Issue #003: A Guide To Investing + My Favourite Platforms

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👋 Afternoon Gang,

A super quick note for our new members who wanted to know the ONLY 5 money accounts you will ever need! Well, you're in luck because you can find the link to that right HERE.

Now that we've got that out of the way, let's take a look at this week's topic. I will not only discuss how and why to invest, but I'll also be breaking down the various investing platforms that I love, as well as explaining what type of person they might be right for.

Alright, let's dive in 👇

P.S. As with all investments, your capital is at risk. Your investments can both fall and rise, and you might get back less than you invested.

📈1% Better Every Day

A Guide to Investing

#1 Get Your House in Order

The fact that you're reading this newsletter and that you are keen to start investing is incredible; it really shows that you are actively trying to improve your personal finances. However, before you do invest, it is absolutely vital that the rest of your personal finances are in a good place. The main questions/things that I would be looking out for are:

1. Trying to achieve returns of 8-10% annually in the stock market is irrelevant if you are still paying off a credit card charging you 20% interest.

2. Having 3-6 months' worth of living expenses tucked away is vital before you put a penny towards investing. Your key is not to touch these investments for at least 5-10 years, if not more, so make sure you have some cash tucked away to cover any emergencies should they arise.

There are other areas of your personal finances that you might want to organize first as well, such as a short-term savings bucket for your next holiday or your pension contributions, but the two above are absolute musts for anyone and everyone!

#2 Why Invest in the First Place?

Now, you're ready to start investing. It's important to understand why investing is such an important thing to do. These are three key reasons why most people choose to invest their money:

1. Build wealth over time

It seems that the internet is now filled with gurus who insist they know how to 'Get Rich Quick.' I hope by this point you've figured out that there is no true way to get rich quick (at least not by following any of their methods). If you thought investing was going to be your solution, you are going to be sorely disappointed. Investing is all about building wealth over time, not getting rich overnight. So if that still interests you, I guess you should keep reading.

2. Outpace inflation

This is one of the primary reasons to invest, and it seems even more relevant now given the crazy high inflation rates we've been seeing. Over the past 30 years, the stock market has returned 9.75%. In that same period, inflation has averaged 2.8%. Even at the point of writing this, with savings account interest rates at record highs, they still aren't outperforming inflation, meaning that in real terms, you are losing money. Investing is quite simply one of the best tools we have at our disposal to outperform inflation over the long term.

3. Passive income

Passive income seems to be the holy grail when it comes to personal finance—the idea of earning money while you sleep. While there are plenty of creative ways that people try to generate passive income, they all do require some level of work to get started in the first place. Investing, on the other hand, is one of the purest ways to generate passive income. Once you've set up your fund (which could take less than 10 minutes) and automated your payments (another 5 minutes of work), you could quite literally never touch your investments ever again while they work tirelessly to grow your money day and night.

#3 Busting some Investing Myths

There are two common objections that I hear all the time on my social media when it comes to investing, and I'm going to address both of them right here, right now.

1. "I'm too young to invest."

Unless you're younger than 18, where you can't legally start investing (unless you look into a Junior ISA), this statement couldn't be more false. If there is one common thing that all investors have in common, it's that they wish they had started sooner. And trust me when I say, there isn't a lot that investors have in common, so you should take that statement seriously. But don't believe me just yet, because I want to prove it to you with good old-fashioned mathematics.

Let's take two investors under the following conditions:

• Both invest £150/month.

• Both get average returns of 10%.

• Both invest until the age of 60.

The only difference is:

• Investor A starts at 18.

• Investor B starts at 30.

At the age of 60:

• Investor A has £1,011,338.

• Investor B has £309,427.

Myth #1 officially busted (I'm metaphorically dropping a mic right now).

2. "I Don't Earn Enough to Start Investing."

Anyone else thinking it's time for some more math? Yeah, me too! The average starting salary in the UK is roughly £2,000/month. Let's say you were able to put 10% of that towards investing. Getting the same returns as above, it would take you 39 years to reach £1 million in investments. And that doesn't take into account any pay raises that you would get over that 39-year period.

