Disclaimer: This post is not advice. This post is information based on my experience.

Stocks and shares background

I’ll give you a very brief overview of my experience with the stock market…

Back in the day (2010 and 2011) I lost £8000 on single shares without doing any research – do your own research.

Start of 2019 I got into personal development and part of that was to get some much-needed financial literacy.

With some self-awareness, I realised I was an emotional investor. After reading books about money and investing, I decided to get back into the stock market. This time I done my research.

After reading books by John Bogle, Tony Robbins, Robert Kiyosaki, Benjamin Graham etc (links at end of the post), I decided to try index investing. And I was convinced I could earn 7% interest on average if I invested long-term. This was based on historical data and what I’d learned from the books I was reading.

Vanguard index funds

There are some recommended books at the end of this post. The types of books I was reading at the start of 2019. By mid-2019 I was ready to invest in the stock market after my previous attempt 8 years previous.

The research I had put in gave me confidence to dip my toes back into the markets. I was confident I could achieve 7% on average as I have said. Comparing this to interest earned in high st. banks I would be happy with this interest.

But I was also factoring in inflation in, and my thinking was that inflation was at around 2% at the time. I would be earning a real interest of 5% per annum (pa). Still better than sticking it in a savings account with my high st. bank.

You can speak to a financial advisor (FA) and they will advise you on a suitable fund to invest in. They discuss your risk tolerance and go through a series of questions to determine a suitable fund for you to invest in. I chose against this as I didn’t want to pay the 1% interest pa as I would be down to 4% interest if I managed to get my target of 7%.

If you don’t fancy the research, speaking to an FA might be the way to go. From the books I was reading, I was very aware of costs so chose against the FA route.

This is what I done …

I done the research and had a rough idea of what fund I wanted to invest in.

I chose a platform to buy the index funds. A platform will give you a large number of funds to invest in. My preference was Hargreaves and Lansdown and Vanguard back in 2019.

I narrowed it down to 2 or 3 funds I fancied. I went to morningstar to compare the funds and eventually chose a Vanguard Life Strategy 80 20 fund and have been investing for the last 2 and half years.

I love index investing

Basically, with an index fund, you are tracking the full market. Like if your fund is made up of companies within the S+P 500, you are looking to match the performance of the entire market.

Instead of investing in one company, you are investing in several companies. You have a small slice of several companies. If one company, goes down you are insulated by the other companies within your fund. This suited me because of my experience of single shares.

What I have loved so far about index investing is that I don’t check my fund very much. Maybe once or twice a year. This suits me as I know from experience, that I am an emotional investor.

The last time I checked my fund was May 2021. The bonus is that the fund had earned above 20% interest between May 2020 and May 2021.

The caveat

Now I was hoping to just leave my LS 80 20 fund and keep dollar cost averaging for the long-term. Like I said, I love index investing. The caveat is that I haven’t given inflation much thought since choosing my fund back in 2019. But this has changed over the last few months.

If you believe official figures, inflation is at or around 5% in the UK and 7% in the US. Based on the cost of everything going up and the amount of money getting printed (QE), my feeling is that inflation is much higher. My feeling is that the inflation rate in the UK is more like 10%. Don’t quote me on this, it’s just my opinion based on reading up on inflation over the last few months.

With inflation on the rise, this has affected the way I look at my investments. My target with my LS 80 20 fund was 7% before I really started to understand inflation. If the inflation rate was 10% and I achieved 7% that means my money is being devalued and my purchasing power is reducing year on year. This is if the inflation rate is 10% and if I manage to achieve 7% with my LS 80 20 fund.

According to CNBC, the yield on bonds in the US is currently 1.75%. With my mind on inflation, I don’t want to invest in bonds going forward. This means I am going to change from a LS 80 20 (80% shares, 20% bonds) to a LS 100 Vanguard fund (100% shares) from February onwards. It’s riskier but I am happy to ride the inevitable market cycles as I see my index investing as long-term. As in the next 20 years.

Do your own research

With any investment, it is very important to do your own research. This is something I will keep banging on about. Some of my friends and colleagues look to chase quick easy money without doing any research. This is exactly what I did before 2019. Don’t do this! It just brings stress and anxiety. That is from my experience anyway.

Your investments are your responsibility. Learn from my mistakes and get some financial literacy. Read a few books and get some financial literacy. Start small and invest in the stock market if you’re interested in higher than 1% returns that you get by simply leaving it in your bank. When you get more comfortable, you can gradually increase your investments.

When you do your own research focus on costs. What are the costs involved with investing via an index fund – read the small print. Focus in on dollar cost averaging and compound interest and it will improve your understanding. This knowledge will help you with long-term wealth building.

If you like the sound of index investing let me know. I have some more information that I can send you to help you understand the fundamentals. And don’t forget to read some of the recommended books below …

Books to read

Rich Dads Guide to investing – Robert Kiyosaki

The little book of common sense investing  – John Bogle

Unshakeable: Your Guide To Financial Freedom – T Robbins

Money Master the Game: 7 Simple Steps to Financial Freedom – T Robbins

The intelligent investor – Benjamin Graham

How to own the worldAndrew Craig – aimed at investors in the UK

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