Safe smart investing

Risk Reward and Compounding

To make money from the stock market you need to have a bank to trade with. Ok that’s obvious to all, but how do you make the most of what you earn to initially invest in the markets?

Well this little quote should help me highlight the formula. Some of you may have heard it before “spend less than you earn and invest the difference wisely”

Safe smart investingIf you are starting from scratch you could try this approach first. If you reduced your outgoings by £100 a month and saved this for a year you’d have £1200 to invest the following year without having to do any extra working hours. If you think “yeah but I need to invest now and I need to be rich yesterday” you’ll probably still be skint in another 12 months anyway. So this is a good place to start.

You could alternatively get another job to supplement your income and continually invest that extra money instead. Maybe every month you decide to buy your favourite stock and compound the interest you earn on it by buying more stock or even another one. Sounds good right? But if the stock you buy losses money or gives you a stop out signal you may feel as you’ve wasted your hard earned overtime.

Well how about this formula instead. Reduce your outgoings and make some extra money from overtime or a second job as well. Invest this extra money in a small business that you can grow and compound your profits further.

Examples of this is buy 100 bananas for £10 and sell them for £20, then invest the profits and buy 200 bananas. Keep these strategies going until you have an income that gives you the standard of living you desire and invest the difference until the returns give you a greater return than your job.

For me personally the last example has worked well for me. My surplus income is invested in stocks that I look at keeping for 10 years plus. Now that may not happen, I may sell the shares for whatever reason, but it’s a painless way of investing. I keep earning more than I can spend and invest the difference. One day I’ll be truly financially rich if I continue as I am.

The good thing is that you can start of small and all of a sudden you’ll find the compounding really starts to take speed and deliver. You can spread bet your profits from as little as 10p in some cases and compound that way.

Plan for the next ten years and you’ll reduce the pressure of the must have now factor. This in itself will make you a better investor. And as always, remember it’s a marathon not a sprint.

Making money is largely an attitude and there is little need to be super smart or intelligent. My attitude towards making money has evolved since meeting Vince, who I must tell you actually confessed that he is not particularly bright academically.  Although evidently one heck of a trader…