By dispelling these two myths, it's clear that investing early and often is one of the biggest advantages you can have towards building a large pot of wealth later in life. Just to add some further perspective, here is how much you would need to invest to get to £1 million at 60 if you started at different ages (assuming 10% returns):

• If you start at 20, you need to invest £180/month.

• If you start at 30, you need to invest £485/month.

• If you start at 40, you need to invest £1,400/month.

• If you start at 50, you need to invest £5,000/month.

Yes, I did just pick the mic back up before dropping it again.

#4 Open the Right Account

Before I dive into finding the right platform(that actually comes in the next section, but you get what I mean), I want to alert you to one of the biggest investing mistakes that people make when selecting the right account. You see, when you go to open a new account here in the UK, you will be offered two options:

1. General Investing Account

2. Stocks and Shares ISA

Being able to understand the difference between these two accounts could be the difference in quite literally MILLIONS of pounds in earnings, so read this section very carefully!

For 99.9% of people, you should opt for opening a stocks and shares ISA to invest in first. This is because anything you earn in a stocks and shares ISA CANNOT BE TAXED. PLEASE READ THAT TWICE. If you invest £1000 a month for 50 years, get 10% returns and have and almost £15 million sitting in your account, you will not pay a penny of tax on those earnings. On the flip side, you will very much be paying tax on the earnings you make in a general investment account. At this point, I hope you're asking:

"Why on earth would anyone choose a GIA over an S&S ISA?" (sorry about the abbreviations)

Well, that's because there are certain conditions that apply when it comes to a Stocks and Shares ISA, which include:

1. You have a £20k annual allowance you can use across all your ISAs per tax year (these include cash/lifetime/Junior ISAs, etc...).

2. You can only pay into one Stocks and Shares ISA per tax year (no Vanguard and Trading 212 at the same time, I'm afraid).

What this practically means is that if you're lucky enough to fill up your ISA allowance in a tax year and still want to invest even more cash, your only option is to go for a GIA. But until that point, Stocks and Shares ISAs are the way to go.

For those reading from other countries, do make sure to research whether you have an option like this available as well. Unfortunately, my brain only has enough capacity to look into my own country (selfish, right?).

The next stage is choosing the account you are going to invest in, but to find that out, you are going to have to put in a little bit of work yourself and scroll down the page for roughly 0.5 seconds.

#5 Choose Your Investments.

I would absolutely love to give you the magic fund or stock that will make us all super rich, but my crystal ball is currently broken, so I can't do that. I can, however, share with you the funds that I am currently invested in and explain why I have done that. But this isn't something for you to copy and paste. Instead, devote a little bit of time (maybe an hour or two) to find the right funds and stocks that match your personality and risk levels!

I'm currently invested in two funds on Vanguard:

1. LifeStrategy 100% Equity Fund

2. FTSE All-World UCITS ETF (VWRL)

Why have I chosen these funds:

• Global markets: Rather than just investing in the UK or the US, I want exposure to the entire world.

• Diversification: These funds expose me to hundreds of companies.

• High risk: I expect to be in the market for a long time, allowing me to ride out the volatility of these funds in the short term.

• Efficiency: While I'd love to spend more time choosing individual stocks, this isn't my strength, so I choose to pick ready-made baskets of stocks instead.

Now, that brings to a close my very short guide to investing, which brings us nicely to the bonus segment of this newsletter—my favorite investing platforms.

(Let's be honest, most of you skipped to this part anyway.)

➕ BONUS

My Favourite Platforms

Let's take a look at some of the investing platforms that I really like right now in the UK. Remember, this is not an exhaustive list, and there are plenty of other great options out there; these are just my personal favorites.

Note: platforms marked with *’s are affiliates (this has not affected my decision to include them)

Vanguard

Best for: Investors looking for a set-it-and-forget-it policy, who also aren't looking for every stock and ETF available, but would rather just have a few solid and cheap fund options.

The Good: Vanguard is like the godfather of passive investing, the idea of doing minimal work to get maximum returns; you can't really go wrong with it. It is a super cheap platform (although not the cheapest anymore) with a 0.15% platform fee and funds that average 0.2% fees on top of that. It is definitely one of the most trusted platforms on the market with over 30 million users and even offers their own range of blended funds.

