Have you ever wanted to invest a percentage of income each month into something that could grow? It’s never been a better time to take advantage of free stock trading! Yes, you heard me correctly, with FreeTrade you can trade for free!
But before we go into that, we will discuss the different types of investments that people like to place their hard-earned money into.
if you invest wisely, money should work for you, while compounding year after year… Well, that’s what everyone says right?
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So, what does compounding mean?
I hear the word compounding all the time, and only recently, I truly understood what it meant.
So in as few words as possible, here is my explanation of what Compounding means in relation to money and interest.
Compounding is basically when the interest you earn on your balance in a bank or share-dealing account is reinvested, earning you more interest, which is also being reinvested. Money does truly, make money.
However, it’s not exactly fast money. I personally set aside a small amount of money each month, with the hope that in 40 or so years time, that small amount of money I put away, goes up in value and multiplies, faster than inflation does.
If you take the money out of your account, it’s no longer working for you. Compounding is for the long term investor, who has a set date on when to withdraw, and a rough idea of how much the initial investments should accumulate over time.
With this online calculator, you can experiment with the idea of compounding.
When investing, I usually look for reputable share managers, and research on morningstar. If a fund manager has a long history and record of delivering between 9–15% of interest each year, I add them to my list to watch and after a while, invest.
What is an index Fund?
Index funds are highly diversified, instead of investing in one company you can invest in many at the click of a button. The risk of losing your investment over time is low, usually, index funds have lower expenses and fees than actively managing multiple stocks separately.
Here are the three main reasons why I am drawn to index funds;
If you love a certain industry, instead of just investing in one company, you can invest in the whole sector with a fund manager. This eliminated competition in an industry group because it’s a win-win situation if you believe that the whole industry will outperform the general market. If one of the companies would collapse, you still have loads of others, which is why an index fund has a very broad diversification.
If you have a group of companies that you want to invest with and are not too keen on paying fees for each buy and sell. An index fund may be for you, especially if all the companies they have chosen, are also favourable by yourself.
It’s the job of a reliable fund manager, to buy and sell stock at the best time for the most amount of profit or reduced loss. Because of the scale that fund managers work in, the expenses are very low. I am not very good at picking the best time to buy and sell individual shares, I also don’t like paying fees each time. so I leave it to the professionals.
Index funds are popular with the dual fact that they promise ownership of a wide variety of stocks and there is a lower risk of losing what you put in. That’s why many people including myself, find index funds to be superior investments to individual stocks.
What are stocks and shares?
Companies issue stock in a way to raise money to fund growth, products and other things. When you buy the stock, you own a small slice of the company. Stocks are how people, like you and me, can invest in some of the most successful companies in the world.
Here are the three main reasons why I am drawn to individual stocks and shares;
Enormous Growth Potential
Sometimes, I have my eyes set on just one or two companies in a certain sector. I believe that they will beat the competition for the next few years, 100%.
When I have felt like this, and the research backs it all up. I invest in individual stocks. The stock will more than likely be undervalued, resulting in enormous growth potential.
protect your wealth from inflation
Some stocks are great if you want to fight against inflation. You just have to pick a profitable sector that isn’t getting lots of negative news and you think is future proof.
Own a tiny slice of a company
You can tell all your friends you own a piece of Google! As well as owning a slice of the company, you’re also buying a share of the company’s assets and profits. It feels great to help support a company you love.
The ability to start small
Even a small investment can go a long way. There are many stockbrokers that allow investors to set up monthly investment plans. Transferring a small percentage of your salary each month into stocks can compound into something big later on.
Why should you start investing now?
While there are reasons not to buy stocks, I believe that the upside potential outweighs the risk.
Even when the market is at an all-time high, if you believe in the company you have bought into, and plan to keep the stock for a set number of years or even invest more into the company on a regular basis, everything will usually balance out in your favour.
The majority of people that lose out when investing, do so by selling low, having to need the liquidity at a demanding time. But, the longer an investor is in the market, the lower the probability is of losing money.
Equally important to time, is researching and picking the correct stocks to buy. When I buy an individual stock, I make sure it’s with a company I believe in. I may be looking for a lower price, but it may not happen. Again, if the investment is long term, a low price won’t matter too much.
Where can I buy Stocks and Shares?
FreeTrade (UK BASED)
Using FreeTrade is simple to use and commission-free! The platform is regulated by the Financial Conduct Authority and a member of the London Stock Exchange, so you are reinsured that your investment is safe. The downside is that FreeTrade only buys and sell shares in bulk, once a day.
If you are planning to buy stock long term, this doesn’t really matter too much, but for short term trades, prices may change in your favour, or against. You may have to hold your stock for a little longer than expected to make that profit you desire.
Everything you have read in this article is purely just what I think and have learnt after much research. It’s not advised, so please use your own judgement.
If you are considering more risk than the stock market, have you considered cryptocurrency?