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Last week I finally started actively investing in the stock market and I’m really excited to grow my money rather than watching it waste away in savings and current accounts. Technically, I’m not completely new to investing because I have a workplace pension and my pension contributions are used to buy shares. But this new journey feels different because it’s more intentional and I’m playing more of an active role in my investment portfolio.
I decided to buy my first stocks via the investment broker Trading 212 because I’m already familiar with the platform after making the most of its free share worth up to £100 for newbies offer earlier in the year. But if you’re looking for something a little different, there are plenty of other places you can invest such as FreeTrade, Hargreaves Lansdown and Vanguard.
Here are 5 questions I asked myself before making my first stock market investments.
Would you like a free share worth up to £100 from Trading 212? Create an account using this referral link and you and I will each earn a free share once you’ve funded your account with £1. To learn more, take a look at my Trading 212 posts: how I made £88 from opening a Trading 212 account and is Trading 212 a legit way to invest or a scam?
May 2021 Update: Due to unprecedented demand, Trading 212 has paused its account opening service and isn’t currently accepting new members. If you’re eager to start using investing apps, Freetrade is a popular alternative and it also has a generous referral scheme. If you open a Freetrade account using this link and follow the instructions, you’ll receive a free share worth up to £200! I’ll also receive a free share for recommending you.
Do I have enough money set aside for an emergency?
Personal finance experts and those in the investment industry tend to recommend you’ve paid off all expensive debts and have at least 3-6 months emergency savings set aside before you begin investing in the stock market. This is because the value of your investments can fall as well as rise and if you need to access your money in an emergency, you might not have as much money in your investment account as you originally put in.
Before buying my first stocks, I took a close look at my finances and moved the bulk of my emergency fund into Premium Bonds so that I won’t be tempted to dip into it for non-emergencies and it’ll always be there if I need it.
Do I need this money in the next 10 years?
One criticism I’ve heard of Trading 212 is that it gamifies investing and encourages people to pay so much attention to the short term performance of their stocks that they panic and withdraw badly performing investments rather than riding out the wave.
With this in mind, when placing my first investments, I told myself the money I’m placing in my account is money I won’t see again for the next 10 years. This way, I’m kinda writing it off in my head and forcing myself to accept that if my portfolio is down in a year or two’s time, that’s completely fine because there’s plenty of time for it to recover.
What do I think will be the ‘next big thing’?
Do you know what’s depressing AF? Looking at how much cheaper it was to buy stocks in Apple, Amazon, and Tesla a few years ago compared to now.
If I’d have bought Tesla stock for $130 back in January, it’d be worth a whopping $406 at the time of writing this.
Before placing my first stock market investments, I did some research to try and figure out which companies are likely to be the next big thing. At the end of the day it’s a guessing game and no one can say for sure what’ll be the next Netflix or Facebook, but it’s something to keep in mind nevertheless.
I decided to pick NIO and Asana as my ‘next big things’, as I believe electric cars and online communication tools will not only survive the pandemic but also do well once we’re out the other side.
Are these stocks diverse enough?
You’ve probably heard investment experts talk about the importance of a diverse stock market portfolio. By keeping your portfolio diverse and spreading your investments across a number of different stocks, you can minimise the impact of fluctuations. If you’d spent the last 5 years pouring all your excess cash into EasyJet and Cineworld stocks, for example, you’d be screwed right now and left wondering whether to cut your losses and sell them for less than what you bought them for or pray for recovery.
It’s often recommended that not only do you choose stocks from a number of different companies, you invest across a multitude of industries too. By choosing stocks across sportswear, project management software and electric car industries, I’ve avoided putting all my eggs in one basket.
When I have enough money to buy more stocks, I’d like to diversify even further by buying stocks in other industries along with some ETFs.
How confident am I that these companies will survive the recession?
I’ve tried to buy stocks with companies that will A. survive the pandemic/the recession and B. continue to do well if we ever come out the other side.
I would’ve liked to invest in Tesla stocks but they’re way out of my price range and so I went for NIO instead. They might be competitors but with self-driving cars looking so likely to become the norm in future, surely there’ll be space for both companies and others to thrive.
I believe that even when COVID-19 is a distant memory, working from home is here to stay. The pandemic has shown employers that working remotely can be done and I think many companies will struggle to justify the cost of permanent office space going forward. As a result, I reckon tools like Asana will not only survive the recession but continue to do well in future.
I am a little worried Asana could lose out to competitors such as Slack and Monday, but I think it’s got as good a chance as any other project management tool of being ‘the next big thing’
Would you like a free share worth up to £100 from Trading 212? Create an account using this referral link and you and I will each earn a free share once you’ve funded your account with £1. To learn more, take a look at my Trading 212 posts: how I made £88 from opening a Trading 212 account and is Trading 212 a legit way to invest or a scam?
May 2021 Update: Due to unprecedented demand, Trading 212 has paused its account opening service and isn’t currently accepting new members. If you’re eager to start using investing apps, Freetrade is a popular alternative and it also has a generous referral scheme. If you open a Freetrade account using this link and follow the instructions, you’ll receive a free share worth up to £200! I’ll also receive a free share for recommending you.