The Bad: Despite a pretty solid website, they are one of the few platforms that are yet to put out an app. Personally, I don't mind this as I don't want to be constantly checking on my portfolio, but I can also understand why this is a problem for a lot of people. For the more involved investor, Vanguard also doesn't offer a crazy range of investing options. While it does cover the core funds, there are platforms now offering thousands of stocks and ETFs, while Vanguard's sits at just 86 options. But again, in my opinion, fewer options sometimes work out quite nicely for the newbie investor.

Link to Platform: https://www.vanguardinvestor.co.uk/

Trading 212

Best for: Investors with a little more experience who want more flexibility in how they invest, with a wider range of options at their fingertips. Additionally, investors keen to get the best fees available on the market.

The Good: Despite a slightly rocky reputation during COVID when the platform actually stopped accepting new users for a period, as well as being perceived as a platform for traders and not investors, it is now up there as one of the best options on the market. They have a super intuitive app and website and charge some of the cheapest fees in the market with 0% to use the platform, a 0.15% FX fee for buying international stocks and funds, low fund fees, and a 0.7% fee for investing more than £2000 by card (which is easily avoidable). They also offer almost 10,000 shares and over 1000 funds.

The Bad: The only real drawback I can see from this platform is that a new, inexperienced investor may get slightly overwhelmed by the number of options available. Aside from that, there is very little to complain about. One thing to note is that there are much higher fees associated with the CFD section of Trading 212, but this is relatively straightforward to avoid.

Link to Platform*: https://www.trading212.com/invite/16a9v19dZo

Hargreaves Lansdown

Best for: Investors who are looking for the largest and most reputable platform in the UK, which has almost every feature imaginable and are willing to pay higher fees for it.

The Good: HL has an amazing reputation and is considered the largest and strongest investing brand in the UK. Their platform and app are also extremely user-friendly, their customer service is pretty solid, and they have some really useful educational tools.

The Bad: Out of the entire list, HL has some of the highest fees for investing in stocks and ETFs, with platform fees starting at 0.45%, as well as dealing fees ranging between £5.95-£11.95. The platform fee does start to come down with very large portfolio sizes (£250k+), so if that is you, then don't discount this platform.

Link to Platform: https://www.hl.co.uk/

Nutmeg

Best for: Complete newbies who don't want to pick a fund, let alone an individual stock. This robo-advisor will do all the hard work for you, at a fee, of course.

The Good: I am a big fan of Nutmeg, so much so that it was the first platform I ever started investing with. For people who have no idea where to start, this is an amazing option. They will simply ask you a range of questions based on your risk tolerance and investing personality, and at the end of it, they will suggest a fund to invest in that they have built based on a risk level between 1-10. They also now have portfolios powered by J.P. Morgan, which is pretty cool.

The Bad: There is, of course, a price to pay for having your hand held, and that comes in the form of their fees. To start with, the platform fee starts from 0.45% - 0.75%, plus a fund cost ranging from 0.21% - 0.36%, and a market spread fee of 0.04%. All in all, expect to pay roughly 1% in fees when using this platform. To many people, the value of not having to use your brain at all is worth that price.

Link to Platform*: https://nutmeg.mention-me.com/m/ol/vp8di-gabriel-nussbaum

Notable mentions:

Before I sign off for the week, there are a few other pretty cool platforms that I think are worth mentioning.

MoneyFarm - I haven't done too much research on this, but it could be a mildly cheaper alternative to Nutmeg.

Invest Engine - A new startup on the scene that is competing to be one of the cheapest platforms.

FreeTrade - If you prefer a monthly fee rather than a percentage platform fee, FreeTrade might be the place for you.

Damn, that was a lot of writing, and I think my fingers might be about to fall off! I really hope I was able to bring you some value this week and can't wait to catch up with all of you again next week.

PLEASE HIT "REPLY" TO THIS EMAIL WITH ANY QUESTIONS OR TOPICS YOU WOULD LIKE ME TO COVER - I WILL DO MY BEST!

DISCLAIMER: None of the above is financial advice. This newsletter is strictly education and should not be taken as investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and always do your own research.