Monday, 31 January 2011

FTSE 100 Dividends in 2010 and 2011

One element of the DIY Income Investor approach is to hold high-yield shares from the FTSE 100 (the 100 largest companies in the London Stock Exchange). As reported in the Daily Mail today, if you strip out the effect of BP cancelling its dividend, overall dividend payments were up 7.5%  in 2010.

'Pay Yourself First' - 'Regular Saver' Account (UK)

Most of us start out poor (or poor-ish - it's all relative). It may seem difficult to look to the future and aspire to be wealthy when dealing with the financial pressures of day-to-day life.

A practical approach to starting saving is to Pay Yourself First - before you pay your bills, before you buy food, before you do anything else, set aside a portion of your income to save. The first bill you pay each month should be to yourself. This habit, developed early, can help a person to build up their wealth.

High-Yield Shares - Dividend Report Cards

One element of the DIY Income Investor approach is dividend income from a portfolio of high-yield shares. Selecting these shares can be a challenge for new investors (and not necessarily easier for more experienced investors).  But there are some resource you can use to get started.

Avoid Bad Financial Advice - go DIY! (UK)

You really can't trust anyone else with your money - particularly if they stand to make money out of your decisions!

The Money Snowball and Compound Interest

As a DIY Income Investor, when you save and invest - if things go well - you will experience the Money Snowball - when your savings seem to take on a life of their own and multiply without you having to do much to help.

It is like a snowball rolling down a hill gradually increasing in size as well as increasing in speed. You are getting richer, faster.

Friday, 28 January 2011

Balancing Asset Classes

The DIY Income Investor approach suggest saving and investing in a number of asset classes, ranging from cash and savings accounts to various stock market securities, such as shares, gilts and bonds.

How should you choose which asset class to invest in? 

Gilts and Bonds (UK)

No, not that kind of Bond...
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The top layers of the Income Pyramid includes government bonds ('gilts' in the UK) and corporate bonds - held in an online tax-protected brokerage account. Buying individual examples of these assets is really only for more experienced investors, although you can use an appropriate ETF to purchase a diversified holding - and gain many of the benefits.

Government bonds/gilts are loans made to the government - and corporate bonds are loans made to businesses. Both classes of assets share similar features; the main difference is that gilts are a lot 'safer', as they are guaranteed by the issuing governmental authority (local or national).

Income from Shares (UK, US)

One source of income included in the DIY Income Investor approach is dividends from shares - those regular payments that many companies make to shareholders; their share of the company's profits. 

There are numerous academic studies showing the importance of dividends in stock market portfolio returns, and indeed showing that the shares prices of higher-yielding shares have tended to perform better.

Get Rich Slow


The DIY Income Investor approach is an example of a 'Get Rich Slow' investment approach.

You may get lucky with an investment (usually a share holding) and make a lot of money quickly - but this is not a way to build wealth reliably. The key approach (I believe) is to live well within your means, save hard, have no debts and invest wisely.

Hopefully the DIY Income Investor approach will resonate with you as a logical and sensible path to wealth over the coming years.

Thursday, 27 January 2011

Get an Internet Broker (UK, US)


A core tool in becoming a DIY Income Investor is to manage your portfolio online. Once you have progressed to Level 4 on the Income Pyramid you will need an online Broker to access your local stockmarket.

Avoid Tax (legally!) (UK, US)

You don't want to pay more tax than you need to. Really, you don't. Because it affects your after-tax returns - and those are the returns that we should focus on when comparing different investment options.

The 'Income Pyramid'


One way to understand the DIY Income Investor approach is to think of the different types of potential income as an 'Income Pyramid' - that is, layers of different sources of income, all built on a sound foundation and increasing in complexity (and hopefully in after-tax returns).

Why Income Investing?

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'Income Investing' means that the focus of our effort is on maximising the income stream from our savings and investments - but at the same time keeping an eye on protecting the value of our initial capital.

There are many other investment strategies; for example, 'growth' investment would focus on increasing the capital value of the investment (for eventual re-sale): any income generated at the same time is incidental.

Why DIY?

Why should you Do It Yourself?
 
If you have any doubts about the DIY approach, ask yourself the following questions:
  • Who do I trust most?
  • Who is going to act in my best interest?
  • How does a Financial Advisor / Investment Broker / Insurance Salesman (etc.) make his money?

Welcome

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Welcome to my blog.

Over the coming months (and hopefully years), I will be sharing a simple approach to building up and managing your savings and financial investments, with the primary aim of generating a growing income over time.

This approach will be mainly targeted at UK investors, although many of the underlying ideas should translate well to other locations, such as the US and elsewhere.