How to invest in 3M from the UK

What does 3M do?

Minnesota Mining and Manufacturing Company, better known as 3M, is one of the most diversified companies in terms of products. To the point that, according to their own website, they have more than 100,000 product patents that they can provide to customers.

It was founded in Minnesota in 1902 as a small mining company, as can be inferred from its name. However, since the company did not achieve the expected success, they decided to move from mining to producing the abrasives that the industry needed.

And from then on, the company followed a path in which, as they define it, they never stopped inventing products and innovating. So, following this path, they went from inventing the first tough sandpaper in 1920 to iconic products such as the Scotch-Brite sponge.

Their product portfolio is truly immense and they are all dedicated to niche markets, devising a solution for every problem. However, these can be categorized into abrasives, adhesive tapes, safety equipment, household products, window films and oddly enough, healthcare equipment.

3M as an investment

About this company we can find information on the official website registered since 1920, which tells us that this company has a long history on the New York Stock Exchange. Which in turn reflects the growth and expansion of 3M as a company.

As it grew from a small company in a small town in Minnesota to a presence in 100 countries and more than 88,000 employees worldwide, its stock market share went from a rock bottom price to the value it is at today.

3M's historical performance is something that any company would like to have and, of course, any investor would like to achieve. The best part is that 3M stock not only has a great performance year after year, but it also pays dividends quarterly to its investors.

Dividends are the portion of a company's earnings that are distributed to shareholders, so a company that pays dividends is a company that generates profits. And 3M's dividends are particularly high, even more so when you consider its share price.

For the past several years, 3M has been paying annual dividends to its shareholders in the range of $5 to $6 per share. This makes it one of investors' favorite dividend stocks.

Financial assets you can trade

Index Funds

If you want to invest in the long term, and you won't need to take back your money in at least five years, index funds can be the best choice. This kind of investment is also suitable for beginners since the risks are much lower.

Unlike a lot of people think, benchmark returns are very difficult to beat and very few fund managers have done it, apart from some famous cases.

In practice, all that glitters is not gold: if a fund manager achieves to beat the benchmark, it is only for a short period or on a specific occasion. Or perhaps they would charge very high fees and indexing would be a better decision anyway (with minimal commissions).

The good thing about index funds is that they solve both issues: their fees are minor and in the long term they almost always beat active managers.

Currency market

Currency trading or Forex consists, as the name says, in the trading of currencies. It's the conversion of one currency to another, and the aim is, evidently, to obtain a benefit out of this.

If you decide to exchange the EUR/USD pair, you purchase euros at their price in dollars, with the expectation that the euro will rise compared to the dollar. Therefore, if you bought each euro for 1.15 USD and you sell them back when they cost 1.20 USD, you'll be keeping that difference.

Perhaps you already deducted this, but operating with foreign exchange requires investing a lot, because prices never increase that much, or using a lot of leverage, which could be incautious. Our recommendation for those who are new in the world of trading is not to start with Forex, but with a safer and more secure market.

This broker allows exchanging the most known currency pairs but consider that this market works with CFDs, therefore you will not be the owner of the underlying asset.

What are Contracts for Difference?

It is possible that you have seen the term CFD repeatedly if you entered this broker before. Before we explain what this is, you should know that CFDs on this broker are only possible if you short sell.

FYI, and if you want to try at some point day trading cryptocurrency and other more advanced practices, we will also cover concepts such as leverage and “going short”.

The good thing about this broker is that it lets you bet both “in the black” and “in red”. For example: you have the conviction that the 3M will go down, so the logical thing is to think “if it is going to depreciate (go down in price), I'll just wait and bet when it has gone down”. Nevertheless, if you are almost sure that it is going down, why not making some profits out of that?

You can do by “going short”. Its operation, roughly, works like this:

  • They lend you, for example, 100 units of 3M, valued at a total of $ 5,000 (these numbers are imaginary)
  • Then, you sell them at their price at the moment, $ 5,000
  • The price falls, as you calculated, and the unit of 3M goes from $ 50 to $ 30
  • You purchase all 100 units once again, but now they are worth $ 3,000
  • You give back the 100 units
  • The rest is yours, so, you will have made $ 2000

Take into account that it is much easier than it sounds: we can summarize this whole operation by saying that by trading in 3M you can also earn money if you anticipate it will go down.

Leverage explained

Do you know what leverage is? Just in case, we'll define it briefly: another good thing about trading is that it lets you invest more money than you can have in a given time. Let's say that you have $ 100 and you put them with x2 leverage, the amount of your investment will be $ 200.

Why using leverage and how to do it

Let's pretend that you have complete certainty that 3M will raise its price, and you consider “going long, but you only have $ 1,000 available. However, it is possible to put more and get higher profits.

You could consider asking for a loan, but you must know that all the process takes time, and when you receive the money, 3M might be already so expensive that investing wouldn't be convenient anymore.

Leverage is like a loan, and you will only have to click a few times! the broker allows you to invest (and earn) much more money than what you have on the platform. As in the image below, you will see the different options you have:

apalancamiento

When trading with other kinds of assets you can use higher leverage. This is because cryptocurrencies regularly represent medium-long term investments, and leverage is used mostly for day trading or short-term trading. But let's deepen a bit more on how all this works:

  • If you want to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 (remember that$ 1,000 was borrowed from your broker). 
  • A few days later, 3M price does rises, as you thought, and now the price of your investment is $ 2,400 (20% more), so you decide to sell back. 
  • The $ 1k of leverage will be deducted, and you will have $ 1,400 left; which means the net profit is $ 400, since the other $1,000 was yours initially.

As you can see, with $ 1000 you get a profit of $ 400, no less than a profit of 40%. That's not bad at all.

The trick is that the risk of losing out is also there. If everything goes as planned, you will earn more money in less time; however, if the value of the asset goes down, you will also lose more in less time.

Let's imagine that the price didn't increase by 20%, but it decreased also by 20%, you won't lose $ 20 but $ 40, because of the leverage. For that reason, the concepts of Take Profit and Stop Loss are fundamental when trading with leverage.

Take Profit is an automatic order of selling once the asset achieves a certain price: you buy 3M shares at $ 100 and you ask your broker to close your operation as soon as the price goes up to $ 120. It is very useful to avoid being blinded by enthusiasm: a 20% profit is usually pretty good, but once you see it goes up, you might want to gain a bit more and decide to wait, but this could be a mistake. So, Take Profit helps you to trade more safely.

Stop Loss is even more important, especially when trading with leverage, since a small loss could be fatal for your wallet. Take into account that your broker will recommend a limit for Stop Loss, but it is better to place it closer to current price than the platform suggests.