THINKING OF GETTING INTO THE STOCK MARKET?
EXPERT ADVICE ON ALL THE BEGINNER’S TRICKS TO INVESTING IN SHARES
Have you been toying with the idea of investing in the stock market? According to financial adviser Helen Baker, there’s a few questions you need to ask yourself before you take the first step.
“The first thing to consider is why are you investing – do you want to make money, have an interest or a hobby, [or] invest in something that might grow over time so you can sell it for another goal such as a house purchase?” she says. With more to ponder before taking the plunge, here’s Helen’s advice on how to get started.
SPECULATING OR IN FOR THE LONG HAUL?
We talk about investing, speculating and gambling. Investing is about putting your money into something that provides you with an income. If you think about an investment property, in most cases you get capital growth over time and rental income along the way (but with other costs such as rates and maintenance and sometimes tenancy issues).
When investing in the share market, most people focus on the share price, which changes every moment of the day. Shares/companies also distribute the profit in what’s called a dividend, so this is income from the investment. It only happens twice a year usually, so if you have sold out or been trading, you may be missing out on the income.
Investing is about holding onto the share/company until it no longer makes sense to do so. Speculating is trying to guess what is the next best thing, and often that doesn’t go well.
WHAT TO CHOOSE?
There are a range of investments to choose from including individual shares. Shares are companies that exist, you can drive past them, check out their annual reports online and follow their progress – you may even be shopping there or using their services. There’s also managed funds where your money is pooled together with other investors. A fund manager then buys and sells assets, such as shares or bonds, on your behalf. Other forms of investment include gold, bonds, property, term deposits, and the latest on everyone’s lips: bitcoin, the best-known cryptocurrency.
A BROAD RANGE
Investments can be Australian companies, well-known international companies, or much smaller international companies known as emerging markets.
There are different angles you can take, for example, sustainable investing, where you invest in companies that help grow your wealth while being socially responsible is becoming more popular.
Then there’s whether you buy directly from the stock exchange or go through a fund manager. Depending on which you use will give you access to different organisations, different risks, different management and tax reporting – or you may have to prepare documentation for your accountant yourself.
While many try it alone, and you can, you can work with a financial adviser who is able to help you deal with the risk strategy, guidance, managing behaviour, and working to achieve your goals. This is where administration costs can come in. Not all fees are bad – it’s about how it works for your plan.
MAKE SURE TO DIVERSIFY
Diversification is one way to manage risk. If you have five mining stocks, it is likely to be more volatile than 200 investments across a range of industries. For example, let’s say you invested only in travel companies. During COVID-19, travel stopped, so if you had all your eggs in that basket, your portfolio would have fallen significantly.