How to invest for the future

2020 has been a pretty rubbish year for everyone, but there’s still time to make an effort to help yourself for the future. A lot of people ask me, how can I invest to make a decent amount of money, and how can I help myself in the future?

Well, making a decent amount of money is not always guaranteed, but investing in the long term is the closest thing you’ll get to some half decent returns on your money.

If you’re a similar age to me, say 18-25 then you’ve got an advantage over most other people who haven’t started investing, especially with the kind of technology you have available.

How do you invest for the future? The first step is starting as soon as you can, the sooner you start the more time in the market you’ll have, and. time in the market is always better than trying to time the market. So once you have your broker set up (Refer to my article on ‘How to start investing for beginners’ if you haven’t set up an investing account). Use an ISA account if you’re in the UK, this is so you can invest £20,000 a tax year tax free.

The second step is selecting the type of companies you want to put into your portfolio, if you are starting from a young age this means in general that you can accept a bit more risk than usual because you have time on your side and can fix things if they go a tad pear shaped. So instead of having a fully fledged diversified fund like you would have when you’re a bit older to reduce the overall risk, you can if you wanted, take a slightly more aggressive approach. This would include investing in fewer companies and being less diversified overall. For me, I invest between 4-6 companies in my long term investment portfolio. They all pay dividends, and are fairly strong equities. They are MIDD, IUSA, BBOX, O and IUKD.

A FTSE 250 ETF (MIDD) – This has seen some good growth this year, mostly due to the vaccine news in November. It is effectively a fund that holds a little bit of the250 biggest companies in the UK after the FTSE 100. This pays quarterly dividends. The main reason I hold this company is because I believe there is still a lot of growth to be had still in the UK economy and it is has returned a fairly stable 10% on average since its inception.

A S&P 500 ETF (IUSA) – This is effectively the US equivalent of MIDD. IUSA however has had slightly better growth since its inception at around 12-14% per year. It also pays dividends quarterly. This is very much a growth investment, and so it holds the highest weighting in my portfolio.

Tri Tax Big Box (BBOX) – This is a REIT. A REIT stands for real estate investment trust. Its effectively a method used to own real estate in equity form. This company owns a lot of big warehouses that they rent out to large business such as amazon. I think in the future this sort of business will receive a lot more attention. This is because as we evolve as a global economy, there will be more and more e-commerce, online sales and commerce in general. All of these goods need to be stored somewhere and as such the demand for a business like BBOX will be in high demand. They pay quarterly dividends and pretty good dividends. The growth potential for this company remains quite speculative, but the main reason for investing in this company is that I believe in years to come it will continue its steady income.

Realty Income (O) – This also a REIT, however it focuses on residential and commercial real estate across the United States. This is a very similar play to BBOX, it is in my portfolio for consistent income from dividends, the difference is that these guys pay dividends monthly rather than quarterly. So I try to make as much use of compound interest using the monthly income from this company.

iShares UK Dividend ETF (IUKD) – This is an ETF dedicated to UK companies that pay healthy dividends, this is purely for income, I don’t really care about growth with this equity. They pay quarterly dividends.

What I then do with these investment is give them a fairly equal weighting in my portfolio to spread the risk and set the dividends to reinvest so I can really get hold of the compounding effect. This way in 20 – 30 years time, if invest about £200 a month into this portfolio every month for those 20 – 30 years, the portfolio will be worth over £1 million if the portfolio averages between 8-12% on average per year. That is how you invest for the future in my opinion. With the technology we have, we can automate this so we don’t even have to do it manually. I talked about how to do this on Trading 212 with ‘Pies’ in my how to start investing for beginners post.