Start your investing journey

Follow 6 very simple steps and open the pandora of investing

Chapter one : Open an investment account:

If you want to invest or just want to learn a bit . Just follow the following few simple steps .I believe it is your easiest way to start your investing journey.

Step One:

Choose the account type.

To buy stocks you will need to open an investment account.

This is very similar to opening a bank account.

You can open either one or all of the following types:

1) General investment account: you will have to pay tax on any earning.

2)Stock and share ISA: Can invest up to 20k per year with no tax on your earning or investment returns.

3) Stock and share Lifetime ISA: Can invest 4000 year and will get 1000 bonus from government, no tax on any earning but cant take the money out before 60 years of age of for first home <450k price

4) Stock and share pension account : No tax, will get 20% (minimum) tax return but cant take the money out before pension age. Now 55 will be 57 soon.  

So for regular investor who works a regular job “Share and stock ISA” is the best option. No tax , no headache. No restriction on taking your money out. If you invest less than 2ok a year, you are good to go.

Step two:

Now that you have decided to open S&S ISA account, the question is,

Which platform should you use?

There are plenty of platforms to choose for S&S ISA.

Vanguard, HL, AJ bell, Trading 212, Invest engine, Almost all the banks are there as well.

However the following criteria should help you choose the best one for you:

1) FCSC regulated. If the company you are investing with is FCSC regulated, You are protected up to 85k by government if the company goes down. Almost all the big names are FSCS protected.

2) Platform fee or ongoing cost. Most platforms have a fee/charge or ongoing cost to use their platform or to buy and sell stock. The cheapest options are invest Trading 212 and invest engine. The platform fee is zero for these two platforms. Amazing.

So for now lets focus on these 2.

#Trading 212: zero platform charge. Zero fee. Only 0.15% Fx charge when buying non GBP shares : ie : to buy apple. But this is the lowest cost in the market and its included in the transaction, so you don’t really feel any cost. Has almost all the shares and funds to choose from. I personally would recommend this one. The app is the best in the market.

#Invest engine: Zero commission but only has ETF like S&P 500 but cant buy single stock in this platform. I feel the app is not as good as T212.

All the other platforms have a platform charge from 0.15% up to 1%. So not discussing any of them here for opening an ISA account. If you are opening any other account other than ISA , most have platform fees. We will discuss those letter. Lets open the most affordable, easy to use and established platform.

        So trading 212 is the simply the winner

(They are now well established and they have around £4 Billion asset under their management and they are FSCS protected. So your money is safe. However please choose at your own risk.

You can get free shares if a friend shares a code with you. Ask your friend. You both get shares. )

So you have downloaded Trading 212 and opened an account. Congratulations. Now the actual fun begins.

Let’s invest

We will talk about what to do next:

Chapter 2: Deciding on your goal:

Now that you have opened an account in Trading 212 Stock ISA, it’s time to do some research and then possibly start investing.

So what can you buy?

You can buy single company stock, like apple Microsoft, McDonald etc. Buying in trading 212 is pretty much self explanatory.

Or you can buy index fund or ETF. Please see the ETF chapter to more know about ETF.

Few popular ETFs:

Vanguard FTSE all world

Vanguard FTSE 100

Vanguard S&P 500

Vanguard FTSE Developed world

Vanguard FTSE emerging market

These are example of vanguard but You can choose other companies like iShare, HSBC etc

Now that you know what you can buy, lets see what

should you buy?

To answer this, you need to decide your goal. The usual goals are

1) Short term goal like day trading or swing trading where you predict the market and buy when you think a stock is at a low price and sell high within few hours to days or weeks .

2) Long term goal , ie buying regularly for long term and invest mostly in more stable companies or index funds.

To invest short term, you need to be proactive and need to keep an eye on the stock all the time. There is a chance that you might make huge returns within short period of time , however the risk is similarly high.

Again, more than 70% people would loose money buy short term investing.

On the other hand, long tern investing is a bit boring and usually the returns are not as lucrative. However, it is very stable and more rewarding over long term and it has the benefit of compounding interest due to long term investment.

We have all heard stories about people loosing all their money in stock . They are mostly stories of short term risky investment.

So my advice strongly is to invest long term in stable index funds but you are feel free to learn and invest in any stock or funds you like as long as you understand the risk.

Thats chapter 2.

Will talk about how to choose short or long term investments in chapter 3.

Chapter 3: learning to invest :

Either you want to go short or long term, you have decided to invest, You are in 23% of UK residents who invested in 2024.

77% UK residents did not invest in stock market this year. So you are in the elite group of investors.

Lets start.

When buying an individual company there are lots of fundamentals to consider. We have discussed this in Chapter 4.

Before that let’s talk about type of stock/company briefly.

There are two type of stocks, growth stock and income stocks.

