Navigating Stocks, ETFs, and Index Funds

(scroll to the bottom for this week’s resource of the week)

Join me in welcoming the additional 16 people who signed up for the newsletter this week! 🎉

It’s a pleasure to have you aboard the money train! 🚂💰

A quick recap of last week’s post:

Last week we did the math and saw the numbers of how it can be possible for an average person on an average salary to retire a millionaire…

If you need a quick refresher, here’s last week’s post where I provided the blueprint on how I plan to retire a multi-millionaire

Now that we know the numbers, what investment options are there to get us to the million £ mark?

Put simply, there are 3 high-level investment options to choose from, these are:

• Individual Stocks

• ETFs

• Index Funds

Individual stocks

Risk Level: High

Individual stocks offer a direct stake in a single company. For example, this could involve buying shares in Microsoft. Using this strategy comes with risk as you are essentially banking that the particular company (stock) is going to continue doing well in the future.

Investing in individual stocks is like putting all your eggs in one basket. Just as relying solely on one basket to carry your eggs poses the risk of losing them all if the basket falls, investing heavily in a single stock exposes your entire investment to the fortunes of that one company. While it can lead to substantial gains if the stock performs well, it also magnifies the impact of any adverse events or downturns specific to that company.

Ultimately investing in individual stocks can work out to be very lucrative if you have a very strong understanding of what you are investing in and prefer a more hands-on approach.

This strategy typically isn’t great for those who are new to the world of investing or want a more passive-laid-back strategy, as it can be very time-consuming, as you constantly need to be monitoring the performance of the company and keeping up to date with the latest news and earnings of said company.

ETFs and Index Funds

Risk Level: Medium

Diversifying your portfolio across multiple stocks can help mitigate risk and safeguard against individual company volatility.

While individual stocks offer the potential for high returns, they also carry higher risks compared to other investment options, such as ETFs and Index Funds.

What is an ETF you ask?

An ETF (Exchange Traded Fund), is a type of investment that allows you to own ‘bundles’ of assets all within one fund. So, instead of owning shares only in Microsoft as you would with the individual stocks strategy previously mentioned, with ETFs you can hold shares in a variety of companies across multiple sectors all under one roof (one fund).

A popular ETF widely known in the U.K. is $VUSA. This ETF tracks companies within the S&P500, hence exposing your portfolio to a wide variety of U.S. based stocks.

So by owning an ETF like $VUSA, you are already extremely diversified as you now own a percentage of shares in 500 different companies…

This is why ETFs are such fantastic financial assets to own because you’re not just putting all your money into one company and praying the company doesn’t go bankrupt, you're spreading your money across a variety of companies, hence reducing your overall risk.

Index Funds on the other hand operate very similarly to ETFs, the main difference being the way they are traded.

ETFs can be bought and sold throughout the trading day (just like normal stocks), whereas index funds are bought and sold at the end of the trading day and buying/selling index funds typically take 2-3 days to process.

So what now?

If you’re new to the stock market then you should go with the ETF/Index Fund approach

Why?

Simply because of the diversification they provide…

Diversification will spread risk across multiple companies and sectors, mitigating the impact of individual stock volatility on your portfolio

As a beginner, you may lack the experience or knowledge to select individual stocks effectively. ETFs and index funds lower risk by minimising exposure to the unpredictable price movements associated with single-stock investments, making them a safer choice for those new to investing.

What’s in store for next week?

I’ll be giving an in-depth breakdown of the exact holdings within my Vanguard portfolio 📈

I hope you enjoyed this read. If you have any questions, simply reply to this email.

I’ll catch you back here next Sunday

over and out ✌️

Monty L.