How to Start Investing in Index Funds (UK): Sammie Ellard-King’s Simple Strategy

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

[00:00] Sammie: There’s a number that we all want to reach. A specific amount of money that once you hit it, you never have to work again. Not never work as in sitting on a beach doing absolutely nothing, but when work becomes a choice. You wake up and you can decide whether you actually want to be there or not. And most people never hit that number. Not because they don’t earn enough, but because no one showed them how. And 10 years ago, I was £24,000 in debt. Credit cards, lifestyle, trying to look like I had my life together when I really didn’t. And today it’s very different. I have over £200,000 invested, and I’m on track to hit my number before I’m 50. Now I’m not some financial advisor, some suit, and this isn’t financial advice. I’m just sharing what I’ve learned and what works for me.

[00:46] Sammie: I absolutely love this stuff to the core of my bones. And this podcast is everything I wish someone had told me in my 20s. We’re going to cover the foundation you need before you invest anything at all, what you’re actually buying when you do invest, and why this approach works, and how to know what your number is as well. So let’s start with the bit that most people skip. So before you invest a single pound, this is the foundation. If you skip this bit, everything else could fall apart along the way. Now, before you invest, you do need something called an emergency fund. Three months of expenses sitting in cash. Ideally, six months, but three months is good enough. It’s not invested, it’s just there in a high interest savings account, completely compartmentalized. Why? Well, because life happens, right?

[01:32] Sammie: Your car breaks down, your boiler dies, you lose your job. Something always comes up. And here’s the thing, right? So when investing your money, your money’s gonna go up and down over time. That is just completely normal. But if you need cash during one of the down periods and all your money is tied up, well, then you are forced to sell at the worst possible time. And the emergency funds means you never have to touch your investments in a panic. You’ve got a buffer there and you can ride out the bumps. It’s not just financial, it’s emotional protection as well. The double meaning of an emergency fund. It’s so important. It’s the thing that lets you stay calm when everything else could feel uncertain. You build this first, then everything else can work alongside of this. All right, so now let me explain what investing actually is and how you can get into it as well.

[02:19] Sammie: So, what are you actually buying when you invest? When you invest in the stock market, you’re buying tiny pieces of companies, tiny portions, right? Imagine it like a pie chart and you’re taking a tiny slither out. That slither of Apple, a fraction of Tesco, a piece of thousands of businesses around the world. When those companies make money, you make money, either through the value going up or through something called a dividend. So the cash that they pay you just for owning the shares. That’s it. You’re an owner, a very small owner of a lot of businesses, in the case of what we’re going to talk about today. So, what’s the problem with picking individual companies that you see most people do on the, you know, films like The Wolf of Wall Street and all those types of things, right? That’s what a lot of people think about when they think about investing. But most people think investing is about picking winners, you know, finding the next Amazon, timing when to buy and sell.

[03:10] Sammie: And I thought this too when I first started. Mates would tell me about the next big thing, and I’d pile in thinking that I was clever and that they had the secret sauce. And 2018 taught me a cold, hard lesson. I got a big, cold hard slap round the face. I lost money, right? I wasted time. And I would have been better off doing basically nothing or this thing that I’m about to tell you in a second. And it’s not just me here as well. Professional fund managers do this for a living with literally teams and analysts and billions of pounds, and they can’t get it right either. Over a 15-year period, more than 90% of actively managed funds fail to beat the market, the market average. Nine out of 10 professionals working on this full-time can’t beat the simple approach which I’m about to show you.

[03:57] Sammie: So, what’s the solution? Well, the answer is index funds. Instead of picking individual stocks, you can buy the whole market. An index fund is simply a basket that holds thousands of companies at once, or hundreds, it depends on the index. But for this, I’m going to talk about the one that’s thousands. You’re not betting on one single company. You’re literally buying the whole world’s economy, human progress wrapped up into one individual investment. And you don’t really need research in this case. You don’t need to guess, you just own everything, all of the big companies across the world. Some companies in that basket will fail, some will explode, and you don’t really mind because you own them all. Obviously, you want more to explode than not, yes. But over time, the winners will end up carrying the losers if things move in the right direction. So you might also see people talk about ETFs.

