Earlier this month I was speaking to an old colleague who had discovered my blog and wanted to know about the biggest hurdles that I faced when building my portfolio. Truthfully, the biggest challenges I’ve faced are ones which I’ve only partially overcome and I’m pretty sure I’ll always face them.
- Building capital.
When I first set out to build my portfolio, I didn’t have a fortune to invest. I think my first pot totalled about £750, which was the total amount in my child bank account when it matured. Compared to people that inherit millions, it was pretty hard to see how I was ever going to build a decent pot of capital.
Watching ten pence a month trickle into my investment account wasn’t exactly thrilling, but it did inspire me. I imagined what I would do if I had £7,500, or £75,000. I built model portfolios and explored various investment options, and squirreled money from my pay cheque away each month. It wasn’t much at first, £50 a month, I think. But at the end of the year, I had nearly doubled my pot of capital as a result. I was so proud of myself, squirrelling it away. But then I looked at the twenty pence a month that I’d get in ‘income’. If I saved it all year, I might be able to afford a coffee. It was pretty crushing, seeing how much I’d have to save to even buy one coffee a month from the income. And what if I wanted to take a girl out for dinner? That might cost me thirty or fourty pounds. It felt like I’d never get there.
2. Lack of knowledge.
At 16 years old, I didn’t really understand investing in the same way that I do now. Why should I have done? I couldn’t read a balance sheet or interpret an income statement. I didn’t understand marketing or sales operations. I couldn’t really appreciate market conditions. But I was curious. I looked at different businesses and tried to figure out why some were more successful than others. After a week or two, I had some ideas, but if I could figure them out, then why couldn’t others? I figured there must be more to it that I was missing.
I tried reading company reports. I’m pretty sure I got past the executive introduction, but not by much. I listened to the radio and the news, and tried to understand the things that executives were talking about. It didn’t make much sense to me at first (still doesn’t some days!).
Losing money is never a nice feeling. I work hard for my salary and when an investment loses me money, I might as well have just spent it – I’d have got more enjoyment out of it. I sacrificed to put the money into my portfolio, gave up opportunities to keep it in my portfolio, and then I’ve got nothing to show at the end of it.
It’s enough to weigh on anyone’s mind. It makes you double-guess yourself, doubt your decisions and if you’re not careful, you can end up making a lot more mistakes trying to avoid a repeat of the scenario that you’ve just suffered.
Be prepared to lose money, because it is going to happen. It doesn’t have to and if you’re smart, you’ll learn from it and stop it happening again. But that’s easier said than done.
4. The time required.
Investing is a game for the patient. It’s no good saving £50 a month and expecting to be rich tomorrow. I passed up travelling, I passed up holidays, I passed up getting a car (and still do), I passed up expensive dinners, I passed up all kinds of things that my peers were enjoying to pour my money into my portfolio. It’s taken me years to get where I am – and after more than ten years at it, I’m still not where I want to be. But I’m a lot closer than I was ten years ago.
Ultimately, it’s that last one that I think people underestimate the most. They read blogs, and watch YouTube channels, and think that if they apply the principles that it will all just work out. I’m not saying it won’t, but it will take time, and then more time, and then some time after that. Anyone that tells you otherwise is just selling you a pipedream.
We live in a very impatient world – everything that we are surrounded by is geared up to supporting immediate needs. We can contact anyone in the world instantly through our phones. We can find information at the click of a button through Google. Social Media provides instant feedback from your audience. Investing isn’t like that. The decisions you make might not bear fruit for years to come.
When I make an investment, I’m looking at it paying off over a five to ten year period. When I save, I don’t save for tomorrow, or the day after that, but for next year, and the years after that. In the same way that you don’t lose weight by going to the gym once a month, I don’t expect to build a financially robust portfolio in a single investment. The reality of that is in my current portfolio, which I’ve built over more than a decade from that single pot of £750.