TLDR;
This video outlines seven key steps for individuals starting their investment journey from scratch. It emphasises the importance of establishing a solid financial foundation, setting clear goals, and choosing the right investment accounts. The guide also covers the significance of starting small, diversifying investments, automating the process, and maintaining composure during market fluctuations.
- Get your financial house in order
- Define your goals and time horizon
- Choosing an investment account
- Start small, but be consistent
- Diversification
- Automate and simplify everything
- Learn to stay calm when the market drops
Intro [0:00]
The video introduces a seven-step guide for individuals starting their investment journey from scratch, drawing on the presenter's eight years of experience. It promises to equip new investors with the confidence to invest, avoid common beginner mistakes, and set themselves up for financial freedom. The presenter also promotes a free live workshop that will provide more detailed information on how to invest and what to invest in.
Step 1 [1:01]
The first step is to get your financial house in order. It highlights that nearly 40% of adults can't cover a £400 emergency without borrowing money, which can lead to investors failing before they start. The presenter advises against opening investment accounts or buying stocks until the basics are right, as panicking and selling investments during market dips can leave you in a worse position.
3 things to do before investing [2:22]
Before investing, you should clear any high-interest debt like credit cards and personal loans, as the interest rates on these debts are often higher than the average stock market return. Building an emergency fund with 3 to 6 months of essential expenses in an easily accessible, high-interest savings account is also crucial. Finally, ensure your income and spending are stable so you know how much you can invest each month without putting yourself under pressure, allowing you to stay calm during market dips.
Step 2 [4:16]
The second step involves defining your goals and time horizon. Less than a third of investors have specific long-term goals in mind. Your goals dictate the type of account you use, the amount of risk you take, and how you handle market fluctuations. For short-term goals (within 5 years), keep your money in cash, while for medium to long-term goals (5 years plus), invest it. The longer your money stays invested, the more the short-term fluctuations even out, increasing your chances of building wealth.
Step 3 [7:30]
Step three focuses on choosing an investment account, where many people get stuck due to the numerous options available. The presenter advises opening an investment account and putting money in it as a simple first step. If employed, make the most of your workplace pension, and if self-employed, look for a private retirement account. Additionally, open a tax-free or tax-advantaged investment account to avoid paying tax on investment gains, which can significantly accelerate long-term returns.
Step 4 [9:53]
The fourth step is to start small but be consistent. Investing just £100 a month with an average annual return of 8-10% can result in over £140,000 after 30 years, with only £36,000 contributed by you. This is due to compound interest, where returns start earning their own returns, creating a snowball effect. Many people are scared of getting things wrong, but starting small and being consistent can help you avoid significant losses over the long run.
Step 5 [11:38]
Step five emphasises diversification, which is the financial equivalent of having a balanced diet. Instead of investing in just one type of investment, such as tech stocks or crypto, you should mix investments so that if one performs badly, the others can help keep things stable. The presenter recommends investing in index funds, which track the performance of a whole market like the S&P 500, to easily diversify your portfolio in a cost-effective way.
Step 6 [13:37]
The sixth step is to automate and simplify everything. The presenter highlights that the secret to great investing is doing nothing, as those who check their portfolios less often tend to make more money. Automate a monthly transfer from your bank to your investment account, ideally straight after payday, to ensure consistency and protect yourself from emotional decisions during market drops.
Step 7 [15:39]
The final step is to learn to stay calm when the market drops. The stock market has crashed 19 times in the past 150 years, but it has always recovered and reached new highs. Having an emergency fund, setting clear goals, consistently investing, and having a diversified portfolio will give you the confidence to stay invested when others are losing theirs. The market rewards patience, not panic.
