Have you got some money and want to invest in shares? Been trying to work out what to do but keep getting stuck. Let me strip back the jargon and explain whats important
My journey in investing began years ago. I was early in my full time working days and thought it’d be cool to buy shares.
I mean, it would add a layer of sophistication to my 22-year-old personality, surely.
Through no scientific or plausible reason other than instinct I picked 2-3 individual stocks on the Australian Stock Market, signed up to the share platform connected to my bank and bought.
It was then that I realised. I have no idea what I’m doing.
I didn’t even know what to expect. Maybe that I would suddenly become a millionaire.
I had no plan, no system, no real expectations on the whole investing thing.
This time I was lucky. I lost some money, but not a lot. I think I sold all those shares a year and a half later to pay for a holiday. Had no idea about the concept of long term investing either.
The best return I got from my first investment was from the lessons I learnt. The experience.
Since then I’ve been investing regularly, so that’s over 10 years of investing lessons and practice.
I will share some lessons I’ve remembered as a new investor. Something for those who want to invest in shares.
This might give you motivation to continue on, as I assume you are reading this wanting to go and buy some shares.
I don’t want this article to stop you on your journey, but help you understand what it's really like. Like being a parent – you can’t have the good times without the bad.
I want to give you some helpful tips and thoughts as you start so you can manage your expectations of life as an investor.
What you need to know when you invest in shares
Here are a few lines that would have helped me when I invested for the first time.
It will feel intimidating at first
You've probably seen the financial updates in the news and gazed at them thinking this is important stuff, but felt that everything they say is confusing.
Green arrows, red arrows, numbers, “markets”. It's like this other world that exists that you are not part of.
Terms like all ordinaries, index, open, close, world markets. It's intimating.
Seems like you need to be a math wiz to understand any of it. Although you need not be anything to know what the weather forecast says?
This is what investing can do to people. It can push them out before they even have a chance with all the lingo and language used.
With investing, there are some things you need to know, some things you should know and a lot of noise.
The good news is you don't need to know everything to start. Like you don't need to know what the lines on the weather map are to understand it will be hot or cold tomorrow.
There are some silly sounding terms used, but most have a straightforward definition.
Keep moving, the more you walk down the path to investing the more confident you will become.
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It's more than picking stocks
Did you just watch the Wolf Of Wall St, Google How to Invest, and find this article?
Yeah, we might all want to go from rags to riches like Jordan Belfort but in reality, the investing that I know is nothing like that.
For starters, he never invested, he just was the middleman for investors.
The investors were the people on the other end of the phones, buying stocks in stuff they didn't know. Don't be that guy.
The fact is that building wealth and assets can be done – it's more boring so no one talks about it as much.
Picking stocks is focussing on short-term returns, while true investing – or the way I talk about it- looks at long-term results.
You can build a portfolio that easily invests in hundreds and thousands of companies so if one has an issue you are not at risk as much.
Yeah, you can pick those stocks and hope for something big, but you don't need to be that risky. You can put your money to work in a tried and proven way that will in the long term make you good money.
You can get into the ‘fun' of stock picking, but let's just work out the basics before we make it too complicated.
Investing is sexy, but it's just one part of personal finance
Not investing is not the reason you are not good with money. I'm not assuming you aren't I'm just saying it's not a reason.
Investing won’t whisk you from the doghouse to the penthouse.
If you set up and run your investing in a simple and effective way, you’ll actually spend little to no time on it.
We can spend the most energy on making sure you are spending, saving, and earning money the way you want to.
You're probably investing already
Do you have a super fund?
Unless your money is sitting in cash, you are already an investor.
Your superannuation fund will probably invest in shares on your behalf into the stock market and managed funds for you.
If you've ever looked at a super statement or logged in to your account, you might see words like growth or balanced under your investments. This means they are investing a mix of stocks and cash so it can grow for you over the years.
In a way, your super is an investment account that can be replicated outside of that environment. You can build a fund just as big and as strong as your super, but with the ability to take money out when you like (rather than wait till 65).