[04:45] Sammie: So what’s the difference between an index fund and an ETF? You’re going to hear both terms. And they are related, but they are not the same thing. So an index fund is the strategy basically tracking a market index rather than it picking individual stocks. An ETF is basically the packaging and it stands for exchange traded fund, meaning that you can buy and sell it on the stock exchange like a regular share. So the index is the list and the ETF is the wrapper that it comes up in that you can actually buy. Most index funds are available as ETFs. So when I say buy an index fund, I’m basically meaning an index tracking ETF. Okay. Does everybody get that bit? I hope you do. If you don’t, don’t worry, I’ve got some more coming up on that in a bit. What to actually buy in the UK, right? What do we need to buy, right? So I’ve talked about this global index, right?

[05:33] Sammie: The one that covers the entire world, the world’s economy, not just say the UK or the US. In the UK, we have the FTSE 100, which is the top 100 companies, or the FTSE 250, which is the next 250 top companies. In the US, there’s something called the S&P 500, which we’ll talk about a lot in this video moving forwards. But that’s the top 500 companies in the US. And that’s the sexy one that a lot of people will talk about within, you know, their content online. And you’ve probably seen it on the news a million times before and wondered what that was. But basically, I’m going to be focusing in on a global index fund. So in the UK, you’ve got some funds like the Vanguard FTSE Global All Cap, HSBC FTSE All World, or iShares MSCI ACWI. Any of these work, right? And I know those fund names sound complicated, but essentially what they are is a global index fund, investing into thousands of companies across the world.

[06:26] Sammie: It’s one fund, thousands of companies, global diversification. Done. Thank you very much, right? So what’s actually inside of them though? Well, the biggest holdings are companies that you already know. They’re the Apples, the Microsofts, the Amazons, the Nvidia’s, the Googles. So when you put in £100, you’re buying tiny slices of all of them. So maybe three to four pounds will go to Apple and three to four pounds to Microsoft and a couple of quid to Amazon. And the rest is then spread across thousands of other companies. You’ve got banks, supermarkets, car manufacturers, tech firms, healthcare companies all over the world. And you are not then relying on the individual performance of that one company. You’re getting them all wrapped up into one. And historically, the global economy grows, right? Seriously, what you could do is buy one of these funds, set up a monthly contribution, and then never think about it again.

[07:15] Sammie: That could be the entire strategy. Now, where do you actually place this money? Well, in the UK, we have something amazing. And the rest of the world look at this system and think, wow, I wish that we had it. We have something called the ICER system. So the individual savings accounts. In this case, it’s called a stocks and shares ISA. Now, the ISA is just a tax-free wrapper. So if you imagine this, like you’re going to the supermarket, the supermarket, in the supermarket, the products are the investments that you put inside of the basket, and then it lives inside of that basket. And the ICER is that basket, right? That’s the wrapper. That’s where everything lives. Everything inside of it, the gains, the dividends, the withdrawals, is zero tax when you take it out. And you can put up to 20,000 pounds per year as a contribution into your stocks and shares ICEs.

[08:04] Sammie: And this is generally one of the best tax advantages in the world, right, guys? And the simple fact is it can grow above that 20,000 pounds. It can grow into the millions. There are now ISA millionaires out there. It’s just the contribution can’t go over that 20,000 pounds. Or you have something like a pension, too, as well. Your workplace pension is literally free money for you guys. If your employer matches your contributions, if you say put in 5% and they say put in 5%, well, that’s an instant 100% on that 5% before the market does anything as well. And then you do get things like tax relief as well. But the catch is with pensions, you can’t touch the money until you’re 55 right now, and that’s rising to 57 from April 2028. So this is why for this video, I’m just going to focus on the stocks and shares ISA because it’s flexible, you can access it when you need it, and there’s no waiting until your mid-50s.

[08:53] Sammie: Now, pensions are very powerful, especially with employer matching and tax relief, but they’re a separate topic completely. So for now, just get the ISA sorted first. Now, here are two things which completely changed my mindset when I actually came to start investing. And they’re two books which I want you guys to get. You can get them on Spotify or Audible or get the hard cover copy as well if you do like reading the physical copies. They are A Simple Path to Wealth by J.L. Collins and How to Own the World by Andrew Craig. Honestly, start there. You don’t really need to read anything else. One global index fund inside of NISA every single month. That is the strategy that we’re going to be tucking into today. Now, quickly before I move on, if any of this is like thinking, you know, wow, how am I going to remember all of this?

