Why Beginner Investors Should Start With Vanguard
How do I begin investing in stocks? What is Vanguard? Should I buy individual stocks or an index fund? What is an ETF?
These are some of the questions that I am asked most often in the Ambitious Investor Community.
I always answer with the words ‘Vanguard,’ and ‘passive Index-Fund Investing’.
I believe that for most investors, the best way to make money in the UK would be to open a Stocks & Shares ISA using the Vanguard Platform, and then invest in well-diversified, low-cost funds which track an index like the S&P 500, or the FTSE 100.
Investing your money can be a key step in improving your finances.
We would struggle to become financially independent if we didn’t invest our retirement money. Cash accounts are safe and secure, but due to inflation they can be a bad investment. The money that you hold in cash will lose purchasing power each year.
Investments are a natural way to go. They can take many forms: equities, bonds, real estate, commodities, or more complex financial instruments like options.
You might have heard of the phrase ‘passive investment’. This simply means that you are investing in a fund that tracks an index. For example, the FTSE 100, (the 100 largest companies in the UK). The most popular form of passive management on the equity markets is through “index funds,” which track an index’s performance without attempting to outperform it, something that history has shown is very hard to achieve.
To me, it’s important to invest in areas that I can understand and which don’t take much of my time, but have proven growth potential over long term. I specifically invest in Company Shares via Vanguard Investor platforms such as S&P500 UCITS (VUSA) ETF fund.
The fund is based on the S&P 500, the largest 500 US companies. It includes household names like Apple, Facebook, and Google.
You may already be invested in shares and stocks if you receive a pension from your employer. Regardless including the possible loss, of your situation, you should open a Stocks and Shares ISA as soon as possible.
What is a Stocks and Shares ISA (Investment in Securities Account)?
A personal savings account is called an ISA. Stocks and Shares ISA is a tax-efficient investment account that allows up to £20,000 to be invested per year in various products. A stocks and shares ISA is a tax-efficient investment account that allows you to invest up to £20,000 per year into various products (e.g., company shares, investments in mutual funds and etfs or bonds).
You should be aware that, unlike a Cash ISA, the value and loss of the money in your investment can both go up and down. Let’s take for example that you invested only in Company X in your stock and share ISA. You have 20 shares if you invest £100 in your account, and the value of each share is £5.
The Company’s valuation may fall below £4 per share. At that point, your money invested would be only worth 80 £.
It is important to note that this example shows the volatility of the stock markets. However risk including the possible, novice investors can rest easy knowing that the value will increase over time and these dro£ in value won’t be permanent as long as they don’t close their positions.
Beginners should avoid the problem by investing in many different companies in various industries and countries.
Sounds complicated? Once you get started, I promise it’s not. After you are set up with the platform, you only need to make sure that your monthly direct debit is processed. All of your investments will then be handled by it.
Isn’t it risky to invest in shares and stocks?
Investors may be reluctant to invest in stocks of companies because returns are not guaranteed and they are subject to risk including they could end up getting back less money than what was initially invested. Numerous studies, including this Barclays Study, have proven that holding money in stock has historically outperformed cash.
People tend to exaggerate the risk of investing in shares and stocks due to horror stories that they have heard on the news. If you have a well-diversified, low-cost portfolio, investing in shares and stocks is not particularly risky. You are investing into the best-established companies on the planet.
The Financial Services Compensation scheme will cover your investment up to £85,000 if Vanguard becomes insolvent. Vanguard being one of the most well-known names in investment, I don’t worry much about this, but it could be an issue for less established platforms.
What makes the Vanguard Platform a good choice?
Vanguard has very low fees. The fees charged by our providers can be very significant and have an impact on future investment value.
Vanguard’s average annual platform fees are 0.15% (capped at £375) of the assets, which is lower than other platforms popular in UK such as Hargreaves Lansdown (0.35%) and Charles Stanley Direct (0.45%).
Investors must also pay a fee for each fund they choose to invest in. Vanguard provides access to many cheap mutual funds. The cheapest one charges a fee of only 0.06% or £6 per £10,000 invested.
Vanguard Investor is easy to use and user-friendly, unlike some complicated platforms. Vanguard Investor is a great option if you are the kind of person that can easily become overwhelmed and confused by investing. This is because it’s so easy to setup.
When investing sounds more complex than it actually is, you’re right. After you set up your Vanguard Account, which shouldn’t take more than 15 minutes, the process of investing is as simple as transferring money from your bank to an index fund that suits your risk tolerance and letting it grow.
While I cannot tell you exactly what your investment returns will be (neither can anyone else investing is subject to), I’m confident that I can build wealth by investing in the Vanguard stock market, compared to leaving my money as cash.
Your future self will be grateful that you started today.