Look at your current super setup and see what it invests you in. If you are new to super, you can read my guide on it.
You need to earn the right to invest
So I mentioned that investing is only one part of your financial life. It is and it should be the cherry on top of your financial situation.
Until you get your foundation built and can confidently manage your cash flow, then your ability to invest in shares is low.
Specifically, if you have no savings or high-interest debt like a credit card or personal loan, these are your investments right now.
Pay off debts, then build up savings.
Your savings should be a cash buffer in your primary account and your emergency fund. I like to have 6-12 months of emergency cash on hand rather than what most recommend as 3-6 months of cash.
If that is all in order, then you are good to level up and make investing your next focus.
Read my article on budgeting to get guidance on this area.
This is how we want our investing journey to go
In reality, it looks like this
Ok this chart isn't exactly how it looks, but your emotions will definitely feel like this early.
The market will go down, it will go up. It’ll do many things.
You can lose money, especially when it's down.
BUT, please don't compare investing to gambling.
It’s actually the opposite of gambling. When you gamble and make money, you should walk away as your luck will eventually run out.
With investing you might lose money, but over time your poor luck will run out. Based off a combination of investing experience and long-term returns.
If you don't want to take any risk, then you might not want to invest in shares. You’ll just need to save more money than an investor.
You need to make three decisions
The pressure to perform will come for you most when you do any of these things
- Buy into an investment
- Sell an investment
- Which investment you invest in
These are the three decisions you need to make. Irrespective of how simple or complicated you make these decisions is up to you.
For me, I like to keep it simple. Buy when I have money available, sell when I need the money (which is rare), and pick the right investment based on my experience or research (and values).
You will most likely get one or more of these decisions wrong in your investing life. I have plenty of times. Don’t let it stop you invest in shares.
Your best gains come early from contributions, not returns
This is one few will tell you or understand. When you invest in shares, your portfolio will grow the most from the contributions you add to it.
That’s right like a savings account you need to be actively contributing to it to see faster growth. Don’t expect to drop $5000 into an investment and have it triple in a year.
For example – say you invest $200 as your first investment. A one-off investment Even if it returns 20% you’ll have $240 after the year.
If you invest $200 and add $200 a month for a year, your investments with only a 10% return would be worth $2,734.
Growing that portfolio repetitively early will pay dividends (literally) down the track.
You can be the biggest danger to your investing
Yep, that’s right. Beware of yourself.
You will read the news, have conversations, or listen to stories about others. There will be countless triggers for you to ‘do something’ and completely undo everything you are building.
I know because I still do this. I have a chat with someone, and they mention something that gets my attention. Maybe I should do that instead?
There are so many distractions in our environments, it's going to be hard to avoid them leading to action.
One way I like to combat this is having an investment strategy in place. This is a plan that maps out exactly what I want to get from my investing, why and how I will achieve that.
It’s what I refer to when distractions try to affect my decision-making.
Common questions on how to invest in shares
How do I buy shares?
If you are a complete novice to the investing scene, you probably assume investing works like in the movies. You call up a stockbroker, they go down the “floor” and put a trade-in for you.
Luckily for us it's not the 80s and you don’t need a power suit to be an investor.
You can now invest in more ways than ever before:
- Download a micro investing app like RAIZ
- Setup an online broker account like Self wealth
- Invest in an Index fund like Vanguard
- Open up a trading account via your Superannuation (if they offer it)
There are many options that you can decide on based on how much ability you have, time you have, or money you have.
How can I invest with little money?
From my experience, the best way to start is via a micro-investing app.
These are so easy to set up and get going, plus some only need $5 to start.
You’d want to add more than that regularly or over time as the fees, but these apps are handy to have available with moderate funds.
Designed for new investors, these apps will simplify the process for you.
Note as well that these are fully capable investing tools, so don’t feel you need to jump out of them to be a ‘real’ investor.
Is investing in shares a good idea?
Maybe not if you are looking for a hobby. If you have a plan or some goal you want to achieve, then yes.
Investing is a tried and proved vehicle to build wealth.
