Following my post and article about our first investment property (including the financials, refurb and return on capital employed), I have had a few questions about my wider investment strategy. I thought this could be useful to share and make a good blog to follow on from my article '5 Reasons Everyone Should Invest'. This is a heavy read, but stick with it, I promise it is worth it and could change your life!
Before I jump into this blog - I want to thank the team at Oversubscribed for helping me pull these blogs together and support with my social content creation. If you are interested in raising your profile online, head over to Oversubscribed.
It's worth noting that my skill set is very much marketing with almost 10 years' experience. My full time job is helping entrepreneurs raise their profile online at Oversubscribed. This strategy was created with me having very little spare time outside of my work at Oversubscribed.
**These are just my thoughts and what I do, I'm not an IFA and it's not financial advice** But hopefully it's useful and gives a good insight into a possible strategy.
There are currently two parts to my investment strategy - Stocks/Shares and Property. My strategy changes slightly as I learn more, but I am reasonably well read around it and can't see my strategy changing too much in the near future. Feel free to message any questions.
Stocks and Shares
Why do I invest in stocks and shares?
I've invested in stocks and shares for a few years after reading a handful of books on the topic (see below). The main reason I invest in stocks and shares is because of their hands-off nature so I can focus on running my marketing company. With the strategy I take (see below) they also offer a very low risk, very long-term way to build wealth. My strategy won't make you rich over night, but if you are young enough, it's guaranteed to make you very wealthy by the time you retire.
What's my strategy?
Around 70% of my stocks and shares investments are in low-cost S&P 500 index funds. A low cost index fund is a very cheap way to buy a group of companies. In my case it's a cheap way to buy the top 500 companies in America.
'The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.' Wikipedia
The remaining 28% are in other low cost funds that track different markets and 2% in single stocks like Amazon, Tesla and Apple (mainly to scratch an itch I had).
My strategy is to invest in the S&P 500 on a monthly basis for the foreseeable future. Buying it on a monthly basis means I get the average price rather than at a set point in time (dollar cost averaging).
Over the last 100 years the S&P 500 has returned 8% annually. Mine currently shows annualised returns of 7.72% (which I don't think is too bad considering the crash that was seen this year due to Covid-19).
Why this strategy is so magical is because of the compound effect if you keep reinvesting your dividends. Here's a few examples. You can play with the calculator here.
Starting with £1,000, investing £200 per month over 30 years at a 7.5% return:
- Total amount invested over 30 years = £73,000
- Total amount of interest over 30 years = £207,500
- Totalling £280,500
This would give you around £21,000 in interest per year.
On the other end of the spectrum, if you are able to max out your ISA allowance (more on this below) and invest £1,666 per month it would look as follows:
Starting with £1,000, investing £1,666 per month over 30 years at a 7.5% return:
- Total amount invested over 30 years = £600,000
- Total amount of interest over 30 years = £1,667,000
- Totalling £2,268,000
This would give you around £170,000 in interest per year.
Depending where you are at, you might be able to invest more or less than this, but if you put it into this calculator, it will do the maths for you. If you are lucky enough to have 40 years before you'd need the money, it can get pretty exciting - the £1,666 per month after 40 years is equal £6,400,000. You might not have 40 years, but your children might if they started now.
You can start doing this with as little as £25 per month.
How do I invest in stocks and shares?
I use Fidelity currently which is a market place that allows you to purchase the low cost index funds and other investments. However there are a number of others including Vanguard, and Hargreaves Lansdown. They all have low costs but I think currently Vanguard is the lowest and probably your best option (I need to switch).
These platforms offer 3 types of accounts. A SIPP, a stocks & shares ISA and an investment account. Unless you are maximising your ISA and SIPP you won't want an investment account. (Presently, ISA has a £20,000 per year limit, SIPP is £40,000 per year limit).
A SIPP is a self invested pension pot - if you have your own company then this could be a good option. (Do some Googling around this).
But for the majority of people the best option is a stocks and shares ISA. The ISA acts as a tax wrapper so all the gains you make within the account, you don't have to pay tax on (as you've already paid tax on it). Again have a Google around the benefits of this.
I have both types of accounts and invest through both. Have a Google and the differences should become clear. If you have kids there are also accounts you can set up and invest on their behalf.
What stocks and shares do I buy?
As per above, I invest in low cost index funds on the whole. Some of the others include the FTSE and Asian/Japan funds. I do have a couple of actively managed funds but over time these aren't likely to do as well. I'd stick with the S&P 500 (this is Warren Buffet's advice not mine!)
Books to learn more:
I have read around 6 books and loads of blogs on this type of investing and I'd recommend you do too. They all say some form of what I have here and what most other blogs will say about index funds. However by reading the books of millionaires/billionaires below it will give you the confidence to stick with the strategy when the market falls (which it will).
I highly recommend the below (read in the following order):
This isn't about the same strategy, but a must read for anyone wanting to build long term wealth - The Millionaire Next door
Property
Why am I starting to invest in property?
As you will see below in 'how it all fits together', property offers a different type of wealth building that low cost index funds don't offer. The main reason I currently invest in property is for the monthly cashflow that it can produce and the higher return on investment that can be achieved with the added risk/work. There is also an argument of being able to control the outcomes more.
However it is definitely a lot more hands on than investing in funds. But that comes with the possible increased returns.
How do I invest in property?
I currently invest in property through a limited company which works for my position. My understanding is that with the tax changes, this is the best way for most people.
What property do I buy / plan to buy?
Currently properties in the north east that can be rented out to families looking to make somewhere a home. Check out the first property we brought. We have a couple of others in the pipeline over the next few months.
What's my strategy?
I am currently following a BRRR (Buy-Refurbish-Rent-Refinance) strategy. This is what it says on the tin. Buying a property, doing it up, renting it out and then refinancing it. The aim is this allows me to add value to the properties, gain an uplift in value giving a 10% - 20% return on money invested.
The aim with this strategy is to gain a small portfolio that can supply me with monthly cashflow from my personal assets, giving me financial independence. While I plan to re-invest all profit to grow the portfolio, it would give me enough monthly income if I wanted to stop my day job. (Once the portfolio is big enough.)
There are loads of property investing strategies, but this one suits me the best. It offers me reasonably low risk, reasonably hands off and reasonably long term investing.
You can see how the numbers work for this strategy here.
How it all fits together to create my Wealth Creation Strategy
My plan currently is to build wealth by investing into low cost index funds via my SIPP and ISA. This gives me reasonably liquid assets that have really strong compounding possibility with little effort once set up. However with dividends being low, they don't offer the cashflow I would like. The second part of my plan is investing in low leveraged single let properties that have the ability to produce monthly cashflow, that can give me financial independence if I ever wanted to stop, or was unable to, earn money by working. It also gives me the choice of making decisions I want to make vs ones I have to make to pay the bills.
If you are still reading this, well done for sticking with me!! If you can help me by liking, commenting or sharing the post on my social channels so it reaches more people, I really believe it will help people.
Before investing in anything, make sure you do your own research as all investing comes with risks. With both strategies I've outlined you could lose your money, so make sure whatever strategy you take fits your situation and you fully understand it.
**This is just my thoughts and what I do, I'm not an IFA and it's not financial advice** But hopefully it's useful and gives a good insight of a possible strategy.
I will keep you posted on how the strategy and projects develop on my LinkedIn - Facebook - Instagram
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