With the current economic climate being a brilliant buying opportunity, I thought now would be a good time to discuss what I myself invest in. It is important to note, however, only invest money that you can afford to part with for a significant time i.e. 5 years or more. The last thing you want to do is invest money but then have to withdraw it not long after risking loses or withdrawal penalties.
Why 5 years or more? As a general rule of thumb, the stock market will always go up. But on the way up there will be falls by way of corrections or crashes (like now). The reason why you should take a long term view for you investing strategy is so that you can take advantage of compounding interest, which will smooth out the rough patches along the way.
How much should I invest?
Honestly, as little or as much as you are able to. There is no one size fits all approach to investing, everyone has their own circumstances. Generally I invest only around 8-9% of my income. The reason for this is most of my savings currently is going towards my savings account for a house deposit. If I wasn’t saving for anything in particular my investing rate would be nearer to 30% of my income.
Stocks and Shares
I do invest in individual companies typically through my Freetrade account. I own shares of Lloyds Bank (LLOY), National Express (NEX) and Microsoft (MSFT), along with many more. I like to invest in companies because of what products and services they provide which will also provide me with a dividend income which I can grow over time. The downside to investing in companies is that it is more risky that an ETF which will hold hundreds of different stocks spreading out your risk.
When investing in companies it is important that I follow a strategy plan. This means that I invest in companies that meet certain criteria. I like companies to have low or manageable amounts of debt, a low payout ratio (but still good yields) and to be reasonably ethical. In terms of ethics I do not invest in fossil fuel or tobacco companies. Additionally, it is important that your portfolio of companies is generally diverse, I don’t invest in only one sector of the economy.
If are interested in starting your own investing portfolio, I would recommend looking at the Offers Page for free shares or cash bonuses.
Exchange Traded Funds (ETFs)
My stocks and shares ISA which I hold with Trading 212, is primarily based in index ETFs. An ETF is essentially a fund which consists of hundreds of companies to represent a sector of the economy or to mimic the performance of an index. The idea is that if the FTSE 100 was to go up in value so too would a FTSE 100 index ETF.
The benefits of owning ETF shares is that they are already diversified and therefore lower risk than investing in individual companies. My stocks and shares ISA is my core investment fund so I like to have ETFs make up the majority of its portfolio. That being said I do have individual companies in it as well. My favorite ETF that I would recommend for any portfolio would be a S&P 500 index fund.
Peer to Peer Lending
While this makes up only a small percentage of my investment portfolio, it is something I am keen to grow over time. Peer to Peer lending is when you invest your money to be lent out to other people or business, in return you earn interest on what has been lent out. This form of investing can provide a good regular form of income which can be reinvested to generate further growth.
I personally use RateSetter which is a very easy to use platform. On the Offers Page there is a sign up bonus of £100 if you invest £1,000.
I also contribute via my salary to a pension which I am unable to access until I am at least 55 years old. This is a workplace pension scheme where my employer contributes 3% and I contribute 5% of my salary. The provider that my employer uses is NEST (National Employment Savings Trust), its not the best provider as I am very limited in what funds I can invest in. Plus NEST only offers managed funds rather than index funds which generally have a higher rate of return.
My pension is currently invested in NEST’s Ethical fund as this offers a higher rate of return that the default retirement dates fund that they put you in. Although I am not a fan of NEST I won’t be opting out of the scheme as I would also loose my employers contribution.
There are other forms of investments such a crypto currency, commodities and physical real estate. Currently I do not invest in any of these. I probably won’t in the future either as I have little interest in them.