I get asked a lot of the time "what should I invest in?" or "where should I dump my money?"
So I will provide what I believe is the easiest and best way to invest in shares for beginners.
ETF's (Exchange Traded Funds) of course! How could I make a post about shares without talking about ETF's or Index funds. Not only that, but what I will explain below is a way that you could potentially invest in and follow for the rest of your life.
ASX 200 includes the above shares & more but, is only 1 share
Before we go on, I want to quickly add one note. I am not a financial adviser, nor do I advise any person on individual trades or shares, additionally, I do not receive any commissions for recommending funds or trades. Any purchase of a share will be at your own choice, and any problems or issues that arise are at your own risk.
How do I know what sort of shares I should invest in?
Great question, it is hard for each of us to understand what we should be purchasing in alignment with our risk profile... you right now saying "Wait, what the *** is a risk profile?".
A risk profile is an evaluation of an individual's willingness and ability to take risks. It can also refer to the threats to which an organization is exposed. A risk profile is important for determining a proper investment asset allocation for a portfolio. - Investopedia
"What are the Risk Profile's and which one am I?"
"Yeah, great picture... but how do I know which one I am?"
A commonly cited rule of thumb has helped simplify asset allocation in turn, understanding and identifying your risk profile much easier. It states that "individuals should hold a percentage of stocks equal to 100 minus their age. So, for a typical 60-year-old, 40% of the portfolio should be equities (stocks). The rest would comprise of high-grade bonds, government debt, and other relatively safe assets (Fixed Income).
Such realities mean that the old theory of “100 minus your age” theory puts investors in jeopardy of running low on funds during their later years. Some have modified the rule to sit at 110 minus your age – or even 120 minus your age, for those with a higher tolerance for risk.
Me? I use the 120 minus my age, as I have a very high tolerance for risk.
So, lets make some basic examples below using the 100 minus our age rule:
- 10 Year Old: 100 - 10 = 90% Stocks (Very Aggressive)
- 30 Years Old: 100 - 30 = 65% Stocks (Aggressive)
- 50 Years Old: 100 - 50 = 50% Stocks (Balanced)
- 70 Years Old: 100 - 70 = 30% Stocks (Conservative)
Ok, that is great! Thanks for your super pretty example above! But why should we reduce our percentage of stocks for greater fixed income assets? The idea is that as you are younger, your capital grows much larger. As you get older, the capital growth you have seen in your portfolio will be exchanged with assets that have less capital growth but will pay regular income.
How Many Shares do I have to Buy?
You may be thinking that you will have to buy 20 shares with some that are international share i.e Facebook and Netflix, some Australian Shares like CBA or Westpac and some small caps and some emerging markets with some bonds sprinkled on top.
Guess again! one of the greatest things I have seen in my lifetime so far is Vanguards Diversified Funds. They are the best thing since sliced bread!
The answer is 1, 1 bloody share will be all you need to start investing for your specialized risk profile.
Plus, a measly 0.27% management fee! If you have read Unshakable by Tony Robbins, like I have been telling you to, you would know how much of a difference management fees can be.
Show me What to do!
ASX code on the right (What you type into Commsec, or your trading platform)
10 Year Old: 100 - 10 = 90% Stocks (Very Aggressive)
30 Years Old: 100 - 30 = 65% Stocks (Aggressive)
50 Years Old: 100 - 50 = 50% Stocks (Balanced)
70 Years Old: 100 - 70 = 30% Stocks (Conservative)
How do we buy some? I suggest using your bank's broking service. For me, I use Commsec. Some good platforms can be found here.
I hope this has helped. Please remember, I am not a financial adviser, nor do I advise any person on individual trades or shares, additionally, I do not receive any commissions for recommending funds or trades. Any purchase of a share will be at your own choice, and any problems or issues that arise are at your own risk.