This blog is a summary of the conversations I’ve had with friends and the suggestions I’ve made to them. All content in this blog represents my personal opinions and do not represent those of organisations that I associate with in any personal or professional capacity. The content is provided for informational purposes only. The following is not intended to be investment advice. This article contains referral links because who doesn’t like referral links!
In part one we covered why you should invest and the right mindset.
Let’s do this! A really simple approach to investing
Ok, this is what you’re going to do.
You’re going to start investing a comfortable amount, once a month via savings plans into two different ETFs (MSCI World, MSCI Emerging markets) and a small amount into Bitcoin and Ethereum.
Now let me elaborate:
What assets classes you should buy
Different assets & asset classes have different pros and cons. Often these are summarised as a tradeoff between:
We can only pick two of the desired properties
We are going to pick:
- ✅ High Returns
- ✅ High Liquidity
- 😞 High Risk
It may seem counterintuitive to ask new investors to go for ‘High Risk’ as the undesired property, but hear me out:
Liquidity is super important because as beginner investors, we want to make sure we can get access to our funds very easily.
As young people who are starting out, we might not have figured everything out yet e.g. if we want to buy a house or take a sabbatical and live off our savings. Compromising on liquidity would mean we have to have a clear picture of our future which is most likely going to be a headfuck and stop us from starting investing.
High returns are necessary because anything else means we are losing money
Keeping cash in a bank account means we are losing money each year because of inflation and the interest rates are so low on fixed income products that it’s barely any better.
If we aren’t going to go for high returns, then there’s not much point to investing at all given the current situation.
Result: We have to compromise on risk
Risk is how safe the profit is and how safely it can be planned.
While it might seem scary to go for a ‘high risk’ investment, please remember that this scoring is only relative and…
We are going to do everything we can to de-risk your ‘risky’ investments!
🧮 How much to invest: A comfortable amount
Without overthinking, how much of your income do you think you could invest each month without it hurting?
Ok, that’s your ‘comfortable amount’. Don’t upsell yourself and try to go over this. You can always increase it gradually in the future.
There’s no correct amount or correct percentage. Do what feels comfortable and adjust over time.
Think about an emergency fund + any big upcoming payments
Conventional wisdom says you should have an emergency fund of about 3 months. You should also think about any big payments you might have to make e.g. deposit for a mortgage.
I would try to avoid holding too much cash for the reasons described above. On the other hand, you shouldn’t find yourself in the position where you have to sell some of your investments each month because you’ve run out of cash.
You should consider the following factors when deciding how much cash to have:
- Your investments are going to be liquid. If you need to, you can sell them and get access to cash again. Now, as we are investing in risky assets you might have to sell them at a loss, but if this is only in the case of an emergency, then maybe you can take the risk.
- If you are employed in a country with a strong social system or labour laws (e.g. Germany) the chance of losing your entire monthly income from one day to the next are lower so your emergency fund can be smaller.
- If you’re in the very privileged position of knowing you can borrow from your parents etc. in the event of an unexpected emergency, then your emergency fund can also be smaller.
🛒What you’ll buy each month: Two ETFs and the two biggest cryptos
Let’s say for example your comfortable amount is €500 a month. This is how you would invest it:
Where do these numbers come from
These come from a ‘best fit’ approach based on the people I talk to and where they are in their life.
Typically people who are starting to invest are young and can take on a slightly higher risk tolerance. If you are young, earning well and expect your earnings to be stable or increase in the next few years, I’d advise you to lean towards the more risky side!
If you want to dive deeper, there’s a bunch of financial risk quizzes online. I wouldn’t take the results so seriously, but the questions themselves are useful as they let you know what defines a tolerance to financial risk.
Equities: Buy ETFs opposed to individual shares
The safest way to invest is to diversify your investments. If you have $1m you could invest all €1m of it into one company, but it would be safer to invest $1000 into 1,000 different companies. As my mother would say, “don’t put all your eggs in one basket”.
Investing into $1000 different companies would be complicated and painful, but luckily for us we have ETFs or exchange traded funds.
ETFs allow you to invest into a lot of companies at once. Often these are based on a theme (e.g. Space or Clean Energy) or a geographical region (e.g. Europe or Japan).
We are going to focus on the biggest, most diverse and well known ETFs:
- MSCI World
- MSCI Emerging markets
MSCI World, for example, contains over 1,559 companies across 23 different countries. Wow! Now, that’s what I call diversification.
The difference between MSCI World and MSCI Emerging Market is that World focuses on developed countries (e.g. the US, Germany, Japan) whereas Emerging Markets focuses on developing countries (e.g. China, Brazil, India).
