One. Buy Investment Trust’s that pay a dividend and re-invest those dividends to buy more Investment Trust’s that pay a dividend.
Two. Most dividends will gently increase, see earlier post.
Three. Book profits when shares increase in value and re-invest into the Snowball, sometimes u can buy back the shares sold at a better price.
Four. Add fuel to the fire by adding capital to the portfolio.
Five. Time in the market. As long as the dividend isn’t drastically changed, the holy grail of investing is to have a share in your portfolio, where all your capital has been returned and re-invested in the market and the yield is ???? on a share that sits in your account at zero, nil, zilch cost.
Note: The Snowball had an initial seed capital of 100k and the intention is not to add any further capital, mainly for monitoring the progress of the Snowball.
The good news is that there are simple things you can do to stop overthinking and start investing. In this article, we’ll explore the common investing overthinking traps and how to avoid them. We’ll also cover five simple steps to start investing — all you need to know in the beginning.
Common investing overthinking traps
One of the biggest challenges of investing is overcoming your own mind. It’s easy to get caught up in overthinking your decisions, which can lead to missed opportunities and financial regrets. In this section, we’ll explore some of the most common investing overthinking traps.
Information overload
The internet and social media have made it easier than ever to access information about investing. But with so much information or different investment providers available, it can be easy to become overwhelmed. With so much information around, you might feel that you need to learn everything about investing before you can start.
Analysis paralysis
Analysis paralysis is a state of overthinking where you become so overwhelmed with different options that you are unable to make a decision. It can be caused by several factors, including a fear of making the wrong decision, a lack of confidence in your judgment, or simply being presented with too many options.
Fear of investing
Many people are afraid to invest because they don’t want to lose money. This is a perfectly normal fear, but it can be harmful if it prevents you from investing at all.
It’s important to remember that investing comes with its risks. However, over the long term, the stock market has historically trended upwards. This means that if you invest for the long term, you are more likely to make money than lose money.
Lack of financial goals
I’ve recently spoken to people who haven’t started investing because they simply don’t know what they want to achieve with their money. If you’re in the same boat, I understand. It can be difficult to know where to start if you don’t have any financial goals.
Once you know what you’re working towards, you can start to develop an investment plan to help you achieve your goals.
5 simple steps to stop overthinking and start investing
1. Understand your goals
Understanding your financial goals is a good start before investing your money. It gives you structure and helps you make informed decisions. However, this doesn’t mean you need to have it all figured out before you start investing. Your goals can change over time, and that’s okay. The most important thing is to start somewhere and to be flexible.
Here are some tips for understanding your investment goals:
Think about your future. What do you want to achieve with your money? Do you want to retire early? Buy a house? Travel the world? Start a business? Once you have a general idea of what you want to achieve, you can start to develop specific goals.
Set SMART goals. Ideally, your goals should be Specific, Measurable, Achievable, Relevant, and Time-bound. For example, instead of just saying “I want to be rich”, define what rich means to you and instead, say something like “I want to have £1 million by the time I turn 50”. Alternatively, write down your dreams and work backwards to figure out how much and when you need to make them a reality.
If you don’t like to set goals or find it difficult to do so, it doesn’t mean that you can’t start investing. You can always figure out how much you can afford to invest (on a monthly basis for example) and get started based on that. You can then make any changes to your investment plan as your goals become more specific.
2. Understand risks and how to mitigate them
All investments carry some degree of risk. It’s important to understand the risks involved before you invest and to take steps to mitigate them.
Here are some ways to mitigate risk when investing:
Have an emergency fund. This is a savings account that you can use in case of an unexpected expense, such as a job loss or an emergency car or home repair. Having an emergency fund will help you avoid having to sell your investments for a loss if you need extra money urgently.
Start small. It’s a common financial misbelief, that you would need a lot of money to start investing. But that’s simply not true: You don’t need to invest a lot to get started. Start small and invest regularly over time.
Diversify your portfolio. This means investing in a variety of different industries and assets, such as stocks, bonds, and cash. One way to diversify your portfolio is to invest in funds instead of individual stocks. Funds are a collection of different stocks or bonds. By investing in a fund, you are essentially investing in a basket of different assets rather than putting all your eggs in one basket.
Invest for the long term. The stock market can be volatile in the short term, but it has historically trended upwards over the long term. This means that if you invest for the long term, you are more likely to make money than lose money.
Tax-efficient investment accounts are accounts that allow you to invest your money with reduced tax liability. This means that you will keep more of your earnings, which can help you grow your wealth faster.
There are a number of tax-efficient investment accounts available in the UK, including:
Stocks and Shares ISA (S&S ISA): This is a type of ISA that allows you to invest in stocks, shares, funds, and other investments. You can contribute up to £20,000 per tax year to a Stocks and Shares ISA. Any investment growth is tax-free, and you can withdraw your money at any time. If you are not planning to use your money to buy your first home, this is likely the best type of investment account for you.
