Sammie Ellard-King’s Beginner Investing Episode: The 26-Minute Audio Primer

This transcript is auto-generated and lightly edited for readability, it may contain errors.

[0:00] Sammie Ellard-King: My name is Sammie Ellard-King, and welcome to the Money Gains Podcast. We’re a show all about making, saving, and investing your money, interviewing the top minds in the industry to unpack their tips and tricks. And today I’m going to be doing something a little bit different. I’m going to talk to you guys about investing. And it’s going to be a bit of a beginner’s guide to investing. So if you’re driving right now, then you might want to come back to this later with a notepad and pen. But if you’re seated right now and you want to learn about investing, then now is a great time to take out a pen and paper. Because we’re going to go through pretty much everything that I think you’re going to need to become a confident investor. So without further ado, let’s get started on the Money Gains podcast.

[1:01] Sammie Ellard-King: So, ladies and gentlemen, this is a solo episode with just me today. And I really want to unpack the topic of investing because there’s a lot of fear around investing, and rightly so, because you see it in the news all the time. Oh, the stock market is gonna crash, and X, Y, and Z happened here, and these stocks have crashed. And yes, those things do happen, which puts fear into people getting started. They have a fear of losing money. But what we like talking about here at Up The Gains is a long-term approach to investing. And when you invest for the long term, you significantly lower your risk. In fact, there was a study done by Nutmeg and then recently updated

[1:46] Sammie Ellard-King: by another investment company called Schroeder’s. And when you invest for over 15 years, your chances of losing money are under 1%. So I would actually want to take that bet if you put me in that environment in any way, shape, or form, right? So this is what we’re gonna talk about today and how you can understand investing in a little bit more detail. So I like to start with something to break it down super, super simple, and use something called the chocolate box analogy. Now, if you think about a single chocolate, so in this case, we’re gonna pick my favourite chocolate, which is a Marsbar. So a Marsbar represents a single share of a company. In this case, let’s think of like Apple stock, for

[2:31] Sammie Ellard-King: example. But you know, each chocolate could represent, you know, a Twix could represent Tesla, for example. Or uh, you know, a bounty. Ooh, a bounty. Yes, I do actually like a bounty, could represent Microsoft in this case, for example. So each company is attached to a chocolate in this case. So you would go to the market, the stock market in this case, the corner shop, you know, that’s the same analogy. I hope you’re getting that. Now you would buy that Mars bar for that price that is decided on that day, and then you own that single chocolate or company, same experience, right? Then when you own that single company, you are

[3:16] Sammie Ellard-King: then exposed to the performance of that one business. Now, if that chocolate decides to go bad, it can spoil your experience as an investor. So you pick one company, you’re exposed to that one company’s performance. Now, a box of chocolates, so in this case, a box of celebrations, could be a box of roses, Quality Street, whatever you want to say, is full up of lots of different chocolates or companies, right? So that’s a fund. Now it represents a collection of stocks. So when you it’s exactly the same process as when you go to the market or the corner shop and you buy that box of celebrations, you don’t buy each individual chocolate inside it.

[4:01] Sammie Ellard-King: You buy a fund or a chocolate box for one price. It’s exactly the same price that’s decided now. The difference between that is if one chocolate does badly, then others inside the fund can make up for it and often balance it out. And it spreads your risk across a wide variety of different companies. Now, obviously, if that one company does do bad, if all of the companies do bad in that, yes, that is does affect the fund. But often this isn’t always the case. So that’s a really lovely way of understanding how funds and individual stocks do differ. Now, I want to talk about the magic of compound interest, and this is where long-term investing

[4:46] Sammie Ellard-King: comes into play. Einstein called it the eighth wonder of the world, and it rightly so. It’s absolutely incredible when you build this up. Now, what it is is earning interest on your initial investment plus any interest already earned. So, an example, really simple example, could be let’s say we invest £1,000 and we get 5% back at an annual average interest rate, right? So after year one, we’d have £1,050 earning 50 pounds in interest. But in year two, we’d have £1,050 earning 5%, which would mean we earn £52.50 in interest. So we’d have £1,102 and 50 pence. So your interest is earning interest

