hey everyone my name is kenji in this video i want to explain how to get started with investing
so if you're looking to gain some financial literacy or know what to do with your own money
this is the right video for you it's essentially the video that i wish i had when i first started
investing a couple years ago so what even is investing in short investing is just using your
own money to buy things that you hope to sell for more in the future that might be a house it
might be a share it could be a cryptocurrency it could really be anything and we'll get
into that throughout the video and as a bit of a disclaimer i'm not a financial advisor this is
purely for educational purposes and hopefully there's some takeaways for you so now that we
know what investing means let's look into why you should invest why not just leave your money in a
bank account or put it under your mattress for like here there's nothing wrong with that right
well there's this thing called inflation which is essentially the rise in prices throughout
the years and that's typically around two percent in developed nations so that means that
every year prices rise around two percent one classic textbook example has to do with milk
about 100 years ago in 1913 milk used to cost around 36 cents per gallon whilst nowadays in
2013 say it costs around 3.5 dollars per gallon and now that rice has to do with inflation so
basically if your money is not growing if you just left it say under your blanket then essentially
because of inflation the value of your money is actually going down over time and you might
argue hey i leave it in my bank account i know that the bank pays interest and that is true but
today the interest rates that the bank gives you is around 0.2 percent and comparing that to a 2
for inflation well you're still losing money right the other main reasons you might want to invest
has to do with compounding interest as einstein put it it's the eighth wonder of the world so
in an investment compounding interest means that you earn interest on the amount invested and then
later on you also earn interest on the interest i know it sounds a bit confusing so let's look
at an example so for example say i have a hundred dollars and i've put it in a saving account that's
going to give me 10 a year 10 a year doesn't exist in real life it's just for the this example so
after one year the 100 turns into 110 right after two years the 100 turns into 121 and the reason
is that that 10 that you earned between year one and year two has got an interest as well so that
earned a one so now it's 121 and then if you fast forward this to say five years on that turns into
161 and in 10 years time that turns into 259 say and then that kind of rises exponentially
and that's compounding interest in action so you can really start to see this snowball effect
where the earlier you invest the faster and faster it's going to grow over time right so now that we
understand why we should invest let's look into the different types of investments we can make
there's really four main big categories the first ones are shares second ones are funds
then bonds and lastly we'll talk about property so what is a share a share is basically being
part owner of a company so if you buy a share in apple say that means you're part owner of apple
and so there's two main ways that you can make money with shares the first one has to do with
capital gains and that's essentially if you buy a five dollars say and that rises to ten dollars
the difference between the 10 minus the five is your your profit that's how you can make money
and then the other way that you can make money is through this thing called dividends which
essentially when a company makes profits sometimes they distribute it out to their shareholders and
you might be one of those shareholders so they'll give you some money every single year if they're
profitable now dividends are not guaranteed and most companies well a good portion of companies
don't actually pay their evidence and that's maybe because they're not profitable so they can't
afford it or for other reasons like maybe they prefer to just invest the money somewhere else
so next up we have index funds so instead of putting your money in one company say
through an index fund you can put it in many different companies so for instance in the us
a big index is the s p 500 which is basically the 500 biggest companies in the united states
another big one is the ftse 100 in the uk as well as the nikkei 225 in japan so for instance
if you decide to put your money in the s p 500 that means you've essentially bought all 500
companies in different proportions depending on their weight so basically the bigger the company
the more weight it's going to have out of those 500 so if you put a hundred dollars you can see
here that apple has a weight of six percent that means that six dollars are going to go into apple
next up is microsoft so 5.5 dollars are going to go to microsoft and so on and so forth in the
future if microsoft say went up a bit and they became bigger than apple then the waiting would
change and your amount invested would change and so the fund essentially works that out for you and
it does all of the investing for you so you might have also heard of etfs exchange traded funds and
they're essentially the same thing as index funds the main differences have to have to do with
some have minimum entry requirements the tax rates are somewhat different and also usually in some of
them you can only invest throughout the day whilst others you have to invest after the market closes
i'd also add that in these ones usually you have to pay a certain management fee which is usually
around 0.2 percent so it's really minimal but it's basically for the fund manager to continue
managing it right now within this world of funds i mentioned there's some in the uk some in the us
some in japan but there's really a whole world out there there's some that invest only in tech a fun