1) Growth stocks : Growth means this type of companies are aimed at giving a faster and better return. That mostly means that they focus on scaling the company, so you expect your investment grow quite fast.

Most US companies , especially the tech stocks are growth stock, hence you see a return of 33% for Microsoft in last year alone.

2)Income stock: They usually share all the profit among the share holders. That’s called Dividend. Usually paid quarterly. Great source of passive income as regardless of the performance of the stock/company, you will get an income every 4 months or so.

As the “passive“ word is there, you guessed it , most UK companies are income stock. They might not be great for growth.

For instance BP ( British Petroleum) gives you 4.83% dividend but the growth for lat one year has been 3.36%

But look this is not always the case and there are companies who does have very well growth and pays good dividends.

But generally income stocks distribute the profit and growth stock reinvest it to grow the company.

Another issue with income stock for beginners is that the income is usually very low make a significant difference.

For instance S&P 500 has a dividend fund, called S&P 500 (Dist). It gives you a dividend of 1.35% .

So for an investment of £1000 you will get a return of £10 per year .

To get £1200 dividend per year or £100 per month, you need to have £125k invested in S&P 500.

So unless you have a significant amount to invest, focusing on growth companies would be better.

For individual companies it will be mentioned if they are paying dividends or not.

For funds (Dist) or distribution means income fund where you will get dividends.

(Acc) or accumulation means your dividend gets reinvested.

So now if you have decided you want to invest in growth or income stocks. Now let’s look into company or funds individually to find your next investment.

Chapter 4 would be all about fundamentals of individual companies and chapter 5 would be all about index funds.

Chapter Four: Basics of an individual stock. ( Mainly focused on Trading 212 info)

There are lots of ways to analyse a stock . You can do more than few PHDs on how to analyse a stock and the sky is the limit as they say.

However, few are considered basic financial indicators of a company. I will try to explain each of these indicators below: Fair warning, this is quite superficial but nerdy. So hang tight.

 Market cap: This is the total valuation of a company. It has nothing to do with how a business is doing. Its more what people consider to be the value of the company. So if a company has 1 million share in the market and each share is worth $100 then the market cap is 100 million.

Apple has 15.33 Billion share in the market and each costs $210 today. So apple’s market capital is 15.33Bx210= $3.2 Trillion.

Revenue and net income: Revenue is the total gross income of a company in a year and net income is the actual profit from it.

ie: Apple has sold products worth $ 383B last year so their Revenue is $383B but they actually made a profit of 94B after costs and taxes.

PE ratio: Price/Earning ratio.

Price implies “Market capital”

Earning here means net profit.

Apple’s market cap is 3.2 trillion or 3200B and earning is 94

So apples PE ration would be 3200 /94= ~34

This is a very good indicator of how close the company valuation is to their actual earnings.

The lower the PE ratio is the accurate the company valuation is in the market.

PE ratio >20 considered overpriced.

Most tech share currently are over priced.

For contrast, Volkswagen the biggest car company’s PE ratio is 3.2

HSBC’s PE is 7.65 but still people are more interested to buys overpriced tech stock.

Simple SupplyDemand

So the main takeaway from this is that market is never rational but more importantly these number varies hugely between different sectors.

EPS: Earning per share. Net income per share. For example Apple’s net profit was about $94B and again they had 15B share in the market, so earning per share was about $6.3

Beta: This indicates volatility of a stock compared to the market. So beta of a company listed is the US market tells us how volatile this stock is compared to the US index ( Whole US stock market)

Us Market’s beta is 1

If beta of a company is < 1 it means its stable than the market and if it is > 1 then it is more volatile than market.

Volatile means the stock would likely go up and down easily so usually considered a bit risky.

For example: Apples Beta is 1.25 and Microsoft’s beta is 0.9 so Microsoft would seem more stable company than apple based on its market volatility.

Last one: Thank god.

Dividend: Most company share a percentage of profit with the share holders. Some share 100% of their profit to holders and other share a percentage.

It is usually shows as percentage. Roughtly speaking, Apple pays 0.47% dividend. So if you have invested $100 in apple for a year. You will get $0.47 in a year as dividend. Does not seem much but if you have $100k invested then you will get $4.7k per year regardless of the share price or if the share. This is just passive income.

That’s enough for today.

These are not enough obviously but can be a good starting point.

See you in chapter 5 if you have survived this one.

Chapter 5: Basics to choose Index funds:

We learnt about financial fundamentals of a single company in Chapter 4 and hopefully that would help you narrow down your single company investments.

This chapter is all about Index funds. Please also check out a post named ETF.

I expect you to be able to finalise or narrow down your investment choices even further.

Index funds:

To choose what index fund to invest in, following are the areas we would have to decide:

1) Area:

2) Sector

3) type

4) Index tracker.