[5:32] Sammie Ellard-King: on top of interest in turn on top of interest. Now, what happens when you do this over a long period of time, it will grow quite significantly. Now, it really does encourage consistent investing. So if you put money into your stocks and shares ISA every single month, then you are getting exposed to compound interest as it grows and grows and grows and grows and grows. Now, honestly, if you do this for 20, 30 years, your interest will vastly that you receive will vastly outweigh your amounts that you put in. And it can, it’s very much like a hockey stick level of growth if you look at how compound interest on a graph looks over time. So that’s why

[6:17] Sammie Ellard-King: it’s super powerful over a long period of time, basically. Now, I think it’s very important when defining investment goals. I have a very strict rule with my money. Any um, so I do save and I do invest. You know, there’s not I don’t do one or the other, right? And this is very important to uh to talk about. So I have a rule, it’s called the five-year rule, and very simply, any money that I may need, even if I think I might need one tiny penny of that money in the next five years, I don’t invest that money. That money goes into a high interest savings account and gets split into pots based on what I’m saving for. So I call them sinking funds, and these things that, you know, I’m not talking about these today, but you know, holiday car, uh, new house or whatever you decide, right? So that’s

[7:02] Sammie Ellard-King: a shorter term goal versus a longer term goal. So my five years or less is placed in that environment. But my five years or more is placed into the investing environment because I’m willing to take a little bit more risk with this money because I don’t need it in the next five years. So it’s very important to understand what that looks like. And it could look very different for different people, and it will look very different for different people. Everyone is unique. If I lined a thousand people up that are earning exactly the same salary, not one budget that they do would be the same. So that’s very important. Personal finance is personal. So it could look 50-50 for you, it could look 60% savings, 40% investments, it could look 80-20, vice versa.

[7:47] Sammie Ellard-King: It doesn’t matter, whatever you is unique to you. And basically, you need to understand what your financial goals are. So I have a very simple one-year goal, a five-year goal, which uh I review every single year. And then my ultimate goal is always, you know, financial freedom. And I need to invest to get to that financial freedom number. So it’s very important to go through this. And when you think long term, the investments, as we discussed earlier, they kind of tend to weather out market volatility. And you can kind of not forget about, you know, things going wrong in the economy and all of that. Because yes, it’s good to keep your finger on the pulse, but you’re not like paying attention to lots of negative stories that come out every single day. And that’s really important to

[8:32] Sammie Ellard-King: think about. Now, next I want to talk about index funds. And I absolutely love index funds because they’re so simple. And for beginner investors, even more seasoned investors, they’re just amazing. And simply put, index funds are just lists. They’re just lists. So you’ve probably heard of the FTSE or the FTSE 100, which is the top 100 companies in the UK. That’s a list of the top 100 companies, or the FTSE 250 is the list of the top 250 companies. The S&P 500 is the list of the top 500 companies in the US. But there’s also something called the Global Stock Market Index, which is the global stock market list, right?

[9:17] Sammie Ellard-King: So the reason why index funds are just uh great is because they track lists. So the fund means you invest into the list. So if the company performing, let’s say, for the S&P 500 that’s sitting in 500 does badly that year, it’s simply replaced by the company that’s doing better. So that could be the one in position 501. So you always hold the top companies within that list,

[10:28] Sammie Ellard-King: and they have very low fees when you buy them compared to other actively managed funds, which we’ll get on into in a bit. And the reason being why they’re so good is because you’ve got quite a broad market exposure. Remember our chocolate box analogy? When you buy that fund, you’re paying one price, but you’re getting lots of different companies within it. And it does reduce your overall individual stock buying risk, essentially, here. But it’s also in terms of performance. So one, they’ve got low fees, two, they’re tracking the best companies within that list, and they are also extremely difficult to outperform. So Warren Buffett, one of the most famous investors of all time, did a uh kind of a competition against a hedge fund in the US. The hedge fund actually had six goes