focus on tech a fund focused on healthcare say fun focused on india there's already all sorts so next
up we have bonds and much like the bank might lend me money to buy a house say i can lend a company
or a government money as well and so how that works is i lend them money and in turn they give
me an interest so every year they pay me a certain amount which is called a coupon and then at the
end of that loan they're going to pay me back the principal so the initial amount i gave them
right that's another method to invest and just to give you guys an example look at apple here
for instance they sold about 14 billion of bonds recently and so it's something fairly common among
big companies and overall i would say that bonds are not quite as popular as stocks for personal
finance and i'd say that's mainly because bonds are somewhat trickier to understand for people
now historically stocks have had higher returns than bonds but they're also riskier usually a
stock is much more volatile so it goes up and down a lot while stay bond is generally fairly stable
throughout and then lastly we have property so there can be residential or commercial property
and on the whole you can make money by two main ways which is essentially the same as shares
one has to do with capital gains so you might buy a 1 million and sell it at 2 million you make that
gain and then the other one has to do with rent right you rent it out to someone and you get a
monthly say 2 000 but unfortunately for most of us property is rather expensive so it's probably not
the starting point you probably start with shares bonds or something that's not as expensive and in
finance terms the group of assets that you own is called a portfolio so you might have a portfolio
of stocks and bonds you might have a portfolio of properties it's just the finance parlance really
so you've probably thought of investing before and you might have read that it's actually very risky
so let's look into really how risky it can be and how to reduce that risk so a general rule of thumb
is to only start investing once you have about six months worth of salary saved up and i think
that makes sense in case you lose your job for instance all right just to get it out of the way
things will always be risky to an extent but there are some ways to reduce the risk and that's
through diversification which is essentially not putting all your eggs in one basket let's look at
an example suppose you have apple shares right if you only own apple shares and something happens to
apple then you're going to lose all of your money right well if you own say four different shares
you might own microsoft google facebook and apple then even if something happened to apple you'd
still have the money in the other three shares right and then you can extend that further and say
suppose you own the s p 500 index now you own 500 different shares so if something happens to apple
like we saw earlier that's only six percent of your total so you still have the remaining 94 so
no problem there and so on and so forth and then you might think well i'm only in the us here so
what if something happens to the us then i can diversify by investing in india or in the uk
and so on and so forth so even if some investments don't do well they're neutralized by the positive
performers and overall this is probably the safest way to go forward and the best way to reduce risk
and as a general rule of thumb people like to have their investments in safe things for around 90 of
what they own and then they might have say one to ten percent in in risky assets so that might be
things like cryptocurrencies or emerging markets things like that that could be high reward but
even if you do lose that money because it's risky it's not really going to hurt you too much all
right so now that we understand the risks involved let's look into how we can actually invest
and i'll be focusing mainly on shares bonds and funds that's mainly because for property typically
you need a lot more money uh say a hundred thousand or more and so that's usually not
the case for everyone and you can probably find your local broker if you want to do that probably
the simplest way to invest is just through your bank so wherever you have money saved up
that bank say lloyd's in the uk or bank of america in the us they typically have brokers
themselves so if you look through their website or they're up they're probably going to have a
section that says investing or buying stocks or something like that but there's one big but with
banks usually they tend to have fairly high commissions so basically every time you buy
a share say i buy a hundred dollars of apple they're going to take say one percent so they're
gonna take one one dollar and then when i sell that share they're going to take another dollar
and so if i do that say 10 times a month then that's really a considerable amount that they're
starting to take in commissions right so there's usually some cheaper alternatives
luckily so here's the main ones in the usa charles schwab vanguard and fidelity are some of the main
ones and there's some newer ones like robinhood and etoro as well in europe unfortunately there's
not as many options but some of the main ones include in the uk vanguard and fidelity are
also there in europe i personally use this one called the jiro there's some other ones like say
xdb or free trade and as for how much money you need to start uh you really don't need much you
can just start with twenty dollars if you feel very scared about it or you can go ahead and put
in a thousand dollars it's really up to you and overall the earlier you invest the more
of the compounding effect that you're going to have so probably the better off you'll be
if you do your investments wisely so yeah that's investing for beginners i hope you found it useful
if you did feel free to like and subscribe and i'll hopefully catch you in the next one