When you’re looking for these ETFs, you should try to buy the one that is in your normal currency e.g. EUR and that is Accumulating (ACC) opposed to Distributing (Dist). This means dividends will be reinvested rather than paid out.
Adding crypto for a higher risk-reward profile
I’m obviously a big believer in crypto and while I’m happy to keep a significant portion of my net worth in it, I don’t advise it for the average investor due to the high volatility.
What I will say however, is that it’s a fantastic asset class that has performed exceptionally well in the last decade. It’s still extremely volatile, but it offers returns you can’t get anywhere else.
To keep things simple, you are going to invest in the two biggest crypto currencies: Bitcoin and Ethereum.
In a perfect world, there would be an ETF that tracks the top crypto currencies so you could invest in a diversified way, but let’s not worry about that for now. Why? There aren’t any great options and secondly the market tends to follow bitcoin and ethereum pretty reliably so the need to diversify is not as important as with equities.
📅 When to invest?
Timing the market is really hard! Don’t bother. The saying goes: time in the market is better than timing the market.
The best timing for investing is “a little bit regularly”. Given that most people get their salary each month, the easiest is to start investing once a month, typically soon after you get your salary.
Try your best to automate this 🤖
You can completely automate an investment by:
- Automating a transaction from your bank account to your investing (brokerage) account
- Automating the investment through a savings plan (a scheduled automatic buy) for example
If you’re the kind of person who finds it hard to commit to something once a month, set up automation straight away. Do it once and you won’t have to think about it again!
If you are more cautious, run the process manually for a couple of months before automating.
Automation is great for busy people who don’t want to think about money!
Let’s do this!
Ok, so now you should understand the what and the why:
You are going to start investing because you want to grow your wealth over time, your bank offers you no interest and inflation is eating away at the value of your cash.
So.. Let’ summarise the key points:
🧮 How much? A comfortable amount
- You’ve thought about emergencies / upcoming purchases
- An amount you might miss but could live without
📅 When? Once a month
- Timing the market is hard
- Invest regularly and automate where possible
🛒 What to invest in?
- We are going for assets with relatively high liquidity, returns, but higher risk
- ETFs allow you to invest broadly over the stock market
- Crypto to add additional risk but also additional reward!
🛠 The tools and platforms to use
🇪🇺 Living in Europe
Crypto — Nuri has savings plans for Bitcoin & Ethereum
Equities — Trade Republic has savings plans for ETFs
🇬🇧 Living in the UK
Equities — Plum doesn’t let you invest in ETFs directly, but rather diversified funds
N.B. For US citizens it’s tricky to sign up to some of the above platforms. You should double check beforehand.
Go do this!
You’re reaching the end of the article. You’re kind of excited, but at the same time, you think to yourself… not today…
GO GET STARTED!
It’ll take about an hour and once it’s done, you’re an investor! You’re part of the elite club that is actually growing their money. It’s a great feeling once you get started.
I want to buy very risky thing X
“Hey Ben! My friend told me to buy NFTs, DeFi, Gamespot, [insert hipster new crypto here] etc. etc.”
The world is full of FOMO and sooner or later you’ll see a headline about some crazy new thing. The guide above is the ‘slow and steady’ approach.
If you find it too hard to resist, that’s ok! You’re only human. What I would recommend is to create your own personal hedge fund. Set aside a fixed sum or figure out a monthly contribution. The purpose of the hedge fund is to indulge all your FOMO-fueled, perhaps not so rational investments.
Once you’ve figured out how much you’re going to put in there, you need to be strict with yourself. Want to buy shiny new thing X, well you’re going to have to sell those NFTs you bought last month.
What about tax?
If you buy and hold your assets, you don’t typically have to worry about tax. In most countries, you only pay tax on the profit that you make from selling your asset. E.g. in Germay if you buy an ETF for €1000 and sell it for €1500, you’ve made €500. You’d have to pay the 25% capital gains tax: €125
It’s good practice to put aside your gains in a separate account to avoid the worst case scenario: investing all your gains in an asset and losing it but still needing to pay the tax.
When should you sell
We invested in liquid assets, remember? This means that it’s easy to sell and you can sell ‘whenever.’ If it’s urgent, then you can sell a chunk at once. If it’s less urgent, then you sell a little bit each year as often this is more tax efficient e.g. in some countries you have a capital gains allowance.
Do you follow your own advice?
Generally yes. I invest into crypto and equities on a monthly basis with a predetermined amount. I generally don’t try to time the market although I am occasionally weak and ‘buy the dip’.
I am, however, much more heavily invested in crypto as part of my overall portfolio. This is very risky by traditional wisdom, but I’m ok with that. That’s my burden to bear.