[11:14] Sammie Ellard-King: to try and beat Warren Buffett, who said that basically if I invested into the S&P 500, you won’t be able to beat me. And so they had six different goes trying to beat Warren Buffett, and I think the prize was like a million dollars or something like that for whoever won. And this hedge fund was like, yeah, God, we’re gonna beat them. And he had six goes at doing it, and none of them did, and all equally none of them did by a long way of just putting money into the S&P 500, right? So I’m not saying that that’s what you do. This is not financial advice, but it just goes to show the power of how it’s very powerful of index funds and how it’s very difficult to outperform them over time. Now, individual stocks are slightly different. Obviously, you’re buying one company, as we spoke about in our chocolate box analogy,

[11:59] Sammie Ellard-King: but they do have potential for higher returns, but of course, higher risk are associated with them. You do, however, also get access to dividends, which you can also get in your funds as well, by the way. But when you uh buy an individual stock, each company will have, they don’t all pay them, by the way, they don’t all pay dividends, but some do. And they have different percentages for them. They’re regular payments to shareholders from the company profits. Now, this can be an extra source of income that you can get from buying a fund or an individual stock as well. And they can also be reinvested often automatically if you buy a fund, you can set it up for, and that can compound your growth as well, as we spoke about with compound interest. Now, there are different strategies for investing, and I think it’s really important

[12:44] Sammie Ellard-King: to unpack a couple of them. So you could literally, as we were saying earlier, like Warren Buffett said, to you could just put money into the total stock market index or the S&P 500 or a combination of both with the FTSE, for example. That’s an example. It’s very simple, it’s very low cost, you’ve got broad market exposure, and actually it’s very difficult to beat over time. Now that you could just literally do that, and you would on average, so the S&P 500 returned over the last 50 years is 11.35%. If you adjust that for inflation, it’s 7.26%. So that’s very good over a long period of time. A lot better than your banks will ever give you in interest rates.

[13:29] Sammie Ellard-King: Yes, they are high right now at this time of recording this, but traditionally they, you know, they sit at 2, 3%. So you’re beating that and you’re beating inflation over long periods of time, which is extremely important. So index fund only is one strategy. You could have index funds and ETFs. Now, ETFs are exchange traded funds, and they can offer a little bit more flexibility and variety. So you could, for example, invest into sectors. So it could be AI sector or um electric cars or you know, wind energy, whatever you decide. There’s lots of different ones, and there’s also lots of different ones that are made up and actively managed that have got different allocations and different things than they will do to the index funds. So

[14:14] Sammie Ellard-King: then there are thousands of these. So it’s important to do a little bit of research into these, but you could combine that with an index fund strategy, for example. Another strategy, which is actually my personal strategy, and that’s I allocate, it’s called the 80-20 strategy, and I allocate 80% of everything that I invest into index funds. I do have a couple of exchange traded funds in there as well, and 20% to individual stocks, basically, because I enjoy it. I enjoy looking into the companies, I enjoy looking at the financial reports and seeing what they’re doing and trying to see if I can pick them, you know, the next Amazon or the next Netflix, for example. I enjoy that. But it does take a little bit of more work here, and I’m actually understanding the nuances of like

[14:59] Sammie Ellard-King: these companies and the way that the market works, etc. So there is a lot more you need to do. And that for a beginner isn’t necessarily something that they do want to do. But you could also put things like cryptocurrency, for example, into this 20% from the 8020 strategy, for example, which I do do. I only have 5% maximum of cryptocurrency. And again, this is not financial advice, but I’m just showing you what I do. I talk about it very openly on my Instagram channel. And for me, it just means that I can try and take a little bit more higher risk with that 20%, trying to find those few companies that kick off. And if that does happen, fantastic. But if it doesn’t happen and they do badly, then I’m not completely exposed by

[15:44] Sammie Ellard-King: putting, say, 80% of my money into more of the higher risks and 20% into index funds. So those are some strategies that you can consider with investing. Now, costs and fees are very, very important. There are things like management fees for funds and ETFs. There’s also trading fees for buying and selling individual stocks. And it’s very important that you try and keep your fees down. You also get platform fees as well. So platform fees differ per provider. Some are extremely expensive and some are very cheap. So it’s very important to find both a provider and cheap access to funds and uh buying and selling individual stocks as well, and equally cryptocurrency if you do want to put that into your portfolios. Now, what I

