From Losing It All to Mastering the Stock Market-How to Invest Money Wisely! | The Living Room

*Disclaimer- Investing always carries risk, any money you
put in could fall in value. Put bluntly, you could lose it all. This blog post
is just my experience and I am not saying anything is guaranteed!

Currently, I am a member of the TLR coworking family and have been since 2018. It was great to be able to present at one of their monthly TGIF (Thank God it’s Friday) sessions and share my knowledge of how to invest in the stock market… but wisely! I learned the hard way what NOT to do when investing, and as a fellow entrepreneur with money on the mind, I thought my colleagues would appreciate some tried and tested tips to get rich quick or die trying! ;o)

In all seriousness though, I built an online course about 5 years ago about investing for beginners using the ‘boglehead strategy’ as I wanted a way of saving money long-term and wanted to share with people how to do this. The course is basically for people who don’t have a lot of time or in-depth knowledge but still want to put money into the stock market. The Boglehead strategy is a good philosophy to follow and The Bogleheads Investing Forum is one of the most active, and one of the best, resources when it comes to investing Q&A. Jack Bogle is the founder of Vanguard, and a champion of low-cost simple investing philosophies.

Why Invest?

Because of inflation, every year you lose money, you’re
constantly losing money by having your money in a savings account, even with
the small amount of interest you could earn. So, an investment – or investing -is
more of a gamble, with the hope that you make a lot more than you put in. Investing
in stock markets is basically buying shares in one or more companies with the
aim of taking part of the profit they are making therefore making a profit
yourself! It’s important to note, investment is a long-term strategy, so money
you don’t mind putting away for 5 years or so. Another important point to
remember, the market always goes up and down, but the one golden rule is not to
panic and stick with them with what you’ve got. Don’t be tempted to buy or sell
shares just because everyone else is!

There are two types of interest;

Simple Interest– Is a fixed percentage over a period
of time. 8% interest paid to you every year.

Compound interest– Basically means ‘interest on the interest’. (which is applied in the stock market) The most important thing with compound interest is time!

Let’s compare them both, say you invest £10,000 at simple 8% interest, after the first year you would earn £800 in interest paid, and the second year, and third-year etc. Whereas with compound interest, you invest £10,000 and the first year you would still earn £800, but then the second year you would receive 8% interest on entire new balance of £10,800, so each year the amount of interest you receive would go up along with your balance. Check out slides 7 & 8 below to see more comparisons of the two interests.  

How to invest wisely

Shares- A share is simply a divided-up unit of the value of a company. For example, if a company is worth £100 million, and there are 50 million shares, each share is worth £2 (usually listed as 200p). Those shares can, and do, go up and down in value for various reasons.However, buying a little piece of a company, also known as stock-picking is difficult! How do you know which one to pick? So my advice would be to try to avoid this if possible!

Mutual fund- A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities such as stocks, bonds, money market instruments, and other assets. Sounds great right? Getting someone else to do all the hard work and choose where to invest your money…not always the case! You must pay this manager of course, and sometimes they do well but not always, they know more than the average joe, but not even good managers always make money! My advice again, avoid avoid avoid!

Index fund– An index fund and the so-called ETF ( exchange-traded fund) are investment funds traded on stock exchanges, much like stocks and designed to follow certain preset rules so that the fund can track a specified basket of underlying investments. To simplify, index funds are a low-fee no-fuss way to invest your money!  When you buy an index fund, you get a well-rounded selection of many stocks in one package without having to purchase each individually. And because these funds simply hold all the investments in a given index — versus an actively managed fund that pays a professional to do the stock-picking — management fees tend to be low. The result: Higher investment returns for individual investors! My advice, buy index funds!

There are 4 basic steps to buying index funds;

  1. Decide where to buy. Look at a broker’s fund selection, commission-free options, and trading costs.
  2. Pick an index. Funds may track well-known indexes like the S&P 500 or IBEX 35 index.
  3. Check investment minimum and other costs. Find the right fund for your budget.
  4. Decide how much to invest! 10-15% of your income is usually a good starting point. Use the Proportion Portfolio from my *slides (slide 32) which relates to your age and is a good calculator to work out the percentages and proportions of how much to invest.

To summarize, slow and steady wins the race when it comes to investing, always start small, then keep investing more. Do not get tempted by selling your stocks in the stock market, always go for the long-term goal and stick with index funds. Remember to rebalance once a year and redistribute the money. If you guys only take one thing away from reading this blog post, my advice would be- don’t leave money in a savings account- Invest it!

*Check out my presentation slides here:

Ana, founder and manager of Sineco Acústica, has more than 14 years experience in the industry of architecture. After working in Germany for more than 8 years as a project manager, she has started her career as an entrepreneur by merging her two greatest passions: architecture and acoustics. Through Sineco, Ana wants to reinforce the importance of acoustic comfort in people’s physical and mental well-being.

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