Playing It Safe with Investments
Many people dream of creating a second income to boost their financial security. However, in the early stages of building wealth, it's wise to focus on smart investments that will lay a strong foundation for future opportunities. The key is to find a balance between risk and safety. Some beginners in the stock market might take too many risks by investing heavily in a few stocks. Others might prefer safer choices, like low-cost tracker funds. This approach helps them get started in the sometimes confusing world of investments.
For example, I prefer a balanced strategy. I mix individual stock selections with exchange-traded funds (ETFs) and bonds. This allows me to diversify my portfolio while also targeting specific investments I believe have strong potential. The stability of ETFs combined with opportunities in individual stocks can create a healthy balance.
Big Wealth with Small Investments
Imagine you're investing £500 each month. A smart way to grow your wealth is by creating a portfolio of funds, ETFs, and stocks, and adding to these positions when you have extra funds. To give some context, the average annual return of the FTSE 100 over the past decade is about 5.22%. Despite challenges like Brexit, Covid, and the cost-of-living crisis, assuming you could achieve a 10% return going forward, investing £500 monthly could grow your portfolio to £1.13 million in 30 years. This amount could potentially provide a second income of at least £56,400 per year.
Tracker vs Researched Investments
In the past decade, an S&P 500 tracker delivered just over 10% annual growth. This highlights the value of having a diversified portfolio, even for index trackers. However, I believe that with proper research, investments can outperform index trackers. For instance, last year, I've doubled my investment in companies like Abercrombie & Fitch, AppLovin, Celestica, Nvidia, Powell Industries, and Rolls-Royce.
One for Growth
For novice investors, it's a good idea to build a portfolio that includes trackers and funds while leaving room for growth-oriented investments. One such stock that has caught my attention is CRISPR Therapeutics (NASDAQ:CRSP). This Swiss gene-editing company stands out in the field of medicine and has been quite volatile. Despite fluctuations, its prospects remain strong, with therapies for sickle cell disease and beta-thalassemia.
Although uptake might be slow due to high costs and setup times for treatment centers, the therapy costs are lower than the assumed lifetime costs of treating these illnesses. Therefore, it's worth considering adding this stock to your watchlist. However, be aware that this is a more speculative investment given its early-sales phase.
By following these strategies, even small monthly investments can set you on the path to creating a sustainable second income.
