We know that the share market can be confusing to navigate, and investing for the first time can be daunting. Before you start investing it’s important to understand some of the fundamentals of how the share market works as well as your preferences as an investor. We have put together our 5 top tips for getting started on your investment journey.
(1) Review your finances
Prior to investing, it is essential to be across your financial situation. Now is a great time to whip out an Excel spreadsheet (or head to the Australian Money Smart website and use their calculator) to figure out what your assets are, how much you earn, how much you owe as well as your expenses. This will help you figure out how much you can afford to invest and how investing will fit into your financial plans.
(2) Educate yourself
The best investment you will ever make is in your education. Spend time learning the language of the stock market by following credible news outlets and seek objective educational resources. All too often we see new investors buying stocks based on a tip from a friend, a tweet from Elon Musk, or that one weird uncle. These ‘stock tips’ might be great but it is important to get clued up on how the stock market works, the costs involved and your personal risk profile before jumping in.
Our team of educators have recently released a free online course for stock market beginners. Click here to get started.
(3) Ask yourself some questions
There are some important things to know about yourself before you invest. Asking yourself the following questions will help you determine a strategy to follow and give you a better understanding of your risk profile.
- Why are you investing?
- How long do you plan to invest for?
- How will you invest your money?
- What asset classes are you most comfortable with?
- How will you diversify your investments?
- How would you feel if your investment dropped by 50%? How much risk are you willing to take on?
- How much do you have to invest? Do you understand the costs involved in investing in your chosen asset class?
- Are there companies or industries that you don’t want to invest in? How do your investments align with your values?
The saying ‘don’t put all of your eggs in one basket’ is gospel here!! All stocks carry risk, but to varying degrees. Be very aware of investing too heavily in shares of an individual stock. Ideally, you will want to diversify your portfolio so that in the event one stock you own underperforms, the others you own will balance things out. Owning multiple stocks across different industries will protect you from volatility in both individual companies and industries.
(5) Remember that investing has to suit you
Investing has to fit into your lifestyle. Everyone’s risk tolerance and growth vs value orientation is different, and may even change over time depending on circumstances. If you’re planning on buying a house in a few months it may not be the best idea to lock away all of your capital in the sharemarket.
If you want to get the ball rolling on investing and are not sure where to start, contact one of our advisers on (03) 8080 5788 or click here to enrol in a free beginners online course for stock market trading and investing.