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Authors: Simon Smith
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you can’t just take it out as soon as you get the urge to go on holiday or something. If you can find an account where you have to give 7 days notice, then perfect. You can’t just take it out because you fancy a night out on the town.
I appreciate that not everybody will be able to do this straight away. If you can’t then that’s fine. If you have to start with saving 1% and build it up, then at least you have started. You’re on your way!
The aim of this exercise is to start increasing your net worth. Every time you put a little bit of money aside; your net worth is going up. Every time you pay off a portion of your debt, your net worth is going up.
If you have a computer, keep all of this information on a simple spreadsheet so that you can track your progress. It gets very exciting when you start to see your assets increase, your debts decrease, and your net worth going up. It motivates you to keep going and keep building.
Chapter 21
Asset Allocation
Asset allocation is just a fancy way of saying “Where I’m keeping my money”.
If you imagine taking all of your savings and investment money, and dividing it into two pots. Pot one is your safety pot. This is where your money grows slowly, but is safe. A Cash ISA (UK) is an example of a safe investment. The interest is low, but your money is protected.
The other pot is your growth pot. This is where your money can grow a lot faster, but is higher risk. You can lose your money in this pot.
You need to decide on your attitude to risk, but my advice is to never keep less than 40% of your money in the SAFE pot. If you have £1,000 to invest, keep £400 minimum in a safe, low interest (high interest if you can find it) account. The other £600 you can invest in investments that can pay you a much higher return.
Before I discuss where to invest, I am NOT giving you investment advice. If you go and put all your money into a poor investment and lose it all, don’t contact me and ask me to cough up,as it’s not going to happen!
Here are some of the things I recommend you do when investing your money.
One – Only invest in things you understand. If you don’t understand something, how can you know it will return your money? If you choose to invest in stocks, find out everything you can about the company. Who runs it? What do they do? What sort of business is it? How do they make their money? Who are their customers? How do they invest their profits? Are they likely to be around in ten years? If not, why not?
Two – Only invest what you can afford, or are comfortable losing. All growth investments carry some risk. If the thought of losing your money makes you feel sick, put it somewhere safer.
Three – Know the difference between investing and gambling. Putting all of your money into a stock because your mate told you it was going to be good is not investing. It’s gambling. I know all about this as I’ve done exactly that myself. There was a great oil company that were about to make it big time. I put several hundred pounds into it, only to watch that money slowly shrink by the week. It still hasn’t recovered.
Four – Invest in things that you can exit quickly. If you invest in a buy-to-let property, it can take you years to sell it. If you invest in a stock, it takes a couple of days or so to get out of the deal.
Five – Invest for the long term. Another one of my (many) mistakes was getting into day trading. Again, I lost my money. Put your money where it will grow over time, rather than trying to make a killing in two hours.
Six – Compound your money. If you find something that is working, reinvest your profits. If you’re always moving your money about, you won’t be able to take advantage of the compound interest.
Seven – Watch your investments, but don’t stress about them. Keep an eye on them and make sure they’re doing what they should be, but if the
I appreciate that not everybody will be able to do this straight away. If you can’t then that’s fine. If you have to start with saving 1% and build it up, then at least you have started. You’re on your way!
The aim of this exercise is to start increasing your net worth. Every time you put a little bit of money aside; your net worth is going up. Every time you pay off a portion of your debt, your net worth is going up.
If you have a computer, keep all of this information on a simple spreadsheet so that you can track your progress. It gets very exciting when you start to see your assets increase, your debts decrease, and your net worth going up. It motivates you to keep going and keep building.
Chapter 21
Asset Allocation
Asset allocation is just a fancy way of saying “Where I’m keeping my money”.
If you imagine taking all of your savings and investment money, and dividing it into two pots. Pot one is your safety pot. This is where your money grows slowly, but is safe. A Cash ISA (UK) is an example of a safe investment. The interest is low, but your money is protected.
The other pot is your growth pot. This is where your money can grow a lot faster, but is higher risk. You can lose your money in this pot.
You need to decide on your attitude to risk, but my advice is to never keep less than 40% of your money in the SAFE pot. If you have £1,000 to invest, keep £400 minimum in a safe, low interest (high interest if you can find it) account. The other £600 you can invest in investments that can pay you a much higher return.
Before I discuss where to invest, I am NOT giving you investment advice. If you go and put all your money into a poor investment and lose it all, don’t contact me and ask me to cough up,as it’s not going to happen!
Here are some of the things I recommend you do when investing your money.
One – Only invest in things you understand. If you don’t understand something, how can you know it will return your money? If you choose to invest in stocks, find out everything you can about the company. Who runs it? What do they do? What sort of business is it? How do they make their money? Who are their customers? How do they invest their profits? Are they likely to be around in ten years? If not, why not?
Two – Only invest what you can afford, or are comfortable losing. All growth investments carry some risk. If the thought of losing your money makes you feel sick, put it somewhere safer.
Three – Know the difference between investing and gambling. Putting all of your money into a stock because your mate told you it was going to be good is not investing. It’s gambling. I know all about this as I’ve done exactly that myself. There was a great oil company that were about to make it big time. I put several hundred pounds into it, only to watch that money slowly shrink by the week. It still hasn’t recovered.
Four – Invest in things that you can exit quickly. If you invest in a buy-to-let property, it can take you years to sell it. If you invest in a stock, it takes a couple of days or so to get out of the deal.
Five – Invest for the long term. Another one of my (many) mistakes was getting into day trading. Again, I lost my money. Put your money where it will grow over time, rather than trying to make a killing in two hours.
Six – Compound your money. If you find something that is working, reinvest your profits. If you’re always moving your money about, you won’t be able to take advantage of the compound interest.
Seven – Watch your investments, but don’t stress about them. Keep an eye on them and make sure they’re doing what they should be, but if the
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