[09:40] Sammie: Well, I put together a free 10-step investing checklist that walks you through everything that we’re covering today, step by step, absolutely no fluff. And it’s in the description below. You can grab it, you can keep it open as you do this, and you can tick things off if you go. All right, so that’s what to invest in. Now let me show you why this works so well. We’re going to talk about compounding next. And this is where the magic really, really happens. It’s where the small amounts can turn into big fortunes over time. And you’ve probably heard of people talking about compound interest online, but most people really don’t get it until they actually see the numbers. In fact, actually, 67% of people in the UK, according to Andrew Craig, who we had on the podcast recently on a previous episode, says that, you know, they don’t understand compounding. And that if we could just understand compounding, it would change the fortunes of millions of people.

[10:27] Sammie: So hopefully we’re going to get that right now. So here is the simple version, right? Your money makes money of its own. Then that money makes more money of its own. Then that money makes even more money of its own. And it’s growth on top of growth on top of growth, right? We can grasp that as humans. But historically, the stock market returns around 7 to 10% a year on average. The S&P 500, which we mentioned earlier, has averaged around 10% annually over the past 100 years. Now, at that rate, your money doubles every 7 to 10 years. So £10 becomes £20 in 10 years, £40 in 20 years, £80 in 30 years, and £160 in 40 years. You didn’t do anything, you just waited. So a real life example of this: let’s say we invested 10,000 pounds today, just the 10,000 pounds, and we left it alone and we got 8% annual growth on that money.

[11:20] Sammie: That becomes £100,000 in 30 years and over £200,000 in 40 years. Most of that growth happens right at the end. The first 10 years feel very slow. Then it accelerates, then it really, really explodes. So time is the key contributing factor here. So this is why starting early matters more than any amount that you put in, and I’ll prove it to you right now. Person A invests £200 a month from age 25 to 35, just 10 years, then he completely stops. He never invests another penny. And person B, she waits until she’s 35, then invests 200 pounds a month for 30 years straight, all the way up to 65. Now they’re both at 65 and they got 8% annual return rate on their money as well.

[12:07] Sammie: Okay, so person A has about £368,000 and contributed roughly around about £24,000 in total contributions, right? We got that bit. Person B has about £298,000 from £72,000 in contributions. Person A invested three times less money but ended up with £70,000 more. That’s not a trick, guys. It’s just basic math. The 10 years of extra compounding time was worth more than 30 years of contributions. So what’s the takeaway here? Well, time is your biggest asset. It’s not actually the amount, not the returns, although yes, they do matter. Time is the most important factor. If we do get market average returns and we invest for a long period of time, that is what the secret sauce is to all of this.

[12:55] Sammie: Which brings us to the most important question. When you should start investing? Now the answer is obviously right now, right? Now, and I know that sounds annoying, but let me show you why. So let’s first talk about the risk of investing because investing does have risk. We have to address that. In any given year, your portfolio could drop 20%, could drop 10%, even 30%. It happens. It’s just a fact, and it’s going to happen to you if you’re an investor multiple times. It’s not fun to watch. But here is what the data shows. If you stayed investing through the dips, the market has always recovered 100% of the time, always. Every crash, every recession, every crisis, it’s come back and gone higher. The risk isn’t being invested.

[13:42] Sammie: The risk is panicking and selling while it’s down and at the bottom. So you need to have the, you know, balls of steel essentially when you’re going through this period. It’s not nice the first time, but when you get into the second, third, fourth, and fifth, well, you start looking at things differently. It’s part of the long-term cycle of the stock market. And you just have to accept that. But there is also a bigger risk, too, and that is the risk of not investing at all. And here’s what most people don’t actually talk about. Doing nothing is also a risk, guys. Inflation runs at around about 2% to 3% a year on average. That means cash sitting in a bank account over most periods in history is actually losing value every single year or stagnating or growing by a very minute amount when it comes to real value in terms of that growth, right?

[14:31] Sammie: £10,000 today will buy you less in 10 years if it’s just sitting there. So that cash under the bed really doesn’t work. The safe option isn’t actually safe at all. It’s actually a slow little leak. And over 30 years, inflation could cut the value of your cash in half. Meanwhile, invested money has historically doubled multiple times over that same period. So the real risk isn’t volatility.