Lifetime ISA (LISA): This is a type of ISA that is designed to help you save for your first home or retirement. It allows you to contribute up to £4,000 per tax year. The government will bonus your contributions by 25%, up to a maximum of £1,000 per tax year. You can withdraw your money from a Lifetime ISA tax-free if you are using it to buy your first home or retire after the age of 60. However, if you withdraw your money for any other reason, you will have to pay a 25% government withdrawal charge. It’s also worth noting that if you are looking to withdraw the money within 5 years, it’s often advisable to keep the money in the account in cash instead of investing it.
You can even pay into two ISAs in the same tax year provided they are different types of ISA. It would be fine to pay into both a Lifetime ISA and a Stocks & Shares ISA in one tax year as long as you’re below the £20,000 limit.
Tax-efficient investment accounts can be a great way to save money on capital gains tax and grow your wealth faster. However, it is important to choose the right account for your individual needs and circumstances.
4. Invest on autopilot
One way to overcome analysis paralysis is to take the decision out of your own hands and invest on autopilot. What I mean by this is to try and simplify your investments as much as possible so you don’t need to think about them constantly. Here are two helpful ways to do that:
1. Automate your investments. Setting up a regular investment plan is a great way to automate your investments. A regular plan can be a standing order that instructs your bank or investment provider to transfer a certain amount of money from your current account into your investment account on a regular basis, such as monthly. This type of automation has a number of advantages, including:
It is convenient and easy to set up.
It helps you to avoid having to make an investment decision every month.
It encourages you to invest regularly, even if you don’t have a lot of money to spare.
It can help you to benefit from compounding returns.
Setting up automated investments is easy and can be done in any investment app or platform. But for even more simplicity, some apps offer auto-investment tools that help you invest spare change or round up your purchases and invest the difference. InvestEngine is a great example of this type of app. It also offers a S&S ISA, plenty of different funds, and a welcome bonus of up to £50 for our readers, making it a good investment platform for beginners.
2. Invest in funds. We discussed previously how investing in funds can be a great way to diversify your portfolio and therefore decrease the level of risk. What’s more, investing in these baskets of multiple assets can minimise regular decision-making in your investing. Sure, you will still need to choose at least one fund to invest in. But if you choose something greatly varied such as S&P 500 or FTSE Global All Cap, you can often just set it all up and leave it doing its magic with automated payments to the fund.
5. Focus on the big picture
If you’re spending all your time trying to find the perfect stock to buy at the perfect price, you are missing the bigger picture. The most important decision is whether or not to invest at all.
For example, let’s say that you have been researching the stock market for months, but you are still not sure what to invest in. As a result, you have not yet invested any money. The opportunity cost of your inaction is the potential investment returns that you are missing out on. For example, if the stock market goes up by 10% in a year, you have missed out on a 10% return on your investment. The longer you wait to invest, the greater the opportunity cost.
That said, when you are starting your investment journey, remember that perfection is the enemy of making good decisions. It is impossible to make perfect investment decisions. So don’t be afraid to make decisions even if they’re not perfect. When making investment decisions, it is important to do some research and weigh the pros and cons of each option carefully. However, it is also important to be decisive and to act even if you do not have all the answers.
Conclusion: Stop overthinking and start investing
In the world of money, it’s important to strike a balance between thinking and overthinking. Overthinking your finances can freeze you up, stopping you from taking action and reaching your goals. But the five simple tips covered in this article will help you focus on the essentials, stop overthinking and start investing as a beginner. Remember, you don’t need to be an expert to get started. The cost of doing nothing can be much higher than making a few imperfect decisions. So, take the plunge, start investing today, and watch your money grow over time.
Crystal Amber retains pole position on Winterflood’s list of top monthly movers in the investment company space, but which two funds with practically identical names flew in from nowhere to take the number two and three spots?
Frank Buhagiar•27 Aug
The Top Five
Crystal Amber (CRS) holds on to top spot on Winterflood’s list of highest monthly movers in the investment company space, although the share price gain, at +20.9%, slightly lower than last week’s +23.9%. Could be all down to the news out this week. For as well as announcing more share buybacks, the small-cap fund put out a Holding(s) in Company announcement. This detailed a decrease in US-based 1607 Capital Partners’ stake in CRS to 9.7% from 10.7%. Market chose to focus on this last press release, it seems – share price closed down on the day.
Doric Nimrod Air 3 (DNA3) flies in from nowhere into second place with a +15.4% share price rise. And it has stablemate Doric Nimrod Air 2’s (DNA2) press release of 21 August 2024 to thank – DNA2 announced it will sell its remaining five Airbus A380-861 aircraft to Emirates at each of their respective lease end dates – currently expected between 1 October 2024 and 30 November 2024. The sale proceeds due to the company are £30.71m/US$40m for each plane, generating a combined total of £153.53m/US$200m for all five aircraft. The news was good for a +13.3% share price rise on the day for DNA2 bringing the monthly gain to +14.6%, enough for third place on Winterflood’s list.
