Today I wanted to cover some really simple basics of how to get started with investing in 2021. This video won’t cover everything, for example, investing in property. But hopefully it will give those of you who have limited knowledge in this space, some really simple and Basic ways to grow your wealth. Now, apart from the obvious reasons of wanting to grow your wealth, inflation means that you will lose money over time. One of the examples of inflation is looking at the price of coffee over a long period of time. As the price of coffee increases, your money ends up being worth less overtime. So now we’ve covered why investing is important, we’re going to need.
And there are different investment platforms out there and depending on your needs. But for now, I’m just going to recommend three that I’ve used and love which are relevant in the UK. The first one I’m going to cover is not make no not make is a really simple and easy to use investment platform. They have some really simple guides of how to get started with investing, taking you through the process in a really easy to understand way. One of the things you can do with nutmeg is have a managed fund non managed funds. But we’re going to be covering these principles later on in the video. For now, I just wanted to highlight nutmeg probably the best platform to use if you’re just starting out.
Now Hargreaves Lansdown is a little bit more complicated, it operates on the same principles. What Hargreaves Lansdown allows you to do is to invest personal funds and to pick and select unique stocks from companies. It offers more capability than not make does, but at the same time is definitely, you have a look at Hargreaves Lansdown, there’s different ways to set it up. And finally, I just wanted to cover another option, which is regular life. Standard life, other options is one of the ones I’d recommend for pensions.
pensions are slightly different to mutual investments in that you want them to be spent over a long period of time in a relatively safe way. I found regularlife from a pensions perspective, it’s just much easier to use a much more simple than some of the other platforms I’d mentioned. Both nutmeg and Hargreaves Lansdown do have pension options. But to be honest, regular life, I found is a much better option for this.
Now that you have a mechanism for investing, you’re going to need some investment principles. This is where this video gets really important. Regardless of whether this is for your pension or for your personal finances, here are my top five principles, which I would try and stick to if you’re just getting started with investing this year. So the first principle is to invest what you are willing to part with. Now this sounds really obvious, but you’ll be amazed at how many people get sucked into investing more and they see their investments either rise or fall. Never ever leverage your money beyond what it is worth. And don’t get drawn in to advertisements, allowing you to over leverage your personal wealth in the promise of a big gain. Definitely spend what you’re willing to lose. That’s Principle number one. The second principle is to never invest in private companies or stocks.
This is where beginner investors always fall down. You’ll hear a lot about Tesla stocks or Apple stocks doing. And it’s easy to get sucked into an unique investment based on short term performance. But unusual companies it can disappear. And it’s really very risky unless you know a lot about the business and how it operates its long term prospects. So instead of doing this you need to spend in funds. Our fund is a collection of individual investments often managed by a fund manager who selects specific investments based on what that fund is trying to achieve.
For example, if you spend in an environment or sustainability fund, then they will try to invest in the best company is related to that pursuit. Funds are a safer investment because they spread the risk across multiple different companies. So if one goes bust, it won’t damage your portfolio. This leads nicely on to Principle number three, which is, always invest in large scale tracker funds, more commonly referred to index funds. I call them tracker funds because that is basically they do. They track a specific market like the s&p 500, which includes the 500 largest companies in the US, or the NASDAQ.
Warren Buffett, who I imagine most of you will have heard of, is regarded the greatest investor of all time, and the seventh richest man in the world consistently claims that no fund manager has ever been able to beat the s&p 500 over a 10 year period. A bet on the s&p 500 is a bet on America. If you have a look at the performance of the s&p 500 over the last 15 to 20 years, you’ll see what I mean. The difference between a tracker fund and other funds is that a tracker fund has a very low management fee, often below 1%. Because an algorithm tracks the market, there is no fund manager. This is different to other funds, because they are actively managed by a fund manager and have fees associated to them from between one and 10%.
This is really important to note, because even though a fund performs, high management fees can often offset the increased performance, you sometimes see over a simple tracker fund. In summary, if you’re just starting out, index funds are a much smarter way to invest. One thing to note here is that there are multiple different types of index funds that attempt to track the market you’re looking at. You’ll see here, for example, we’re looking at a NASDAQ index fund. But what you’ll notice is that it is hedged in a British Pound format. Basically, this fund is good because it will automatically try and take into account the rising and falling of change rates depending on the country you’re investing from.
In this example, it’s in Great British pounds, and is hedged in that format. If you don’t choose a hedge fund, there is a risk that the fooling value of your currency can affect the returns you achieve quite dramatically in certain cases. The fourth principle is about trying to get global exposure. If the pandemic this year has taught us anything, it’s that an overexposure in one particular country or market is very risky business. Even though America has been a financial powerhouse the years now, the US stock market is an incredibly fragile state. Regardless of what happen over the next year or so in the US to limit your charts to taking on financial losses. It’s important to diversify your investments across global economies.
For example, investments in China and Asia have seen a very strong performance update. Not only is Asia the new powerhouse of global industry, but it’s managed the pandemic much more effectively than the West and a result have taken on less government debt. This makes the Asian markets an important part of anyone’s future investment portfolio. If you want to diversify your risk and bet on the future. The final principle is really, really simple. It’s a bit of a cheat because it’s two in one, start early invest over the long term. You’ve probably heard this before. But if invest early enough, even the smallest amounts can compound time with growth.
The sooner you start, the faster you will grow your wealth. The long term part of this is really key. Practically speaking, the minimum amount of time you should think an investment is over a five year period. And to be honest, you’d make that a 10 year period. There’s only risk in investing if you sell something for less than you bought it. Beginners often see their stock falling over a period of hours, days, weeks and months and get very scared and sell. This is the worst thing you can do. Because at the Point of selling you’ve taken on that loss.
It sounds counterintuitive, but the best thing you can do is forget about your investments for a few years. bs a final side note, think investing funds that specifically target environmentally beneficial companies and avoid unsustainable businesses like oil and tobacco. This is a pretty safe bet for the long term. So guys, those are just some simple investment tips to help you get started in 2021. Let me know if you guys found this useful and there’s anything else you wanted to know more about. Hopefully you enjoyed the article and I hope to see you back again soon.