There are so many headlines right now telling you to start investing, buy gold, save 15 of your salary for retirement.
But also avoid tech stocks, because an AI bubble is about to burst.
Which of these headlines are right and what should you actually do?
I've spent almost a decade in banking and in this video I'm going to cut through the jargon that I spent years learning to give you a tried and tested strategy that works.
I'll tell you exactly what you need to be doing, not only to protect your finances, but also to make sure you come out ahead in the long run.
Let's start with part one, the basics.
What is investing and why does it matter so much?
At its core, investing is just using your money to make more money.
That is it.
Why do you need it?
Why do you need your money to make more money?
The first is inflation, which makes your cash lose value over time.
Prices rise, but the money sitting in your account doesn't.
So if you've got 1000 sitting in your account in a few years time it might only buy you 800 worth of stuff.
Doing nothing feels really safe, but it's actually a slow way to lose your money.
The second reason you want to invest is because it is the easiest way to get rich and build wealth.
Because we are living in an economy where owning assets, like property, like stocks, like businesses, is rewarded far more than simply earning a salary.
If you think about it, someone who bought a house over 20 years ago has probably seen its value more than double.
Someone who invested in the stock market has seen their money grow around 8 to 10 a year on average, if they did it correctly.
But salaries, they haven't been as oppressive.
And they have barely kept up with inflation.
And so if you want to stop feeling like you're constantly falling behind and in this cycle of just earning spending, earning spending, you need to understand and start using this to your advantage.
You need to be investing.
By the way, we are covering how to invest as a beginner in this video.
But if you're really looking to take this whole investing thing very seriously and start making your money work for you, I've got a completely free live workshop.
We are going to cover what to invest in, how to do it safely in the current market, and how to compound your wealth over time in a way that is as close to a guarantee as you can get.
It's 45 minutes, completely free.
You can sign up at nisha.me forward slash invest or click the link in my description.
Let's move on to part two.
How does the stock market work?
All right.
So now we've covered why investing matters.
Let's talk about how the stock market actually works, because it's one of those things everyone's heard of but very few people really understand.
When you buy a share, you're literally buying a small piece of a company.
So if you buy one share of Netflix, you now own a tiny fraction of Netflix.
So you're basically saying I believe this company will keep making great products and keep becoming more valuable over time?
And I want to make money from that growth.
Once the company has decided to offer shares to the public, you can buy those shares on the stock market, which is basically just a marketplace where people trade tiny pieces of thousands of different companies.
And those prices go up and down all day based on what people think that those companies are worth.
Now, there are two main ways you can make money from this.
The first is when you buy a stock and the price of that stock rises.
So if you buy a share in Netflix for 100 and then a few years later it's worth 150, you can sell it and make a profit.
It's that simple.
The capital gain.
That is your profit.
The second way is through dividends.
Some companies share their profits with investors by paying them dividends on a regular basis.
Some companies pay dividends every three months but others are also annually.
It's basically the company's way of saying thank you for being a shareholder and to encourage people to keep investing in them.
Now you're probably thinking okay well, that's all well and good, but what actually do i invest in?
Do i invest in netflix?
And you could do, but it's a bit risky, even though netflix is one of the biggest companies in the world.
It's risky because even the biggest companies can go out of flavor or struggle for years at a time.
For example, remember when we all had a blackberry.
If you bought one blackberry stock for 144 back in june 2008, it would be worth 452 today.
Back then, we all thought that it was going to be the next big thing.
Very few could have predicted that within a few short years we would ditch BBM for iMessage or WhatsApp.
Even if you spend your evenings reading company reports and analyzing balance sheets which realistically not many of us want to do it's incredibly hard to know which companies will do well in the long run.
That's why most successful investors don't bother trying to analyze and guess the winners.
Instead they just buy all of these big companies at once through something called an index fund.
An index fund is basically a big basket of hundreds or even thousands of shares designed to track the overall stock market.
So, for example, you can invest in a fund that tracks the SP 500, a stock market index that includes the 500 largest companies in the US, including Apple Microsoft Amazon Google, Tesla and so many more.
And here on the screen, you can see how it's performed over the last 30 years.
If you invested 100 in the SP 500 at the beginning of 1996 and reinvested all of your dividends, you'd have about 1764.
That's a return on investment of about 1,664% or roughly 10% per year.
Or if you're taking into account inflation, it would be around 7.52% per year.
So, instead of putting all of your eggs in Netflix's basket or Apple's basket, you can reduce your risk and build a diversified portfolio by investing in an SP 500 index fund.
If some companies go down but others go up, you still benefit from the general upward trend of the market over time.
You'll own hundreds of businesses across dozens of industries, including tech, including energy, including healthcare, including finance.
