Investing - Where's the pot of gold?

Bostonerimus1

HedgehogRulez said:

I’m not sure we’re anywhere near exponential growth….

Particularly when there’s the Great Market Crash of our time just around the corner 😗

Compounding is a basic feature of investing and by definition your pot will grow exponentially with time...well hopefully, but definitely with a saving account. The growth will depend on the rate of return and folks like Napier and Bernoulli showed that it will also depend on the period of the compounding. The exponential growth of an investment is exactly why you are encouraged to invest for the long term.

HedgehogRulez

Bostonerimus1 said:

HedgehogRulez said:

I’m not sure we’re anywhere near exponential growth….

Particularly when there’s the Great Market Crash of our time just around the corner 😗

Compounding is a basic feature of investing and by definition your pot will grow exponentially with time...well hopefully, but definitely with a saving account. The growth will depend on the rate of return and folks like Napier and Bernoulli showed that it will also depend on the period of the compounding. The exponential growth of an investment is exactly why you are encouraged to invest for the long term.

It won’t be growing much if the unit value is worth mere pennies when you bought for pounds!

RootOfAll

I'm delighted if pleasantly surprised that so many people have so very kindly contributed much helpful information and ideas and links.  Thank you all, very much indeed.  

I've still plenty of reading to follow up but I can see, I think, that a key factor is the share price going up.  If I'm crudely grasping things aright, this will act a bit like a compound interest on the principle value and then the dividend yield (if all paid back into the investment) compounds on top of that, compounding the compounding.  Playing with a few modest notional figures paints quite a nice picture.  However, this obviously relies on share prices forever significantly going upwards (over the long term) but perhaps they more or less do...  My 'too good to be true' alarm gets nervous!

As it happens, I did see Martin Lewis's investment focussed programme the other day and it nudged me to have a closer look at investing.  I thought the programme was perhaps a little too glowing and the only chillier note was struck when one of the featured financial advisors admitted that she couldn't help anyone with less than £30,000 to invest.  Having £30k to hand being beyond all imagining to the larger portion of viewers we might think.  Also we didn't hear from investors who had tried to be conservative and well informed with their investments but who had, for whatever reason, come up with not much to show for it or even made a loss, .

Angelica123

RootOfAll said:

I'm delighted if pleasantly surprised that so many people have so very kindly contributed much helpful information and ideas and links.  Thank you all, very much indeed.  

I've still plenty of reading to follow up but I can see, I think, that a key factor is the share price going up.  If I'm crudely grasping things aright, this will act a bit like a compound interest on the principle value and then the dividend yield (if all paid back into the investment) compounds on top of that, compounding the compounding.  Playing with a few modest notional figures paints quite a nice picture.  However, this obviously relies on share prices forever significantly going upwards (over the long term) but perhaps they more or less do...  My 'too good to be true' alarm gets nervous!

As it happens, I did see Martin Lewis's investment focussed programme the other day and it nudged me to have a closer look at investing.  I thought the programme was perhaps a little too glowing and the only chillier note was struck when one of the featured financial advisors admitted that she couldn't help anyone with less than £30,000 to invest.  Having £30k to hand being beyond all imagining to the larger portion of viewers we might think.  Also we didn't hear from investors who had tried to be conservative and well informed with their investments but who had, for whatever reason, come up with not much to show for it or even made a loss, .

On the very long term, overall shares have trended up but the rise is not linear. It will fluctuate and that includes decreasing. Part of weathering these fluctuations is a)to have an invest for a long enough time that you can weather those fluctuations (and de-risk when you know you need the capital and b) diversifying your portfolio so you are not invested in a single stock (eg by investing in low cost global index funds). 

Remember that if you have a defined contribution pension, you are almost certainly already investing. 

The point re financial advisor only helping people with capital of above 30k isn't a chilly note but a practical note. There's no financial incentive for them to manage small portfolio. But the easy accessibility of low cost global index funds means that people can invest on stock market with small amounts of capital. However the onus is on the individual to do their due diligence and research. Investing isn't a get rich quick scheme - the fact that rich people have a lot of money in stock markets is because they have a lot of money to invest (the investing in the stock market in itself is not the primary driver to them being rich). 

jimjames

RootOfAll said:

 However, this obviously relies on share prices forever significantly going upwards (over the long term) but perhaps they more or less do...  My 'too good to be true' alarm gets nervous!

It's not too good to be true but equally it's not a straight line. You need to stick with investing through thick and thin, you might have increases then a 40-50% drop and then more increases which would put most people off as they want certainty. It's easy to see that the value in a savings account stays the same, it's less obvious that the money in there now has less buying power due to inflation so your £100 is now only effectively £90.

DiamondLil

RootOfAll said:

 Playing with a few modest notional figures paints quite a nice picture.  However, this obviously relies on share prices forever significantly going upwards (over the long term) but perhaps they more or less do...  My 'too good to be true' alarm gets nervous!