[16:29] Sammie Ellard-King: will say is higher fees can very much erode investment returns over time. Even like 0.5% over a long period of time ends up being thousands, sometimes tens and hundreds of thousands, depending on how much you are investing. So definitely spend a bit of time comparing fees when you’re selecting your investments and making sure that the fees are as low as they possibly can. Now, there are some fantastic providers, some fantastic low-cost providers, and I will leave a link to a couple of those guys in the show notes below. Now, I just want to talk about what diversification means. We’ve sort of flirted over it a little bit. So when you diversify, basically, what you’re looking to do is buy a mix of different things. Now, you

[17:14] Sammie Ellard-King: could do that just by buying one index fund. That’s diversification right there. However, some people do like to add other things in like stocks, equally bonds as well, but some people don’t. And some people invest in different industries and different geographic regions based on their preferences or what they’re seeing. But you could again just do index funds. So, one thing that we do need to talk about today is risk. Okay, because yes, when you invest your money, you have the potential to lose it. That’s very important to say because you you are putting your money into a risk asset. But as we’ve discussed, there are ways to mitigate risk, and the longer you invest for, the less likely

[17:59] Sammie Ellard-King: you are to lose money. So it’s very important that you assess your ability to handle ups and downs in the market. So that’s why I always say to people start slow when you invest, perhaps for your first year, because that way you can get a really good understanding about, you know, this happens and the market goes down. This happens and the market goes up. Like, why is that? And then you can start to just understand how you feel about that too. Because if you put your money in, and let’s say, for example, you know, hopefully this doesn’t happen, but obviously if a stock, but equally as well, it could, right? So the stock market decides it’s gonna crash and fall by 10% in six months’ time. Now you need to know how you’re

[18:45] Sammie Ellard-King: gonna feel about that. And that’s why it’s important to have that long-term horizon goal when you’re investing. Because if that happens, you might decide, actually, I’m not fast, I’m just gonna stick to my strategy. Or you might be the person like, oh my God, no, I’m gonna sell everything. Oh my God. And that’s really is the worst thing that you could possibly do. But you need to understand that and then build your portfolios associated with how you feel about risk. There are also lots of ways to look at this, right? So, what is your financial goals? How much do I need to invest to get there? How long have I got? So, somebody in their 20s is going to invest very differently to someone in their 50s because someone in their 50s is looking at their retirement pot and going, well, I don’t really want to lose a lot of that. And someone in their

[19:30] Sammie Ellard-King: 20s is like, perhaps I want to take a little bit more risk because I’ve got a longer time horizon to play with here. And again, going back to this thing of personal comfort is very, very important. Now, the thing that we’re going to talk about next is kind of the emotional aspects of investing. So it’s like, for example, this has happened to me. I’ve taken advice from a friend, I’ve gone into uh uh an investment, and the investment’s tanked and I’ve lost a bit of money. And so I just want to make sure that you’re getting your advice from the right places. So you make Dave down the pub is not the right place to get your advice or any kind of investment advice at all. Okay,

[20:15] Sammie Ellard-King: so make sure you’re looking into multiple trusted sources of information when you get your advice about investing. Now, emotional aspects of investing can be, for example, the reason I went and did that was because I was greedy, right? And that person was overconfident that it was going to do well. But you he had no control over this, and that’s really important to say, right? And I didn’t do my research and I just did it because my friend said it was a good idea, and it wasn’t a good idea. So always do your research behind it. Don’t let fear and greed go get past the plan. So always stick to your plan. Yes, your plan might need to change as you grow and things adapt

[21:00] Sammie Ellard-King: and your life changes around you, but just don’t make impulsive decisions based on something that you read one time in the paper or your mate says something down the pub. Okay. Now I want to talk about where to place your money. And the differences in the UK to other countries is that we have something called an ISA. Now, within an ISA, there are different types of ISA. Cash ISAs are very similar to savings accounts, but we also have a stocks and shares ISA. And the reason why stocks and shares ISAs are such a great way to invest is because your money is not subject to capital gains tax or income tax on the investments. You can put up to £20,000 per tax year in.

