Summary of February 2019 and some important thoughts
January disappeared faster than I even imagined and although it wasn’t lucky month for me (I was sick for almost whole month) still a lot of useful informations came into consideration. First of all, I decided to buy more Imperial Brands shares a couple days before February, because price dropped and was definitely worth to buy. My goal is to invest on the beginning of each month, however this situation required speed up process and next days showed that it was great decision. I bought 42 shares of IMB (Imperial Brands) and each share costed me £23.54. This transaction was made 28th of January 2019. Awesome!
Before we will jump into February, I would like to go back to middle of previous year. In July 2018 I opened product called Help to Buy ISA in Barclays bank. It’s kind of cash ISA and my ignoration achieved apogeum, because I was sure that it’s the same as Lifetime ISA. No, definitely not the same, but some of ideas are quite similar. Every single month I saved £200 and in January my capital grew to over £2400 (including interests). Then I read about LISA and noticed, that bonus in this product will be add each of tax year and could be up to £1000 (25% of £4000)! Fantastic news indeed, because it will increase my investments a lot during the next 18 years. My decision had to be only one: transfer Help to Buy ISA into Lifetime ISA before 5th of April (end of this tax year) to gain a bonus for this year. So I opened my LISA with AJ Bell YouInvest – in my opinion great broker with affordable costs.
My transfer has been finished last week and I decided to invest this money into Playtech PLC company. Why? Because in my opinion price of shares are much below value, dividend is very tempting and I see big potential for this company – their revenue is going up every year and also dividend’s value is increasing. I bought 623 shares of PTEC for £3.863 each. This operation should bring me additional £207.59 of dividend’s income. Total profit for this year (forecast of course) is £363.12 – IF I won’t buy next shares. Can you see the point now?
Because I transfered roughly £2400 from HTB ISA, still I have opportunity to pay into this account almost £1600. I should do this in March so decided to increase my monthly investment by £600 to maximize value of bonus. In general rule is very simple for LISA: you can deposit up to £4000 yearly and government will add you 25% of your deposit. Sounds great? Unfortunately, you must be 18 or older but under 40. And this is definitely long-term investment. You can withdraw your money without penalty after your 60th birthday or earlier if you will buy you FIRST property using this money. It’s more rules about this product (it’s not for everyone for sure), but if you would like to learn more, please visit official gov.uk website, using directly this link. You will find a lot of useful, official informations and examples there.
So my portfolio is still very young nowadays and looks like:
18 shares of BAT
64 shares of IMB
623 shares of PTEC
Future plans? I consider to buy roughly 580 shares of Royal Mail Group on the beginning of March. Ex-div day for this company is far from now, but it makes this shares quite cheap. On the beginning of April (but after 6th of April) I’ll be able to open next ISA, but this time it will be restriction-free stocks and shares ISA. Thanks to this opportunity, I’ll be able to allocate £4000 into LISA account (and receive £1000 bonus funds) and rest of monthly investment into new ISA. For example: in May, June, July and August my LISA account is topped-up by £1000 and from September to April my new stocks and shares ISA could be topped-up for the same amount. I also plan to reinvest dividends and buy more shares. And this stunning compound method to achieve financial freedom within next 15 – 20 years.
Simple example. Just assume that you invest in company which is paying dividends of 10% of share’s value. You invest £1000 every month (I know, it’s a lot, but keep things simple in this example). Your investment is “freeze” for 20 years what means that you won’t withdraw dividend’s income, just are going to reinvest them. Let’s skip LISA bonus and assume that you reinvest dividends once per year – although, that dividends are paying twice or even 4 times per year.
In first year you invested £12000 – no dividends for previous years, because you just started. In 2nd year you invested £12000 again, but this time also with additional £1200 (10% of first year income). So your total investment for this year is £13200 – your allocated capital is £25200 now. 3rd year… £12000 of your own investment and £2520 as reinvestment of dividends from previous year. Overall you invested £14520 this year and your working capital increased to £39720. And so on. I think that it doesn’t make sense to explain next years in this form, but in general after 20 years your working capital would be worth £687300 and potential passive income would exceed £68700 per year. Of course, it’s not easy to maintain deposit £1000 for next 240 months, but reward is worth it.