How easy can it get! We’re talking the about the year 2019, now we have broadband, mobile phones with trading apps and market watch tools... no more of the day where you have to find a broker to make your trade as you stay on the line.
A lot of my friends and colleagues ask me lots of questions about how they can start out in the share market. Always, I answer with "create an account on Commsec or ANZ Investing".
I also get a lot of questions following... So let’s answer some of them.
The Top Five Questions:
Why bother investing?
Let me give you two reasons. Let’s start with the carrot – compounding.
Albert Einstein said “Compounding was one of the greatest wonders of the world". Here’s why.
Let’s say you stash away $50 a week and invest that into the share market each time you get to $1,000. Assuming your shares earn 9 per cent a year (Average Return per year over the last 100 years), in 30 years you’ll have $442,000, but have invested only $78,000 of your own hard earned cash. That is compounding.
So that’s the carrot, now let me hit you with the stick – inflation.
Practically everywhere I look these days I see prices rising – at the petrol pump, at the supermarket, and (over the last few years at least) at auctions. This means that the dollars in your pocket are losing value – they buy less stuff.
If today you have $100 to spend on groceries, in 30 years that amount will be only worth about $40. So if you have your cash stashed under your mattress (or for that matter, in a transaction account), you’ll soon be eating lots of 2-minute Noodles and cans of Tuna.
The only way you can outrun inflation is by earning a higher rate on your money than is being eaten away. Historically, the best way to do that is by investing in the share market, which has been averaging around 10 per cent per year for the past 20 years.
How much does it cost to get started?
Provided you don’t have any credit card debt or any other consumer credit (pay those suckers off and nab a guaranteed 18 per cent return!), you can get started in the share market with as little as a $250. This is the smallest transaction I can make in my Commsec account.
Isn’t investing something I should get a professional to do for me?
That’s exactly what the mass financial marketing machine wants you to think & if you have any questions around this, check out Tony Robbins book Money: Master the Game & Unshakeable.
Most retail managed funds are about as good as the financial planners who flog them – they overcharge and under-deliver. Figures this week from Morningstar show the average fund manager underperformed the market in 2010. Worse, most still slugged investors with high fees for their failure.
How do I know which stocks to buy?
It’s easier than you think. Start by investing in an ETF (Exchange Traded Fund). Which gives you the opportunity to invest in lots of companies and diversify your portfolio by purchasing one "Company". An example of this is the VAS:ASX which holds 300 of the top companies in Australia.
Here’s you: “But I don’t know anything about the share market!”
Here’s me: “Relax, you don’t need a crystal ball. The best investors focus on the long-term and don't panic.”
If you’re just beginning your investment career, buy a copy of legendary fund manager Peter Lynch’s classic One Up on Wall Street.
Lynch explains that small investors have an advantage over professional money managers because they can invest in companies that they know and deal with every day – and many times they can do it before these companies hit the radar of the big investors.
Here’s a real-life example.
Many years ago a graphic designer mate of mine asked me what I thought about investing in Apple – which for many years had struggled.
He explained that he didn’t really see himself as an investor so much as an Apple tragic who believed the company was turning the corner after the successful launch of the iPod. So he snapped up some shares.
Apple went on to become the biggest company in the world, and, as a part-owner in the business, he went along for the ride.
When you’re just starting out it makes sense that your first investment is in a business you already know and are interested in: the company your work for, in an industry you know well, the manufacturer of a product you love – you get the idea.
What if the stock market crashes?
It will. That’s one thing you can count on.
Share markets – like life – have their ups and downs. The world’s an uncertain place: there’s the risk of war, recessions, oil price hikes, Bieber-fever. But if history is a guide, the stock market will still be the best place to invest to for the long term.
Repeat after me: “I will not invest money that I’ll need in the next five years.” To soothe their nerves, smart investors have a couple of grand stashed away in their emergency fund so they don’t have to sell when everyone else is.
So if you’ve been putting off dipping into the stock market, the time to begin is now. Like any skill, you get more comfortable the more you do it, and it’s one hobby that can definitely pay big dividends.
While I can’t remember much from high school maths, the lessons I learned from buying businesses have stayed with me till this day.
Remember; Start now & Compound!