Invest in shares carefully

Want to invest in the stockmarket? It’s easy to do, writes

SURGING stockmarkets in Australia and overseas are capturing the imaginations of both seasoned shareholders and would-be investors, but many newcomers don’t know where to start.

Record highs on stock exchanges – including the ASX – have sparked warnings from advisers to be wary of a potential pullback, yet still share prices rise.

If you want a slice of sharemarket action, there are many ways to get in, and some long-held investment rules to follow.

Rule number one is to diversify. Just buying one stock is dangerous because if the company collapses you will lose all your money.

Holding a variety of shares reduces risk and smooths out investment returns.

Catapult Wealth director Tony Catt said it was more important than ever to diversify globally as technology stocks pushed financial markets higher.

“Big global companies are dominating a lot of investments and you have to be more aware than ever about going offshore,” he said.

Look at the numbers. In the past decade Aussie shares have climbed 44 per cent – not including dividends – while shares in Apple are up 960 per cent, Microsoft has climbed 496 per cent, Amazon rose 1290 per cent, Facebook 720 per cent and Google’s parent company Alphabet added 410 per cent.

Mr Catt said share investors should avoid focusing solely on traditional favourites such as the big banks, Woolworths and Wesfarmers.

“Don’t assume that oldschool shares are going to be the way forward,” he said. “And don’t try and time the market.”

Instead, drip-feed cash over many months to avoid getting badly burnt by a market plunge.

Shares are at record highs but that’s no reason for them to stop climbing. Markets thrive on fear and greed, often climbing higher than expected and falling further than feared.

Here’s how to buy a slice of the sharemarket.

DIRECT SHARES

You can quickly sign up to an online stockbroking platform and typically pay $15-$25 a trade. Alternatively, contact a full-service stockbroker – but they probably won’t be interested in you if you have just $1000 or $2000 to spend.

Fullservice stockbrokers historically charged $100plus per trade but today have more of a portfolio management role, charging between 0.75 and 1.5 per cent of your share assets annually to look after you.

Bell Direct market analyst Jessica Amir said new investors didn’t need $10,000 or $20,000 to start investing through an online broker.

“You can get started with $500,” she said.

If unsure about where to invest, Ms Amir suggested thinking about brands you interacted with daily such as retailers, banks and technology companies.

“To quote (billionaire investor) Warren Buffett, never invest in a business you can’t understand,” she said. “Think about who is behind that brand, is it successful and does it have a strong growth trajectory?

“Then get digging – are they making a profit, what’s the management success story, are they paying dividends?”

Historically, companies that pay high dividends had been strong performers, Ms Amir said, although the stellar rise of low-dividend tech stocks had severely dented that claim.

“If you don’t want to do your own research I would say stick to an ETF,” she said.

EXCHANGE-TRADED FUNDS

Better known as ETFs, exchange traded funds are bought and sold on the stock exchange but typically spread your money across every member of a sharemarket index such as the ASX 200 or the S&P 500 in the US.

Ms Amir said late last year exchange-traded funds in Australia reached $60 billion of funds under management.

“The largest growth in that has been from international shares,” she said.

Shaw & Partners senior investment adviser Jed Richards said people buying

ETFs still needed to know where their money was going.

“You can be too diversified,” Mr Richards said. “If you grab a few ETFs you are just buying the whole market.

“Look at our market – it’s 30 per cent banks, but do you want 30 per cent banks at the moment given the performance they’ve had? No.”

LISTED INVESTMENT COMPANIES

For decades, LICs were the precursors of ETFs, and employed professional managers to invest your money across a range of quality companies.

The biggest LICs are Australian Foundation Investment Company, founded in 1928, and Argo Investments, which was founded in 1946 and was chaired by Sir Donald

Bradman for a while. The number of LICs and ETFs has exploded in recent years, making it more difficult for investors to choose.

Mr Catt said investors needed to understand the underlying assets and fee structures. “What do they own?” he said.

But both LICs and ETFs were still good places to put money without the degree of difficulty that came with direct share investment, he said.

MANAGED FUNDS

While ETFs have boomed in popularity, managed funds have gone the other way. They hold a variety of shares and use professional managers to allocate their assets, but are not listed on the ASX and have been criticised for historically high fees. Competition has brought down their fees and they are still popular in superannuation funds.

Mr Catt said he preferred to use professional fund managers for overseas investing “because of the large size of those global markets and the amount of choice”. “We shouldn’t be kidding ourselves that we know more than they do,” he said.

NEW PLATFORMS

New investment options are emerging, from businesses that round up your spending and funnel the money into ETFs, to apps that allow you to trade directly in overseas shares, to robo-advisers that invest on your behalf based on a questionnaire you fill out. They’re worth looking into, but Ms Amir said investors should always check all fees and charges.