8 ESSENTIAL STEPS TO START YOUR share portfolio
EXPERT SHARE INVESTOR AND AUTHOR DANIELLE ECUYER LETS US IN ON HOW TO GET A FOOTHOLD IN SHARES
Share investing can seem challenging, but taking the time to invest in your own knowledge and following careful plans will allow you to grow your wealth. Shares remain a good low-cost option to save for a deposit, the kids’ education or your future needs. The coronavirus pandemic is a classic example of how panic can drive the share market down quickly and sharply. As hard as it may seem to buy shares into big market sell-offs, this is the exact period when smart, long-term investors put their cash to work. So, if you’re looking to get started in shares, here are eight key points to consider:
SET YOUR INVESTMENT GOALS
Quantify the amount you have to invest, and the time frame you are aiming to invest for. Ideally you should buy shares for the long term. The optimal strategy is to reinvest the dividend income you receive from your shares and selectively add more cash when it becomes available.
FIND A PLATFORM TO BUY SHARES
There are several online share trading platforms that allow for a minimum $500 share investment. It is probably worth spending some time to compare costs and whether you actually like the platform. If you prefer, there are stockbrokers who will set up a share trading account and offer
you advice. This usually means they have a higher cost than the online platforms.
PLAN YOUR PORTFOLIO
A share portfolio is the name for a group of shares or ETFS (these represent a basket of shares that track an index like the Australian or US share market). The more cash you have to invest means the more different shares you should own. That is called diversification – or don’t put all your eggs in the one basket.
HOW TO SELECT WHAT TO BUY
For the newer investor, the ETF is an excellent starting place. Rather than having to assess the difference between shares, you can commence building your portfolio by buying an ETF for the ASX 200 (the top 200 Australian shares). I also personally like to have some exposure to the US market, and Australian investors now have the benefit of being able to buy an ETF for the S&P500 and other overseas markets.
PICKING SHARES
I have long been an advocate for buying what I call quality shares. These shares tend not to be so cyclical in nature, i.e. exposure to the markets that go up and down, such as the oil price or housing construction. Quality companies share a number of characteristics and their earnings streams are more resilient. A good example on the Australian market is CSL, one of the world’s largest biotech companies that specialises in blood plasma products and flu vaccines. Quality companies also invest for the future and manage the business for the challenges of disruption and the 21st century.
IMPROVING YOUR INVESTMENT KNOWLEDGE
Start with small steps and develop it over time. One of the easiest ways is reading the financial section of a newspaper. As your knowledge grows you will find other informed sources, such as specialist online financial newsletters or share research via your stockbroker or share trading platform. The ASX website also has information.
INVEST FOR THE LONG TERM
The more you look at your share portfolio the more inclined you may be to trade the shares. It is best to see through the passage of time. You are aiming to grow your wealth, not for next week or next month, but the years down the track.
PATIENCE
The best advice for any share investor is be patient. Try not to react to short term noise or unforeseen events. Share markets go up and down and the best investors are not fearful of buying when there is investor panic and scary headlines in the media.
FOR MORE ADVICE, VISIT DANIELLE ECUYER’S WEBSITE AT SHAREPLICITY.COM.AU