The benefits, though (unlike property) are that you don’t need to risk large amounts of money or go into debt to start.
Start with $5, $500 or $5000 and you can find out for yourself if investing is right for you.
I should say, when I say investing is a good idea, I don’t mean trading. Trading is when you buy and sell constantly. Investing is when you buy and hold to receive good growth or income from that investment.
The downside of investing is that to do well is to be really, really boring. It’s not exciting as you won’t see much or do much. It will grow in the background and eventually give you an asset of wealth.
What should a beginner invest in?
So many people ask me this question. It’s the last thing you need to work out when you invest.
Forget about what and start with the why, how, and when first:
- Why are you investing
- How will you be adding to your investment
- When will you be doing this
I lay this all out in my article on creating your investment strategy.
The problem with asking a question like this is every man and his dog will run in to tell you their thoughts.
I base most of what I invest in off my experiences in working out the best investments for my portfolio. Not listening to others and getting answers off Facebook groups.
This kind of stuff is like junk food if investing was you trying to lose weight.
Can I buy shares without a broker?
Yes, you can. Well, sort of.
You no longer need to call up a stockbroker and place a trade.
You can now use apps and the internet to have this done for you.
I said sort of because eventually, a broker makes a trade. These days though, this is all done behind the scenes of apps or digitally by online brokers.
Another way to put this answer is – you can buy shares without talking to anyone.
Some apps won’t even charge you a trading fee (such as Raiz or Spaceship) and some have really low rates (Comm Sec pockets).
How much money do I need to invest to make $1000 a month?
So you want to build some passive income from investing.
This is the name of the game, especially in retirement.
Retirement really is the keyword here, and unless you want to be one of the retire early guys, then investing for a passive income will take some cash.
Say you received a dividend of 5% per annum from your investments. (This is fairly possible with some Australian dividend payers, but no guarantees).
You would need a pool of $240,000 to receive $12,000 a year or $1,000 a month.
So, that's a lot. Could be a house deposit, could be school fees. Might be you living poor for 10 years to have it work.
I’ve found that investing is all about what you can contribute and waiting. Your life will not change much for a while, so do what you can to plow money in without sacrificing your lifestyle.
How much does it cost to invest?
Not as much as it used to.
Back in the day (when I started), an online trade cost $30. This meant I had to think long and hard about what I wanted to buy and when I would buy it. Then if I sold it, it was another $30.
These days you can use apps that don’t charge you to trade like Raiz or Spaceship. CommSec pocket only charges $2 which is fantastic. I use SElfwealth which is an online broker, and they now have fixed price trades of $9.50
It helps those with small incomes or money available get started.
Make sure you read the fine print of what service. Check with the tool to see if they have a monthly account fee on top. It’s normally a percentage of what your portfolio is.
A word of warning before you invest in shares
Yes, the headlines.
Once you start investing every single media outlet will grab your attention when the market goes down. Yes, the market will go down and your shares will lose value.
The hard part of being an investor is minimising the effect these headlines have on you.
The media doesn't report on the good times. You won’t see a headline “everybody is a little richer today” but “market wipes off $30 billion”.
You will make mistakes (but learn from them)
Ph yeah, you’ll make a lot of mistakes. I know I’ve had. It’s all part of the investor's life.
The first time I invested in shares was a mistake cause I did not understand what I was doing.
You won’t hear much from people about their mistakes as no one wants to talk about them.
Treat these as learnings or experiences. I wouldn't be confident and capable of the poor decisions I made in my past adult years.
Ready, set, invest.
That heading sounded cooler in my head.
But really, it's not a race. Investing is a long-term game.
Patience is one thing you'll need plenty of.
The beautiful thing is nowadays you can spend as little or a lot of time as you like investing.
For me, I go through waves of interest. One thing I do is invest regularly.
What you want to do when you invest in shares is the sense that you are building something. You are building an asset. Like a house, really. You need to put down a deposit and commit to it.
Once you get that slab down, putting that frame-up of your portfolio really, it feels like you are accomplishing something significant.
Good luck and let me know how you feel after your first mistake.