You could always start as I did; a monthly investment for a minimal amount. There are a few providers who make no charge for monthly investing. Hargreaves Lansdown, for instance, allow monthly investing for as little as £25 per month. 

Alexland

RootOfAll said:

However, this obviously relies on share prices forever significantly going upwards (over the long term) but perhaps they more or less do...  My 'too good to be true' alarm gets nervous!

For the stock market part of your portfolio you are not relying on speculation to push up share prices long term. It's inflation doing the heavy lifting. Over time companies tend to increase the price of the goods and services they sell to customers whose income also tends rises with inflation so if the company can maintain the same % profit margins (as their input costs and overheads also tend to rise with inflation) then their earnings tend to go up with inflation too. Or more if they can be more productive or less if there is more competition.

So you are owning productive assets whose value and dividends tend to go up with inflation and it's the reinvesting of the dividends into more units which also tend to go up with inflation and produce more income that rises with inflation which causes the investment to snowball in a lumpy way that compounds over the years.

For the fixed income part of your portfolio you are buying bonds which are either priced to currently have a yield higher than inflation is expected to be (and higher than cash rates are expected to be to compensate you for taking duration risk) or that are pegged to inflation to assure a certain level of above-inflation return until redemption.

dunstonh

the only chillier note was struck when one of the featured financial advisors admitted that she couldn't help anyone with less than £30,000 to invest.  Having £30k to hand being beyond all imagining to the larger portion of viewers we might think. 

It has been said that Martin Lewis is aimed towards the lower net worth demographics.    Whereas financial advice, which is expensive and time-consuming to deliver, is difficult to price cost-effectively to smaller investors.   For example, I am about 2 hours away from completing work for a new investor who already has 12 hours of work done.

The regulator is not a price regulator but it does require value for money.   It is difficult for regulated advice on smaller values to be given cost effectively.  Many adviser firms wont consider less than £100k.   I had a new client approach me some years back as their existing advice firm was no longer dealing with people with less than £250k.   So, £30k is actually quite low.

 Also we didn't hear from investors who had tried to be conservative and well informed with their investments but who had, for whatever reason, come up with not much to show for it or even made a loss, .

Over 2022 to late 2023, fixed interest securities suffered their worst period in over 100 years.    So, short term returns have been poor.  However, medium term returns and long term returns have still exceeded cash.     This is why investing is not for the short term.



      

Eyeful

RootOfAll:

Academic research repeatably shows that the majority of "newbie investors" pile in to the stock market, when all the financial news is good & making money looks so "easy". This is normally near or at the top of the market cycle.

I personally think that these newbies may not do much (if any) research into what they are letting themselves in for.

Then comes the major fall in prices and these newbies "jump ship" just as fast as they climbed aboard.
Sell their assets turning a paper loss in to a real loss.
Maybe they will never return or only come back near the peak of the next cycle.

Take your time to see if you will be happy investing.

I strongly suggest you keep away from buying single shares, as that is very risky.
Example: Look up "Enron" the stock markets "darling" and see what happened to that share.

Financial Advisors;
For all the smiles & coffee they give you They are business.
Rent and staff have to be paid.
Indemnity Insurance has to be bought
Equipment needs to be replaced.
This all cost money.

Luckily, on YouTube there are IFA's that provide information for free. 

wmb194

RootOfAll said:

I'm delighted if pleasantly surprised that so many people have so very kindly contributed much helpful information and ideas and links.  Thank you all, very much indeed.  

I've still plenty of reading to follow up but I can see, I think, that a key factor is the share price going up.  If I'm crudely grasping things aright, this will act a bit like a compound interest on the principle value and then the dividend yield (if all paid back into the investment) compounds on top of that, compounding the compounding.  Playing with a few modest notional figures paints quite a nice picture.  However, this obviously relies on share prices forever significantly going upwards (over the long term) but perhaps they more or less do...  My 'too good to be true' alarm gets nervous!

As it happens, I did see Martin Lewis's investment focussed programme the other day and it nudged me to have a closer look at investing.  I thought the programme was perhaps a little too glowing and the only chillier note was struck when one of the featured financial advisors admitted that she couldn't help anyone with less than £30,000 to invest.  Having £30k to hand being beyond all imagining to the larger portion of viewers we might think.  Also we didn't hear from investors who had tried to be conservative and well informed with their investments but who had, for whatever reason, come up with not much to show for it or even made a loss, .

For smaller sums you can consider 'robo-investors' which take you through a questionnaire to assess the risks you're willing to take and then invest accordingly: less risk means more bonds and fewer equities and vice versa. E.g., JP Morgan Personal Investing (formerly Nutmeg), Wealthify and Moneyfarm. It'll be more expensive than doing it yourself but for a new investor they're not terrible at giving you an idea of what a diversified portfolio looks like and what to invest in.