The ultimate guide to investing

So you’re ready to invest

You’ve taken control of your finances. You know where your money goes and you’re tracking your spending. You’ve created a gap, built up an emergency fund, paid off your debt and you now have 3-6 months of expenses in your emergency fund.

You’ve followed all the steps and you think you’re ready to invest. You’ve watched the video Are You Ready to Invest?, and you’re raring to go. You’ve learnt about compounding, inflation, and what gets measured gets improved. You’ve worked on your mindset (a bit at least) and you’re excited for the future that you’ve started dreaming about.

Awesome! Future you is thanking present you already!

Why invest and not save?

You want to make your money work hard for you.

It is really common for people to put saved money in a high interest savings account. There’s nothing wrong with having savings and of course your emergency fund will need to be in an accessible account which could be a savings account, premium bonds, or something else where it’s accessible within a short period of time. But cash is not inflation busting. Cash is a guaranteed way of losing money!

How to start investing

Katie and I learnt about the difference between an asset and a liability and it blew our mind. Our simple definition is that an asset puts money in your pocket and a liability takes money out of your pocket. I looked around the house, I thought about all our possessions and not a single one was bringing us in money. We owned no assets.

Where the heck do you even start? It is not like there is an asset shop you can go to down the local highstreet. You walk past Tesco Express, Greggs and there is the asset shop, you nip in and pick up a couple of assets.

We spent 2 years stuck at this point trying to work out “how the heck do I buy an asset”!

What are my options then? The path to wealth is buy small liabilities and invest in assets.

Investing in assets

There are many different types of assets that you can invest in. We initially thought property was our route to financial independence but we now prefer to invest in the stock market - specifically broad based low cost index funds.

  • What are all the different assets I could invest in?

Property

Katie and I initially thought our route to financial independence was through property. We thought we could save a deposit, buy an investment property that creates a cash flow of £400. If we wanted to live off £4,000 a month then we needed 10 investment properties.

We originally bought 2 investment properties in Basingstoke, Hampshire which created a reasonable return for us! For many reasons we changed strategy to Index funds, sold off our investment properties and invested in Index funds instead.

We are creating a series of articles on property investing which will come soon

Index funds

Although it hasn’t always been, our strategy now is investing in the stock market (specifically low cost, broad based index funds). You might be thinking “But Alan, this stock market is scary stuff, Is it risky to invest in the stock market? How do I get over my fear of investing in stocks and shares?”

The market will always be volatile, but the risk depends on how you invest. Stock pick a handful of companies and your money is gambled on those specific companies in their specific industries doing well. This is where diversification comes in and why we choose low cost, broad based index funds to invest in.

Impact of fees on investments

Before you start investing, the other thing you need to know is the impact of fees on investments, the low cost part of our low cost, broad based index fund strategy. You could have a diversified (broad based), index fund, which had high fees and that would make a huge difference in your investment yields. Choosing a low cost option gives compounding a better chance to work its wonderful magic.

  • the impact of fees on investments,
  • Understanding different fees
  • Strategies to minimise fees
  • Katie’s fees tool: how to compare fees from different providers and funds
Impact of Fees

Investing in index funds

This series of articles will guide you through everything you need to know about index funds and how to get going. These articles complement Rebel Finance School which teaches you how to get out of debt, sort out your money and invest for a prosperous future.

Navigating the market's ups and downs

Now if you invest in the stock market, which we really suggest you do, then you need to be prepared for the rocky ride that is coming! Alan lost his life savings in the stock market when he was younger, we have seen Covid crashes, wars in the Ukraine and so much more that has affected returns.

If you invest in a broad based index fund then there is a danger that you might panic, sell and lose a LOT of money. You need to be prepared. This set of articles should help you understand the world you are getting yourself into!

Financial Advisors

You might be thinking at this point, “wow this is a lot to learn Alan! Can’t I just get a financial advisor to do it all for me?”

  • Financial Advisors: Should I have one?
  • Risk Profiles and why you should avoid them
  • Scams and how to spot them

Tax efficient investing

Every country has different accounts, taxes and providers. Navigating them all is tough but possible and there are amazing resources to help you.

United Kingdom

This is where Katie and I live, we know the tax laws backwards as we needed to figure them out for ourselves. This guide will give you a quick start on how to get going:

  • Tax efficient accounts in the UK
  • LISA - Life Time Savings Accounts - the ultimate tax advantage
  • Pensions

USA

There are some incredible sources of information. If you live in the USA you live where financial independence started and you have some amazing resources:

New Zealand

Ruth the Happy Saver is our amazing friend in New Zealand. She wrote this incredible article about how to apply the Rebel Finance School methods in New Zealand and she has a whole blog and podcast dedicated to supporting you.

Final thoughts

You are doing all of this to set yourself up. If you get this investing stuff right then your investments will create returns for you and eventually that builds up so you can retire! Yay.

After you have done all the learning it actually turns out this investing stuff is quite easy. Choose a tax efficient account (ISA, SIPP, 401K etc.) and then buy a low cost index fund like the Vanguard FTSE Developed World Index Fund and let it grow over the years. That is it!

Who knew investing could be that easy!? We needed to through everything above to get to the simplicity of this style of investing.

Then the next set of questions start:
How do you know how much you need?
Will it work over the long term?
Can I retire now?

These are questions Katie and I had to answer for ourselves when we retired in 2019. We wanted to know if we pulled the plug did we have enough? Could we survive? After we figured it out and went travelling around the world friends and other people started asking about it.

Move on to our next section; Guide to Financial Independence / Retire Early to work all of this out. It doesn’t really matter what age you want to retire, there is a simple way to work out if you have enough.

Congratulations on getting this far!