The Lolly Investor Programme: the 5 principles of investing

Hi, welcome back to the Lolly Investor Programme. In my last video I looked at why it’s risky not to save and invest. The fact is if you want to have a comfortable retirement you have to do something with your money.

Nevertheless people associate investing in the stock market with high risk. Like jumping off this bridge and trusting your luck!

Fortunately, it’s not quite as bad as that.

I’m going to tell you about five investment principles that will help you cross the stock market bridge and get safely to the other side.

But first I'd like to show you a chart of the UK stockmarket.

You’ve probably heard of the FTSE 100, that’s the index that measures the movements in the top 100 companies on the London Stock Exchange.

Well this is the FTSE All Share. As its name suggests it measures the performance of all the companies listed on the stock exchange. There are currently 621 worth a staggering  £1.8 trillion pounds.

As you can see the UK stock market has come a long way since the FTSE All Share index was launched 50 years ago.

There have been some big crashes along the way, most notably in the mid 1970s, Black Monday in 1987, the bursting of the dot com bubble in the early Noughties and of course the financial crisis of 2008 and 2009.

The last two crashes are why people sometimes talk about the ‘Lost Decade’ as from 1999 to today the FTSE All Share has gone nowhere.

But as you can see, after every crash there is a big rally upwards.

Which brings me on to my first principle.

Think long term

Investing is not about making a quick buck. Stock markets can go down for long periods but they always bounce back.

Notwithstanding the problems of the last 10 years the long-term performance of the FTSE All Share has been impressive.

Buy low, sell high

This is a fundamental tenet of investing. Unfortunately, too many people do the opposite, buying high when the stock market has rallied for a few years and selling out at a low point some time later and wondering why they didn’t make any money. 

Diversify your investments

The All Share chart just represents shares in companies on the London Stock Exchange. There are lots of other places to invest though.

For example, you can invest in shares in companies outside the UK, and there are other types of investment such as bonds, property and commodities which we haven’t looked at yet. 

Spreading your money around these should enable you to avoid some of the really big falls you get in the All Share index from time to time. In future videos I’ll show you how to do this.

Save regularly

Putting some money each month into an ISA or pension is the best way to tackle stock market ups and downs.

When markets are rising, you can see your money growing. When markets are falling you can reassure yourself that your monthly contributions will be buying more shares in companies or units in investment funds because they are cheaper.

It’s also a cost effective strategy as most online investment platforms nowadays do not levy initial charges each time you invest, as was the case in the past.

Last of all, don’t panic!

It can take nerves of steel sometimes to stay invested when the stock market is going through a bad patch.

However, if you follow these five principles you can cross your financial bridge. If you take a long-term view, look for investments that are undervalued, spread your money around and save regularly, you  can do very well.

Next time I will look in more detail at shares, bonds and property and see what these different asset classes have in common.