all hours to be a successful investor.
You can invest well by spending only 30 minutes a month
Once you finish this post, I recommend you to read my beginners guide to invest in the stock market.
It shows you all the necessary knowledge to make money investing in stocks and shares.
At that point you can turn on the autopilot and forget about it. If you want to spend more time learning in order to be able to apply more complex strategies, you can. But if you don’t want to, 30 minutes a month is all you need.
Owning shares does not give you any additional responsibility. You can own shares for years, and you won’t have to do anything about it.
If you buy a house and decide to rent it, you will have certain responsibilities:
- Find the right tenants
- Take care of repairing and fixing
- Do all the bureaucracy
- Pay annual property tax
- Make sure tenants take care of the house
Further more, if you’re unlucky and your tenants decide not to pay the rent, you’ll have to wait for them to be evicted, and your investment won’t give you a good return. You will most likely lose money with it.
Another potential risk is an increase in the mortgage rates, which would mean that your monthly payments would go up, and that would impact negatively your returns.
We all want to own our home, but it’s important to do the maths to confirm that it will be a good investment.
Pay less taxes
When you buy a stock at a price, you make a profit when you sell it for a higher price. There has been a capital appreciation, which is called capital gains.
As with any other source of income, it requires paying taxes.
The taxes you’ll pay will depend on the country you live in and your financial situation.
A big advantage of stocks is that you only pay taxes when you sell them and you make profit on that sell.
You’re delaying the tax payment, which helps you to accumulate more money.
There’s a big difference between paying taxes every year on your earnings, and paying them in the end.
Dividends are one of the great advantages of investing in stocks. I’m sure you’ve heard the word dividend, but you’ve never quite understood what it was. I am going to explain it to you right now!
Dividends are a payment made by the company to its investors, to reward them for being shareholders of the company
This money comes from the company’s profits.
Not all companies pay dividends, it depends on the capital allocation strategy followed by the fund managers. There are companies that prefer to reinvest all profits in the new projects, aiming to make the company grow.
One of the most famous investment strategies is to buy dividend stocks, to have regular income.
Now things are going to get even more interesting, since we’re going to see how to invest in the stock market!
How to start investing in the stock market
Once we have covered the benefits of investing in stocks and shares, let’s see how we can start investing in the stock market.
The stock market is a place where we can buy and sell small portions of companies. These portions are known as shares.
In order to invest in the stock market you need a broker. A broker is a company that allows you to buy and sell shares of any company that is listed on the stock exchange.
I know the word broker sounds a bit technical, but don’t panic. Finding a broker is much easier than it looks.
Most banks in UK offer broker services. Therefore, you can invest in stocks using your bank.
Do I advice you to use your bank as a broker? Absolutely not. Banks often charge very high commissions
How to invest in stocks and shares
There are many ways to invest in stocks. Depending on your financial knowledge, the time you want to spend and your risk tolerance, you will choose one type of investment products.
The most popular are:
- Mutual funds
- Individual stocks
- Index funds
There are other more complex products such as derivatives, futures, CFDs… In my opinion it is more difficult to make money with them, so I will focus on those where I have already made money.
When we start to learn about investing in stocks, we all want to be the next Warren Buffet. Be able to pick the best stocks to invest in, and see their value go up.
Let me tell you that picking individual stocks is not the best way to start investing in stocks. Share dealing is not that easy, it’s very risky.
The easiest and safest approach is to start investing in stocks through mutual funds. Then you can start to accumulate experience with stocks, increase your knowledge through education, and after some time be ready to start picking your own companies.
If you want to learn more about mutual funds, jump to my guide to start investing in stocks.
Are you still there? Congratulations! After such a long article…But believe me, it’ll be worth it!
Finally let’s talk about investment strategies.
This is a crucial aspect when it comes to being a successful investor.
If you don’t follow an investment strategy, you probably won’t earn money investing.
It might sound a little bit extreme, but it’s true. In fact, chances are you’ll end up losing money.
Now that I’ve caught your attention, let’s go the point 🙂
One of the most important aspects of your investment strategy is deciding whether you want to have a long-term or short-term strategy
Long term investment strategy
What does a long-term strategy mean for an investor?
