Investing Basics from a novice

My aim is to learn as much about money as I possibly can. The reason I set out to do this was to improve my financial situation.

The financial journey I have been on so far is a bumpy one. My intention is to learn about all things finance and pass the information on to other people. Money is very important and I want to achieve Financial Independence before my 50s and certainly before my 60s.

How I am going to pass the information on initially is to go over some of my mistakes. I want as many people as possible to learn from my mistakes as possible.

Before I delve too deep into investing, I am going to highlight some of the basics:

Basic terms worth knowing

  • Asset allocation – this is an investment strategy that looks to balance risk and reward. The portfolio is chosen according to your goals and risk tolerance
  • Bonds – this is where you make a payment (Loan) to a large organisation (e.g. Government). If you get UK Government Bonds you are giving the British Government a Loan and they pay you interest (% depends on what bond you invest in)
  • Compound interest – is basically interest on top of interest. It is interest calculated on the initial principle, which also takes into account all of the accumulated interest of previous periods of a deposit or loan
  • Financial Independence – when you have enough money so that you and the family can live off the income from your assets and never HAVE to work again
  • Fund – is a type of collective investment scheme under which all fund participants invest money together. Popular funds will have thousands or regular people like me and you all investing our money together
  • Index Investing – made famous by John Bogle (founder of Vanguard). This is where you track the stock market. You have a small slice of several companies within your fund
  • ISA – Individual Savings Account. This is tax free and in the UK, each individual can invest up to £20,000
  • Mutual funds – again you have a small slice of several companies within your fund. Your fund is managed by a fund manager who TRIES to beat the market
  • Net worth – this is where your focus should be (not on your daily rate or yearly salary). It is the value of all your investments (minus liabilities)
  • Rebalancing – this should be done every 12 months (possibly every 6 months depending on your funds performance or if you put additional money into your funds). Let us use a simple example: your portfolio is split into 70% shares and 30% Bonds. In your 1st year your shares perform better and your allocation is now 80% shares and 20% bonds. At the end of year 1 you will adjust your fund so it reverts back to your desired weighting (70 / 30 split). If you are not sure how to do this, seek advice from your accountant or financial advisor
  • Shares – the stock of the company is sold in units called shares. A share is a unit of ownership, or equity, in a company or a corporation. Stocks, shares and equities are basically the same thing
  • SIPP – Self Invested Personal Pension. A UK pension plan that enables the holder to choose and manage the investments made. Until 2019 (36 years of age) I had never heard of a SIPP. FRIGHTENING
  • Transaction cost (TC) – I have had costs in the forefront of my mind since my 1st ever finance book (T Robbins – ‘Money Master The Game’). These are normally hidden charges that we all need to be aware of. READ THE SMALLPRINT. These costs are buried but if you are aware they exist, you have a fighting chance of discovering exactly what you are getting charged

Investing is a very important topic and is essential if you want to become Financially Independent (FI). I used to dream about paying the mortgage off and retiring early. Now I have changed my goals and now dream of FI so I have the choice of working or not working. I am convinced that the more knowledge I acquire about money will get me closer to my FI. Hopefully this will also be the case for you as we learn together.

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