Broker Jefferies explains why both Doric funds’ shares reacted well to the news “In our view, market expectations were for the sales to generate somewhere around $37m per aircraft, so the $40m across all five remaining A380s is a strong result. As such, there is positive readacross for the A380s held within sister-fund DNA3, where the leases expire in the latter half of next year”. No wonder both share prices took off.
Jupiter Green (JGC) drops two places to fourth but still managed to keep hold of the majority of its gains for the month – up +12.2% compared to +12.8% previously. That might be down to a press release put out on 21 August 2024 showing that FINDA SPV OY has increased its stake in the environmental investor to 4.15% from 3.05%. FINDA SPV OY, turns out, is managed by Asset Value Investors (AVI), manager of the AVI Global Trust (AGT). So, will be interesting to see if AVI, ahem, FINDA continues to build its stake, particularly as JGC recently announced it is evaluating options for the future of the business.
Golden Prospect Precious Metals (GPM) takes the final spot – shares are up +10.4% on no news. A look at the graph, however, reveals the share price spiked +8% higher on 20 August 2024, the day the gold price hit a year high of US$2,525 per troy ounce. If only all share price moves were that easy to explain.
Scottish Mortgage
Scottish Mortgage’s (SMT) share price finished the week ended Friday 23 August 2024 with a monthly loss of -1.7%, an improvement on the -4.2% deficit seen seven days earlier. The NAV monthly loss came in at -1.7% too, having been down -4.1% previously. The wider global sector is unchanged on the month compared to the previous -2.1%. A positive week for the Nasdaq, along with SMT’s ongoing share buyback programme – around three million shares were bought back over the course of the week – providing a positive backdrop for both share price and NAV.
Which is more attractive, a dividend based on a percentage of NAV or one paid out of revenue per share ?
I think the two can co-exist quite happily and help an investor build a more diversified portfolio. One of the key challenges for traditional equity income investors is the limited number of companies and countries one can invest in to get a relatively high dividend. The UK equity income investment trust sector has built up an enviable record of increasing dividends every year, but make no mistake, without the ability to use revenue reserves, that track record would not look quite so unblemished as there have been times over the years when the main dividend paying companies in the UK have not been able to increase dividends. Revenue reserves aren’t, by the way, a bank account where dividends from previous years are safely held but are just an accounting construct. The revenue reserve is invested as part of the net asset value and when a trust uses its reserves, it comes off the net asset value in just the same way as a dividend paid as a percentage of NAV does. So, while they may be called different things, they aren’t so different in terms of their effect on the end investor.
The big advantage of traditional equity income trusts is that they focus on a progressive dividend, i.e. one that increases each year regardless of where the NAV has gone. Anyone investing to use the income to live off will obviously be drawn to this as their income hopefully rises with inflation. Further, the types of companies that pay dividends could be considered more conservative businesses less likely to give investors unpleasant surprises. There have been times though when this is very much not the case, with the financial crisis being the big example, and so it seems sensible that any income investor should consider some diversification. This is where trusts that pay dividends from capital may have a role to play, as these trusts more often than not invest in different companies and markets.
I’d go one step further and say that with average life expectancy being so long past retirement, investors may have the opportunity to continue to target more growth-orientated strategies in their portfolio. Trusts that offer dividends paid from capital very often have more growth-orientated strategies but offer investors a convenient way to draw some income at the same time. Of course, the main difference is that the dividend will rise and fall with the NAV and investors will need to think about how much tolerance they have for that within an overall portfolio.
I’d tuck shares like this into an ISA to build serious wealth for retirement The Motley Fool
by Christopher Ruane
Looking ahead to retirement is something many investors start doing too late. But the earliest start to opening an ISA to save for retirement, the more powerful the long-term financial benefit can be.
To illustrate, imagine I put £500 a month into my ISA and compounded its value at 9% annually. Doing so 15 years before retirement would mean I had an ISA worth around £183,000 when I stopped working. Doing exactly the same, but starting 15 years earlier, means I would enter retirement with an ISA valued at around £851,000.
In other words, double the timeframe in this example gives far more than double the results, using the same investing technique. That reflects the power of compounding.
Using compounding to build wealth So what kind of companies ought I to hold in my Stocks and Shares ISA if I want to try and compound at that sort of rate? The answer is I need to choose very carefully. That 9% might not sound like much – and in a good year, a lot of shares will grow by more than that. But remember that the 9% here is a compound annual growth rate, meaning an average of 9% every year overall.
Based on that, a 9% compound annual growth rate is harder to achieve than in one or two good years. But it is possible.
Both share price growth and dividends (that I would reinvest) could help my ISA increase in value over time.
Choosing superstar shares Whether from growth or income shares, what I look for would be surprisingly similar. In short, a business with a proven model that allows it consistently to generate substantial excess cash.
Maybe it pays that out as a dividend or maybe it retains it inside the business. Either way, hopefully, buying the right share at the right valuation could help my ISA grow substantially in value over the long term.
