To earn money investing, you have to “Make a Start” by saving.
The best place to start saving, is in a stocks and shares ISA.
This is because you can put a maximum of £15,240* every year into it and anything you earn, is TAX FREE!
(*this allowance will be increased to £20,000 by April 2017).
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.
Here’s a quick list for you to look at 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, on a monthly basis.
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.
If you do have some spare money to save each month you really can’t afford to DO NOTHING! Putting something aside is better than nothing.
You’ve worked for your money now let it work for you.
4. Choose to re-invest your 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 whose shares costs £1 each and that companies share price rises to £1.10p. Your original investment of £100 is now worth £110.
That’s a 10% increase.
Big capital growth is normally associated with more volatile newer companies.
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 of income.
5. Invest in some shares.
Ok this isn’t as easy as it sounds as there are over 2,600 companies listed on the London stock exchange.
If you don’t have the time to do the research on individual companies you are better off buying a fund. A fund is a where your money is invested across a variety of stocks / bonds for you.
Again there’s thousands to choose from but personally l prefer index tracker funds. Why?
Their returns are decent and their charges are the lowest around.
What are tracker funds?
You can read more about trackers HERE but basically they track the performance of financial indices like the FTSE 100 (the biggest 100 companies in the UK) or the S&P 500 (the biggest 500 companies in the U.S.).
I now own several tracker funds but started off with buying the S&P 500, which over the long term returns around 8% per year.
The company Vanguard invented index tracker funds so their website is a good place to start. You can visit it HERE (“U.S. Equity Index fund” is the S&P 500 tracker). If you’re still unsure ask your stockbroker how to buy a fund.
If you’d also like to invest in individual stocks I record a daily podcast HERE
I’m not an 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.
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.
Remember! Never buy any company based solely on a tip or recommendation as it’s just opinion, it maybe well researched opinion but it isn’t your opinion and its your own money you’re investing with.