So my first week has gone by and I’ve learnt alot!
I felt that my first task was to find a suitable broker to trade on, I was stuck between Hargreaves Lansdown and IG Trading. In the end I chose HL (Hargreaves Lansdown) after choosing HL I loaded £50 onto my account to get trading.
With the excitement of just wanting to own a stock I googled the best stock yields in the FTSE 100 – I clicked on the first page and saw Evraz. As I was so excited I looked no further and bought them anyway only 2 days after I found out that I had invested in Russian Steel!
Now that the novelty had mainly worn off of actually owning stocks I decided to do some research. Starting by ploughing through YouTube watching many videos on either the best stocks to buy, trading methods and types of investing. I came across a video of a guy basically talking through his portfolio and explaing why – his goal for investing was to create a passive income. I loved the idea of a passive income so I had decided my goal – to create a passive income.
After watching the video that had inspired me to create a passive income I then watched more videos on making a passive income. Funnily enough a blog was one of the ways to create a passive income which was then I thought to myself that I’m watching the wrong video – it was that video that gave me the idea to blog my journey on to becoming a successful investor! Now watching the correct videos I found some useful information and it was as follows:
- Check the payout ratio – basically if a company has a high payout ratio of lets say 90% they only have 10% more to give towards their dividends. Hence I would now be looking at stocks with a 60% or lower payout ratio.
- Check the debts – it is important to give the debts a look at because if for whatever reason a company comes across hard times if they have huge debts they’re going to find it difficult to recover.
- Net Profits – generally you want to be investing in a company that is making more profits every year else at some point they may cut their dividends. Remember a company is not obliged to pay dividends so when investing for dividends you take the risk of the company not paying out.
Investing for the future
One thing that I definatley want to create is a scaling portfolio. To ensure this happens I will make sure that when my dividends are paid they will reinvest themselves to buy more of the same share. The best explanation I could find for a scaling passive income is not with stocks but video creators: There are two video creators lets call them Jimmy and Dave. Jimmy decides that he wants to create a video for a company and he gets £100 a video. Dave wants to create videos for himself however he earns a £1 a video each day. So lets say each creator creates a video a day for 365 days Jimmy will end up with £36,500 whereas Dave will end up with £66,795. How may you ask, well as Dave is creating a passive income on day 1 he earns £1 and then on day 2 he creates another video which leaves him with 2 videos both making £1 each that day so he has a total of £3 on day 2.
To work it out it would be 1 + 2 + 3 + 4 + 5 … + 365 = 66,795. And this is only one year so the next year if he made a video everyday he would have £133,590. With the idea of reinvesting your dividends into shares it will scale up earning you more the next time dividends are paid out.
Tell me what you guys think!