[15:41] Sammie: It’s standing still. When you understand volatility, you can just ride it out. Now, a lot of people do come to me and they say, Is now the right time to invest, Sammie? And they see the market at, say, what’s called an all-time high, which is when it’s at its highest point that it’s ever been, and they think, well, I’ll just wait for a dip. I’ll wait for it to pull back a bit. So since 1950, the S&P 500, that 500 top companies in the US that we spoke about earlier, that’s hit an all-time high of 1,500 times. That’s roughly 8% of all trading days. So it’s not completely abnormal here. In fact, they’re very, very normal. That’s what a market going up over time and an economy growing looks like. Now, yes, the market drops too.

[16:28] Sammie: A 10% dip happens in nearly half of all calendar years. That’s not a crash. That’s just normal volatility. So if you’re waiting for a dip, you might wait forever and miss the opportunity for growth in the meantime. I’ve been there myself. So here’s the real cost of waiting, guys. JP Morgan research shows this very clearly. If you invested £10,000 in 2005 and you stayed fully invested until 2024, you’d have around about £71,000, £71,750 to be exact. But if you missed just the 10 best days of performance during that 19-year period, you’d have £32,871 pounds, less than half. And here is what’s absolutely mental. Seven of those 10 best performing days of the stock market happened within two weeks of the 10 worst days.

[17:20] Sammie: So the best days usually come right after the crashes when everyone’s panicking and selling or sitting on the sidelines waiting. Now, I’m no stranger to this, guys. I’ve made this mistake more times than I care to admit. I’ve pulled out when I shouldn’t have. I’ve waited for dips that never came. I panicked and sold at the wrong time. Every single time I would have been better off doing absolutely nothing and just buying my index funds every single month. Now, another big question I get a lot is around lump sum investing versus drip feeding into it every month. They call that pound cost averaging. Now, look, if you’ve got a chunk of money to invest, you might be tempted to spread it out over months. Well, statistically, lump sum investing does actually win. Vanguard did some research on this and it actually shows that lump sum investing beats drip feeding around 68% of the time.

[18:09] Sammie: So not all of it, but emotionally, guys, if you’re putting it all in at once and it’s going to keep you up at night, and say we get one of those 10%, 20% drops, the literally the next couple of weeks after we did put that money in. Let’s say you put 10 grand and then it dropped 10%, you know, a thousand pounds down in your portfolio a couple of weeks in, you’re gonna be like, oh my God, this investing stuff doesn’t work. What have I done? I’ve done the wrongest, you know, made a terrible decision here. Whereas if you put, say, a thousand pounds in and it drops by a hundred pounds, well, that feels very different, right? And because you’re new to this, it might be the emotional decision completely outweighs the logical decision, which is, you know, the statistics, right? So you do have to add that up. There is no wrong or right answer. Eventually, the time in the market should well balance that back out.

[18:55] Sammie: So stop waiting for the perfect moment, is essentially what I’m saying here. It doesn’t exist. Time in the market beats timing the market every single time. And it’s a cliche saying, but it’s true. Now, what about all of the other stuff that people talk about? What about property, gold, everything else, crypto, all of that jazz? Again, people love to overcomplicate this, so let me simplify it. A global index fund should be the core of most portfolios out there on the planet, or an S&P 500 tracker if you just want exposure to the US. Especially when you’re starting out, right? As your portfolio grows, you might grow in knowledge or you might want to diversify into other things. But early on, just keep it very simple. One fund is completely enough here, especially with the ones that we’re talking about. But let’s talk about property.

[19:41] Sammie: Everyone in the UK is obsessed with property, bricks and mortar, it’s safe as houses, mate. And here is my honest take. Unless your portfolio is already large or you’re willing to put some serious time into understanding the property market, property is an investment. When you factor in your time as well, it’s a lot more hassle than it’s worth. In the UK specifically, it’s got a lot harder to buy a property and rent it out. You’ve got stamp duty on second homes, you’ve got Section 24 tax changes that hammered landlords recently, you’ve got more regulation, problem tenants. The mass doesn’t work out like it really used to. But it is still an investment vehicle for many, many people. They are just happy to take those risks and put that time into it. I personally own my own home. That’s it.

