To earn money investing, you have to make a start by saving.
One of the best place to start saving is in a stocks and shares ISA.
This is because you can put a maximum of £20,000 per year into it and anything you earn, from investments, is TAX FREE!
Below are 5 steps to earning tax free money.
1. Open up a stock broking account.
There’s many to choose from. If you are happy with your bank have a look at their website and compare it with a few others.
To look at a list to compare click HERE
2. Set up a share ISA account within that stock broking account.
3. Set up a direct debit and transfer funds to that ISA account.
How much you transfer depends on you and your financial commitments.
You can use an online calculator such as this government one HERE
As a rule of thumb, halve your age and that is how much, as a percentage you should be saving annually, for retirement.
Having said all this, it’s completely dependent on what you can afford but putting something aside is better than nothing.
If you do have some spare money to save each month you really can’t afford to DO NOTHING!
4. Choose to re-invest you dividends
What does this mean?
There’s two basic ways to earn money when investing in shares.
If you buy 100 shares in a company that costs £1 each and that share’s price rises to £1.10p. Your original investment of £100 is now worth £110. That’s a 10% increase.
Big growth is normally associated with riskier, more volatile newer companies. They normally don’t pay dividends.
Many of the bigger more established, “Blue Chip” stocks offer dividends.
Dividends is a proportion of the companies profit paid to the shareholders. The size of payment is decided by the directors. The dividend can be taken in cash or the equivalent can be re-invested to buy more shares. Re-investment to buy more shares is the best option for compound growth.
5. Invest in some shares.
Ok this isn’t as easy as it sounds as there are over 2,000 companies listed on the London stock exchange.
To help you with this we record a weekly podcast where we decide which companies we are thinking about investing in. We are not experts but I try to take as much as advice from experts including the most successful of all, Warren Buffet.
Here’s 4 bits of advice Warren gives that I try to live by:
1. Buying a share of a company is no different from buying a company outright. You should do the same amount of research.
2. Only buy a company who’s business you understand – invest in what you know, and know what you know extremely well.
3. You should only invest for the long term. If you’ve bought a good company stock market fluctuations should never worry you. In fact it could be an opportunity to buy more of a good company at a reduced price.
4. Keep it simple, owning too many shares is not only hard to manage but will not perform as well and owning too few shares means your portfolio is more likely to be more volatile.
Remember! Never buy on a tip or after listening to our podcast, please do you own research as it’s your money.