Wednesday 16 February 2011

10 Things You Need to Become a DIY Income Investor

To implement the DIY Income Investor approach you will need the following 10 tools.

If you're reading this, you have a computer, so the rest is pretty low cost.

1) Savings / No Debts

If you haven't got your expenditure / income balance right, I can't really encourage you to make significant investments - and this includes paying off the mortgage to your house (or at the least making a good dent in the debt every month).

This is probably the hardest part of the whole strategy and not an area I had planned to cover much (as there are so many other internet resources to help you).

I talk elsewhere about your wealth potential
  • Wealth potential = income - expenditure
There are two elements in that equation, so you need to:
  • maximise income
  • minimise expenditure

2) A computer connected to the Internet

Well, I suppose that accounts for how you are reading this... Anyway, the DIY Income Investor approach is online.

3) Spreadsheet software package

You will need to track your savings and investments, so some kind of spreadsheet software is necessary - many people will have access to Excel but there are free packages that will do the job.

4) A couple of hours of your time per week

One of the great things about this approach is that you don't need a lot of time. It does not involve sitting in front of a screen watching if the market is going up or down. You'll only need to check on your investment a couple of times a month - if that!

5) An online current bank account / checking account

This account will sit at the centre of your financial holdings, allowing you to move cash around between different locations. You should try to get an account that pays interest on your balance

6) Savings account/accounts (usually online)

Linked to your current account will be one or more savings bond accounts where you can hold larger cash deposits at better rates of interest than in your current account.

7) An online brokerage account (preferably tax-shielded)

In order to invest in ETFs, gilts, high-yield shares and corporate bonds, you will need an online brokerage account - and preferably one that is shielded from tax (such as an ISA in the UK or an IRA in the US).

8) Patience

This is an investment approach that requires patience. It is a 'get rich slow' approach to wealth creation. It is also pretty much a 'hands off' approach - meaning that you shouldn't be fiddling with your investments.

9) Perseverence

You will need a willingness to persevere, particularly if it all seems too complicated at the beginning, although I hope to make it as staightforward as possible through this blog. Doing-it-yourself will reward you in the long run, as you will be able to take control of your financial destiny - and maybe help others, too.

10) Good Luck

Although the DIY Income Investor approach is meant to be pretty safe, there can be ups and downs in any investment market. Hopefully, the diversification and cautious approach described here will limit any potential losses. On the positive side, you might be surprised by some good luck.

Optional Extras

That's about it. But there are some optional extras that might be useful:
  • a spouse with a lower tax rate (who can help you to pay less tax)
  • a pension plan, such as offered by many employers - this can be a great way to build up wealth for retirement

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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