And You might look at the SP 500 and look at what it's made up of and think why don't I just get the best performing companies in there invest in the main ones?
And for instance, the Magnificent Seven.
And by that, I mean Apple, Microsoft, Amazon, Google, Meta, Tesla, and Nvidia.
They have dominated the US stock market in recent years.
So I get why you'd want to just focus on those.
They are the ones that have had the biggest gains.
Why don't you just go all in on that?
But Looking at the SP 500 between 1980 to 2020 shows the biggest companies have changed a lot over time.
Back then, the market was dominated by completely different companies General Electric Walmart, ExxonMobil which just goes to show how risky it is to depend on a small number of companies.
There is absolutely no guarantee that today's winners will still be in the lead a decade from now.
Looking back even further in the 1960s and early 70s American Express McDonald's Kodak, Coca-Cola they were the big names and investors assumed they would keep growing.
But the bubble burst in the mid-1970s, with many seeing a huge drop in share price.
Kodak's fell by more than 90.
So that's the point I'm trying to make.
You just don't know which companies are going to be at the top.
Something else to keep in mind is that the US economy has its own uncertainties right now, so it may make sense to invest in funds from other parts of the world too.
No one knows which country or which company will lead the next decade.
So by owning a little bit of everything, you can reduce the risk and have a really concrete long-term plan.
And now let's move on to part three, which is how to actually invest.
Because now you know what to invest in, how do you actually start?
So here's what you need to do step by step.
First, you'll need to pick an investment platform.
Wherever you are in the world, this is just the website or the app you'll use to buy and manage your investments.
The key thing to look at here is that, or to make sure is that it's regulated, reputable and has low fees, because over time, the smallest fee difference can massively eat into your returns.
Before signing up, have a look at the different types of accounts available on that platform.
Some offer general investment accounts where you may have to pay tax on your profits, and others will provide tax efficient accounts, such as the stocks and shares isa in the uk, the tfsa if you're in australia, or canada nisa for in japan.
If you have access to a workplace pension.
This might be even more rewarding than a tax efficient account, as in many parts of the world, your employer will also match your contributions too.
So if your employer does match that, look into this option first, so your portfolio can grow even quicker.
Step two once your account is open, you'll need to add some money, usually by bank transfer or by debit card.
Step three, then you want to choose your investments.
Remember what I said earlier about index funds generally being less risky than individual stocks?
As tempting as it may be to build a portfolio with your favorite companies individually, you'll usually make less money that way than you do or than you would with funds.
That's what you want to do.
Start with global diversified funds.
And then, as you learn more, you can get more nuanced and increase your returns by adding more structure to your portfolio.
Step four, here's the part that most people overlook.
Automation.
Instead of trying to pick the perfect moment to invest, you can set up a monthly direct debit.
So a set amount that is invested automatically.
100 a month, 200 every month.
By investing small and manageable amounts regularly, you can smooth out the highs and lows of the market.
This is known as dollar cost averaging.
Some months you buy when prices are high and other months you buy when they're low.
But over time it tends to average out and, most importantly, you remove the temptation to mess about with it.
And then part four, The million dollar question.
What if it all goes wrong?
Before you dive in, let's talk about this.
What if the market crashes because it's at an all-time high or the companies you've invested in stop growing?
Well, the first thing to keep in mind is that if you've invested in funds rather than picking individual stocks, you are already well protected.
By diversifying your portfolio, you'll find it much easier to to ride out market turbulence, even if some companies fail or the market crashes.
That's why diversifying, not only across funds, but also across assets, is so important and, to be honest, the biggest risk for most investors isn't actually the market itself, it's themselves.
For example, let's see you see some guy on the news saying that we're heading for a crash.
You might panic and sell your investments, only for the expert on the news to be completely wrong.
Best case scenario, you sold it for a profit and you could always buy back in.
Worst case scenario you sold it at a loss and you realize that loss and it'll cost you more money to buy the same investments again.
Automating the process stops you from panic selling when things dip or for trying to wait for the right time that never, ever comes.
So if you've been thinking of investing but you haven't known where to start, I hope this video has given you the confidence to take that first step.
If you'd like to dig a bit deeper and figure out how to choose the right funds for you and identify the best exact time to invest and protect yourself from common investing pitfalls, you might enjoy my free investing workshop.
Once again, it's on Sunday, the 26th of October at 5pm UK time.
Doors are closing in a few days and it's designed specifically for beginners.
By the end of it, you'll walk away knowing exactly what to do next.
And I promise not to bombard you with boring investment jargon or overwhelm you with numbers.
It's just a clear plan to get your money working for you.
Thank you so much for watching.
You could click the link in the description to sign up.
And don't forget to subscribe if you haven't already.
See you in the next one.