[20:27] Sammie: No buy-to-let property portfolio here, just where I live. Although I did consider that as an investment, I went deep down that rabbit hole. I looked deeply into it. But the amount of time that I would spend, I’m better off creating podcasts for you guys and teaching you guys. Honestly, really is. For me personally, that’s just the way that I look at things. Now, what about gold and precious metals? We’ve had silver in the news recently flying. It was up and down like a yo-yo as well. We’ve had gold hitting all-time highs. And a reasonable hedge for your portfolio could be precious metals. Five to 10% is a common guideline you’ll see online. But if you’re just starting, you really don’t need it. You can keep it very simple. And you could potentially want to add it as a hedge in later on down the line. You don’t have to, guys.

[21:14] Sammie: A lot of people say you do. I personally do own a touch of gold, but I don’t own loads of it, right? It doesn’t have to become the key thing that you invest into. Now, next up is individual stocks, right? I get this all the time. Sammie, tell me what the next Amazon’s gonna be, right? But the fact is, explore this maybe down the line. You could put a small portion of your portfolio, so 10 to 20% max. And what I mean by that is your entire portfolio, let’s say you’ve got 10 grand in your portfolio, 10 to 20% might be a thousand to two thousand pounds of that, is in individual companies that you actually understand. That’s the key point here. But you don’t have to do this, right? You could just invest in that one fund and done that we said earlier. Plenty of people just stay doing that there in whole lives and do brilliantly.

[22:00] Sammie: Individual companies, if you do go for it, don’t do what I did, which was like take all of this advice from my mates, or there’s this new hot biotech company that was gonna cure cancer. They didn’t, and then I lost basically most of my money on that individual stock. I stay in my lane. So I know more about e-commerce businesses and finance tech businesses than I do anything else. So 90% of my individual stocks are in those companies. I also own a bit of companies like Nike because I absolutely love them, right? And so I think it’s very important that you understand deeply the businesses that you are buying. What do you have a leg up over other people? And if you don’t have any leg up over any people at all, then The index funds are just for you.

[22:46] Sammie: And you can learn this stuff, sure, but it does take time. Investing in individual stocks, you need to understand what you’re investing in, whether that company’s growing. And it is a risk, right? So don’t put all of your eggs in one simple basket. Simple beats complicated. One index fund in an ISA will outperform most people here trying to be clever with all of these multiple asset classes. You, of course, have cryptocurrency, which I haven’t spoken about. My personal allocation right now is below 5%. And I all I do is buy Bitcoin. I don’t get involved in any of the other flashy coins because we don’t know what they’re going to do. It is essentially a form of gambling. So I stay well away from all of those and just buy into Bitcoin. Okay, so we’ve got the basics right here. And we now know what you could expand into if you really want to.

[23:34] Sammie: But when can you actually stop investing? This is what everybody really wants to know, right? What’s your number? And there is a point where you will have enough where your investments can fund your life without you working. Now, I’m not going to say some specific fire number that everybody needs to work to or tell you you need to quit your job and go all in on investing. That is not how real life really works. But you do need to understand the maths so you do know what you’re working towards. And there’s something called the 4% rule, and it comes from the Trinity study. So it was a bunch of academics who backtested basically 70 years of market data and people withdrawing money from it. And the finding was you can withdraw around 4% of your portfolio every single year with a very high probability of never running out of money.

[24:22] Sammie: So, in simple terms, what you do is you take your annual expenses that you want to have in retirement, not it could be the ones that you have now if you want to work towards that, or the number which would get you there, right? And you multiply it by 25. Or your monthly expenses and times that by 300. Both we get exactly the same number. So for example, if you spend £2,000 a month, you need around 600,000 pounds invested. £3,000 a month, £900,000, £4,000 a month is £1.2 million. The lower your expenses, the smaller the number. And that’s why lifestyle matters as much as investing for as long as possible. And those numbers always scare people to absolute bits. But it is possible if you get yourself started as early as you possibly can.

