Share a slice of long-term gain
COVID-19’s sharemarket crash in March sparked a new breed of investors seeking to bag a bargain and begin a new hobby while in lockdown.
Newcomers have enjoyed nice gains from the market’s rebound since its 37 per cent fall. But investment specialists warn diving into shares without a plan can be dangerous to your wealth.
Investment platform eToro’s Australian managing director, Robert Francis, says shares can be daunting but this year’s falls create chances to buy more with less.
HERE’S A STEP-BY-STEP GUIDE:
1. UNDERSTAND WHAT THE MARKET IS
“The sharemarket or stock market is where people can buy and sell shares in publicly listed companies,” Francis says.
A share is simply a slice of that company — whether it’s Woolworths, Westpac, Apple or Amazon — and each investor receives their share of its income, growth or falls.
2. LEARN ABOUT COMPANIES
There’s a huge amount of information available in the financial media in print and online, and Francis suggests reading business news daily to understand how stocks are performing.
“When picking stocks consider investing in your passions and interests, as you are more likely to understand how they best operate,” Francis says.
3. CHOOSE HOW TO INVEST
Traditional stockbrokers offer valuable advice and are generally best suited to customers with tens of thousands of dollars.
Lower-cost ways to buy shares include online stockbrokers such as CommSec, Bell Direct and Etrade, which focus mainly on the ASX, while online investment platforms can broaden options internationally.
The minimum investment on a platform may be less than $100, while ASX trades require a minimum of $500 — plus a trading fee of $10$20. Before choosing, research all fees and features.
4. THINK LONG TERM
“The stockmarket should not be thought of as a get-richquick scheme,” Francis says.
Bell Direct head of distribution Tim Sparks says people should think about their investment objectives and time frame.
Sharemarket volatility makes it unsuitable for saving for a car or holiday, but longer term has delivered much higher returns than bank deposits.
5. DIVERSIFY
Make sure your investments are not heavily weighted towards one company or sector.
“Many investors start with choosing an exchange traded fund — you get diversified exposure to a basket of shares which track an index, such as the S&P/ASX 200 which represents the largest 200 stocks on the ASX,” Sparks says.
6. REVISIT AND RE-INVEST
Shares should never be “set and forget”. Check your progress and make tweaks if necessary.
“An effective way to create wealth is to automatically reinvest your dividends instead of receiving the cash payment,” Sparks says.
Dividend reinvestment plans can be set up easily and supercharge the power of compound interest, he says.