[21:45] Sammie Ellard-King: That may change in the future. They have spoken about something called a British ISA, adding to the pot there and taking that up to £25,000, but that’s not confirmed yet. So it’s still £20,000 at this stage. Now it is ideal for long-term investing. You can buy a variety of different investments, including index funds, stocks, and bonds in there as well. And essentially, people get confused about this, right? So the fund is what you buy, but the stocks and shares ISA is the vehicle to allow you to buy it. So they’re not the same thing. You don’t put money into a stocks and shares ISA and it essentially that’s your money investing. There’s two steps to this. So your first step is to open the stocks and shares ISA and put some money into it, basically, whatever

[22:31] Sammie Ellard-King: you can afford based on our five year rule and the budgets you should do when you invest. But then you need to use the stocks and shares ISA to go and buy the investments and assets, which are then held inside of your stocks and shares ISA. So they’re very different, and a lot of People do get confused about that. Now, there are different types of stocks and shares ISAs based on who you are and your knowledge. So, DIY stocks and shares ISAs is where you would go out and you would make the decisions. You have direct control over when you buy, when you sell. And yes, it does require a little bit more knowledge and time. But equally, as well, if you’re just buying index funds, is again a very simple and easy thing to do. So just think about that and whether or not you want any more support, which can come in the

[23:16] Sammie Ellard-King: form of two ways. So, first up is a RoboAdvisor Stocks and Shares ISA. Now, basically, they’re just automated investment platforms, and these providers will provide tailored portfolios based on your risk tolerance and your goals. They ask you a bunch of questions. You go through like a questionnaire, fill in your financial goals, how you feel about risk, how much money you’re going to invest, like what are your values often as well, like whether you’re, you know, you’re hot on green investments, whether you don’t mind about that so much. They are quite low in fees, but they’re a little bit more expensive often than a DIY investment account. So that’s just something to think about there. But then you don’t have to worry as much. You just pop money in each month, and they kind of take care of that tailored

[24:01] Sammie Ellard-King: portfolio for you. So that’s something to think about. If you’re happy to just give away, you know, sometimes it can be up to more like 1% more. You’d have to check out. I’m not going to talk about fees because they all differ. So just go and do your research and find one that you’re most comfortable with if you do feel like that’s a bit more suited to you. Now there is another option, and that is an expert managed option. And again, that’s just kind of similar to a robo advisor in a lot of ways. It’ll be a tailored portfolio, you’ll answer the questionnaire, but you’re dealing probably with a human being. So you, a lot of these guys, you can phone up and actually have a chat to them. And some of them will offer actual fully regulated financial advice as well. So that

[24:46] Sammie Ellard-King: can be useful. But again, yes, you’re going to pay for that. So there are going to be higher fees associated to that. So that is important to talk about here. Now, this has been kind of a mini masterclass into investing. There are a lot, there is a lot more to learn about that. There are some fantastic books out there. I will leave a link to the top investing books as well to go and check out. But one I would 100% recommend is A Simple Path to Wealth by J.L. Collins. It is quite US focused, but it’s just a really good way of getting yourself into a long-term investment mentality. Another one, which is fantastic, is How to Achieve Financial Independence and Retire Early. It’s an audible book by J.D.

[25:32] Sammie Ellard-King: Roth. This was one of the book that absolutely changed my life. He had a story of coming from deep in debt right through to where he is today, and he talks about his journey in that book and how he does it, which is super, super cool. So look, this has been our little masterclass on investing. If you guys like this episode, then you know, let me know. My email is invest at Up The Gains. You can drop me a note over if there’s anything you want to discuss. But I hope this has been useful for you guys, and we’ll see you on the next one.

[26:03] Sammie Ellard-King: The Money Gains Podcast.