[25:07] Sammie: And if you are coming closer to retirement, if you’re watching this in your 50s, you might need to make some adjustments about what’s possible because as you know, time is important here. So what about things like the state pension, right? If you’ve got 35 years of qualifying national insurance contributions, well, you get the full state pension, which is roughly around about 12 grand a year right now. But I wouldn’t build my entire retirement life around this. The state pension age keeps rising, the rules keep changing, and what that’s going to look like in 10, 20, or even 30 years, nobody knows. Treat it as a bonus, but for me, not the actual full plan. It shouldn’t be in there as a key factor. Although a lot of financial advisors might have argued with me on that, I just don’t like to personally include it in my own calculations. So, how do we compare all of our efforts to what the other people have in the country right now?

[25:55] Sammie: So to fund a moderate retirement, you need around a pot of around about £330,000 or more alongside the state pension. The fact is, most people are nowhere near that. The average pension pot in the UK is £87,000. But the good news, guys, is that £100 a month invested consistently, getting 8% return, gets you £150,000 in 35 years. £200 a month gets you £200,000 in 30 years. And that right there is not a massive, massive, massive sacrifice. That’s the cost of an expensive gym membership in London, for God’s sake, or a couple of nights out a month. It’s small, consistent contributions over time, and that’s going to put you ahead of most people in this country. And I know £100 to £200 isn’t easy for everyone, by the way.

[26:41] Sammie: I’m not saying that this is what you have to do. Rent, bills, life, I know it all adds up. So if you can only afford £25, that’s better than absolutely nothing. I started with £50, so did my partner and my sisters, and they’ve edged it up over time as they’ve grown their income and not increased their life. The habit matters more than the amount. You can always increase it later when your situation changes. And the point here I’m trying to make is this isn’t retiring at 35, guys, and never working again. It’s about understanding that time and consistency will get you there with amounts that you can afford. And starting now gives you the biggest advantage. So what do you actually do? Well, if I could go back and tell my younger self one thing, it would be invest even £10 a month every single month without fail. Please do it, Sammie. I can’t go back.

[27:28] Sammie: Damn it. But I’ve made that change, and luckily I did when I did. It doesn’t matter how small, guys, just start. The habit is going to matter, and I’m going to bang on about that because it really, really does. So what you also need to do, guys, the second thing I would definitely tell myself is get a handle on your spending as quickly as you possibly can. Please don’t peacock and try and show off to others. I spent years trying to look like I was made of money. I had credit cards, lifestyle, stuff to impress people. And all it did was put me in debt, and my actual wealth building by years got knocked back. But the fact is, guys, as well, I will say this: you don’t go in a dark room and live off baked beans. Please don’t do that. Please make sure this is balanced alongside supplementing a lifestyle now. It’s important to live your life.

[28:14] Sammie: You don’t know what tomorrow brings, but you still need to make steps and plans for the future, you. So we need to open a stocks and shares ISA, think about a global index fund. I’ve left some of the best stocks and shares ICEs in the description below for you as well. But any low-cost platform, you’re looking for total fees under 0.2%, a simple global index fund. One done, thank you very much. And then you want to set up a monthly direct debit that you can afford. And if you can afford that £200 to start with, start with £25, £50, something that you can afford to get started that’s lower than the amount. The reason for that is you are going to check your account 150 times a day when you first get started. So don’t put all of your money in because if it does drop back a little bit, which again is completely normal, you don’t want to think that this is a bad idea over the long term.

[29:02] Sammie: So a smaller amount and slowly edge it up as you grow. And don’t touch it. Don’t check on it daily, even though I just said that, you know, you’re going to, it’s totally fine. Now, I’ve been doing this for years. I barely check it at all. In fact, I haven’t checked on my investments for literally the past probably about 30 to 40 days from now. Just don’t try and be clever with this. The returns are going to come from investing into the market. And increase when you can, guys. Pay rises, bonuses, windfalls, funnel them into your life as well as improving your life now. If it’s a 50-50 split, that’s a very good place to start. That is the whole strategy. And it’s not going to make you rich overnight, but it does work. And in 10, 20, 30 years, you’ll be very glad that you started. Now, one last thing, I just want to remind you that all of this is wrapped up into our free 10 step investing checklist.

[29:50] Sammie: The link is in the description. There’s no catch here, just a very simple guide to get you guys started on your investment journey. And the best podcast, the follow on from this, is popping up on your screen now. And I will catch you guys on the next one.