From £1 per Day to £20,000 in Liquid - Part 6 of 8
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, Investing, Stock Market, Investment Fund, Wealth Building on 15th January, 2010.
Tags: isa, isa investing, liquid millionaire.
How Saving £1 per Day Can Help You Accumulate £20,000 in Liquid Capital
Can you afford to save £1 per day? If you answered yes, I have just the way for you to quickly accumulate your first £20,000 in liquid.
Some people who read my book Liquid Millionaire really loved it – but at the same time they came to the end of the book and were frustrated.
Here’s a couple examples of readers’ comments posted as reviews on Amazon:
“People like me with less than £10,000 will not be able to afford the £6,000 to gain access to the information which could make you richer.”
And…
“…I must say that the service offered looks interesting. I don’t know if I can afford it, not living in the UK.”
I think I know why people like this are frustrated. It’s probably because they don’t have the cash to give them the option of possibly becoming one of my premium clients.
In my previous blog I introduced Step 7 - Hit £2000 and when the S&P 500 is 20% off its high, start investing in a Stocks and Shares ISA using a tracker fund. Today I want to share with you 2 different strategies on how to invest your initial £2000 to help you reach your first £20,000 sooner.
Lump Sum Strategy
Let me explain how all this works and, if it scares you, I have yet another suggestion that might be more appealing.
In early October 2007, the S&P 500 topped out at 1576 and then began what would turn out to be quite a severe correction in price.
If you punch 1576 into a calculator and then minus 20%, you get a figure of 1261.
That means if you used the 20% from its high rule, you would have bought into the market at 1261.
And if you had bought into the market at 1261, you would have been buying in March 2008. But what you might not like is the fact that after the S&P 500 hit the 1261 level, it then fell a further 47%, finally bottoming in March 2009 at 667.
That means if you had invested £2000 at the 1261 point, when the market finally hit its eventual bottom, your £2000 would have become £1060.
Could you have handled such a temporary paper loss?
If no, then you may like an alternative way to get into the market in a fairly safe manner.
Pound Cost Averaging
Pound cost averaging is a way of reducing the effect of stock market fluctuations. It works by investing the same amount of money each and every month.
Ideally, you’d start investing your first installment of money when the S&P 500 was 20% off its high. The way you’d do this is to invest monthly directly into your Stocks and Shares ISA account using a direct debit.
Sticking with the £2000 example, you’d aim to get in the £2000 over a two year period.
That means you’d set up a direct debit for £84 per month to get fed into the stock market until all the money had been invested.
£84 x 24 months = £2016
Plus if you were still saving 10% of your income, if that amounted to another £2000 a year, you could up your direct debit to £168 per month.
By investing into the market on a monthly basis, rather than doing it in one lump sum, it means that you buy some shares high and some shares low. Plus you also get some shares priced in between.
But collectively, this is a sound way of entering the market and if the market does fall after you make your first entry at the 20% off its high mark, and then it continued to fall much more after your first entry, by using a pound cost averaging strategy, your cash is not going to lose as much value as using a more risky lump sum strategy.
This is the better of the two strategies for a person who is more risk averse and is totally new to the stock market.
But what do you invest into? – And where do you buy your Stocks and Shares ISA?
I suggest you think about investing into an index tracker fund. An index tracker fund is a collective investment vehicle that is designed to follow the performance of a particular index.
To keep things simple, I suggest you use a FTSE 100 tracker fund. This is an investment vehicle that virtually mirrors the performance of the FTSE 100.
The good thing about these tracker funds is that just like the market indexes always recover after a nasty market fall, so do tracker funds.
You can search a site like Morningstar (http://www.morningstar.co.uk) to find a tracker fund and you can buy the fund without hiring the help of a financial adviser from Fidelity (http://www.Fidelity.co.uk). Fidelity have what they call a fund supermarket and its name is FundsNetwork™. I personally use this myself – as do my clients and it really is a great platform to use. Plus it keeps costs extremely low which then adds to your bottom line and overall investment returns.
Find Out More
If you would like to find out more about how having £20,000 to invest could help make you a liquid millionaire then please contact a member of my team for a chat. You have my word there will be no sales, no jargon, just the facts.
Your friend,
Stephen Sutherland
The UK’s Leading Authority in ISA Trend Investing and Author of Liquid Millionaire
Please Note: As always, let me remind you that I am not a financial adviser and therefore not authorised to give advice on what investments to buy or sell.
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