It means you don’t expect to get your capital back in the next few years. How long the period is will depend on you and your strategy.
The stock market fluctuates a lot, so the best way to make money investing in shares is investing for the long term.
You know there will be ups and downs, but in the long run the stock market follows the economy, so if you invest in strong economies (like the United Kingdom), the price will rise.
Investing long-term reduces the risk of your portfolio.
Embrace this idea: when you invest in the stock market, the best strategy to follow is long term investing.
In order to reduce the risk of volatility, it is important to avoid investing big sums of money in one go. Lump sums are not a good idea.
Imagine that you invest a lump sum in the FTSE 100, and the following month it goes down 20%. You would have lost 20% of your portfolio.
Instead, divide the lump sum into smaller payments, and invest them periodically over a period of time. By doing that you reduce the risk of your entire portfolio being affected by a sharp decrease of the market.
This is an investment strategy called dollar-cost averaging.
Short term investment strategy
As its name suggests, a short-term strategy means you expect to recover your capital in a short period of time.
How short? This will depend on you and your strategy.
It can be a matter of weeks, days, or even minutes. Yes, minutes!
For example, in the intra-day trading the investors (also known as traders) trade stocks on the same day.
In intra-day trading, you can buy shares at 10:00am and sell them at 10:30am.
Is intra-day trading a recommended strategy? Not at all.
It is very difficult to make money trading in such a short time frame, since the fees you have to pay to buy and sell shares of companies will eat all your profits.
In addition, in the short term it’s very difficult to know which direction the market will follow.
Remember, as I said before, in the short term the share price fluctuates a lot, so it is very difficult to know when to buy and sell.
Normally, intra-day traders are based on technical analysis. If you don’t know what this means, let me explain it to you.
Investment strategy based on technical analysis
Technical analysis is the study of price action, mainly through graphs, with the purpose of predicting future price trends.
In summary, technical analysis is based on finding out if a company’s price is going to go up or down based on graphs.
In the graph above you can see an example of technical analysis, where charts should help you decide when to buy and sell.
I’m completely against technical analysis. And I talk from experience.
Before I started investing in the stock market, I spent a few years (yes, years) investing through technical analysis and Forex.
Forex is the currency market, where you can bet on one currency going up in value against another currency
For example, a dollar is now worth 0.907 euros. You can bet that in the future a dollar will be worth more euros, and if that happens you will get profits.
I think you can already imagine that my experience with forex and technical analysis was not very good. After years of study, reading books and trying out with both demo and real accounts (investing real money), I couldn’t get any profits.
That’s why I don’t advise anyone to follow the technical analysis.
Thank god I started investing in stocks and I discovered the fundamental analysis.
Don’t you know what fundamental analysis is? Don’t worry, I am here to help you out!
Investment strategy based on fundamental analysis
Fundamental analysis is a type of analysis that is mainly used to invest in the stock market.
What is fundamental analysis?
Fundamental analysis is a method that aims to figure out the actual value of a stock.
When I was starting to think about investing in stocks, one of the ideas I came up was to copy Warren Buffett’s investment portfolio.
Reading about Warren Buffett I found out that his strategy was based on fundamental analysis, which he had learned from his mentor Benjamin Graham.
This type of analysis was introduced by Benjamin Graham, author of the book “The Intelligent Investor“.
This book changed the way I look at stock market investment forever. If you want to know more about this wonderfull book, take a look at my summary of the intelligent investor.
The fundamental analysis is based on analyzing the financial status of the company, to know what the share price should be. If the share price is below its actual value, then it is a good opportunity to buy.
I follow the fundamental analysis, and that’s what I recommend to everyone who wants to invest in stocks and shares.
In the end, the fundamental analysis is based on the economy of a company/market. If the profits go up, the price will go up as well.
More articles related to investing
If you want to know more about investment and financial freedom, read on here:
- Beginners guide to invest in stocks
- Investing in peer to peer lending
- How to achieve financial freedom guide
- Portfolio analysis in April 2020
Congratulations on finishing my investment guide. I hope you liked it!
If you have any question, please use the comments section down below. I will be happy to help 🙂