5) Cost

6) Company

1) Area: which geographical area you want to invest in. You can choose literally any part of the world or in combination but following are the common examples.

*Global: This funds invest in almost every reputable stock exchange all over the world. Considered most stable stock.

*Developed world: This fund invests in North America, Europe and other developed country like Japan, Australia, South Korea ( Some index put it in developing market)

*Emerging market: Mostly includes Chinese, India, Brazil, Thailand etc. This fund is quite volatile unsurprisingly.

* Country based index: S&P 500, FTSE100 (UK), FTSE japan, FTSE India etc.

* Sector based Index: ie: Index funds for only tech companies, AI companies, Automobile companies. Companies in clean energy sector.

2) Sector: Hottest sector right now is AI and long term favorite is Tech but to have diversified portfolio there are other sectors like real estate, energy, retail etc.

3) Type: Income or growth: We already discussed income vs growth in chapter 3.

4) Tracker: Index funds track indices created by companies like S&P, MSCI, FTSE.

They Just include or exclude slightly different companies based on their sector or area. Will talk about it in a later chapter in detail.

Generally speaking FTSE are better known and commonly used by companies like Vanguard or iShare although not exclusively.

5) Cost: As most index funds are available in GBP, the only cost you meed to consider is the ongoing index charge. You can find it in “key information documents “

Obviously the lower the better. Usually between 0.05% to 0.33%.

6) Company: Asset management companies don’t really matter to me as almost all are same in Trading 212. Obvious options are Vanguard, iShare, Invesco, HSBC and the only factor that might matter is the price.

For example, Vanguard FTSE all world is 0.22% where Invesco FTSE all world is 0.15%

Now, I will give you an example of how I chose from each of these sections and finally decided on the investment.

If you want to invest in stock that grows very well NASDAQ 100 (Top 100 USA IT companies) or S&P IT (All IT companies in 500) but its too tech heavy so you can choose S&P 500.

But you don’t want miss the other markets like Europe or china , so FTSE global would be a great choice.

But FTSE All world gives you an annual return of 8.5% but S&P 500 is around 16% over last 5 years.

So in my ISA I keep these 3 Indexes.

1) Vanguard S&P 500 Acc (35%) Same cost as any other S&P 500, Cost 0.07% , 1 Year return 25.45%.

2) Invesco FTSE all world acc 25% , Cost 0.15% . You could choose vanguard but it costs 0.22% . 1 year return 21.89%.

3) iShare S&P 500 IT acc. (15%) Cost 0.19% . 1 year return 46.41%.

A slightly different alternative is NASDAQ 100 but it costs 0.33% with slightly lower return.

Now you choose yours.

(These are all current return figures by the time it was written , In june 2024)

See you in Chapter 6.

Chapter 6: Finishing up: Please read this one.

This last chapter of basic introduction to investing is going to be a short one.

If you have gone through chapter 1-5 , you should have some idea about what type of investment is suitable for you .

Chapter 6 is to get you emotionally ready to start investing. Please read the “Simplified steps to start investment journey” to crack on.

Now, consider few essential elements of personal finance and investing before you start. These are so important in my humble opinion that these alone can make you a better investor than all the million words I have written in last 5 chapters. lol. Here goes:

Please be completely debt free, if not possible at least consumer debt (Credit card, personal loans) free before you start investing. Otherwise it will break your regular investment. The best investment is regular uninterrupted investment. This gives you the best return over the years.

Do not invest if you need this money in next 2 years . This prevents you from force selling at loss when the market is low.

Don’t base your whole investment on timing the market. You can play a little on single stocks when you understand the basics and if you are ok with loosing all of it.

Don’t put all your eggs in one Basket. Diversify. Thats why index funds are better. It is a readymade diversified investment. You never know which company, sector or country is going down next.

We can’t finish without a Warren Buffet quote can we? This is so important for long term investors.

“The most important quality of an investor is temperament, not intellect “ - Warren Buffet.

“You don’t need to be smart to be a great investor, you just need to hold your horses when it’s going up and don’t panic when it’s going down”- SS lol.

 Jokes apart, with very little knowledge that I have I will say this

“If you feel better when your share goes down, you have certainly learnt the very basic of investing “

It’s like when your favourite item is on discount. You have no doubt it is going to go up and you cant buy enough of it.

Your investment should be your favourite perfume or book or shoe or whatever you like that you want to have more of, not something you want to get rid off on every opportunity .

Have a bit of fun with it if you are happy to loose it but trust me, real fun is when you see your money grow without even the fear of loosing.

Investing basic finishes here. Hope this was helpful. If you are unsure about anything , ask questions and I will try and elaborate.

Will talk about pension, tax, debt, finances and obviously investing regularly. Stay tuned.

Happy investing guys.