Investing could be a bit like creating a garden, but if you are not a ‘green finger’ where do you start? There are so many choices in terms of design and plants to use, which could mean hours on the internet, visiting display homes and walking around a Bunnings store. Investing is similar, in that you will need to know some of the pros and cons before you jump in, so consider some of these tips for investing for beginners.
Firstly, where and how you invest will largely come down to personal choice, and may also be based on the experience of people around you. Most investors choose to have the majority of their money in two main areas, being property and shares. In this article let’s consider some pros and cons for having one simple strategy for the share market versus a diversified portfolio.
As with your garden design, when making decisions about where to invest you need to do your own research, even if you intend on seeking advice from a professional, research comes first. This can include talking to people you know who have investment experience and doing research on the Australian Securities Exchange (ASX) website. The ASX have free introductory courses and discuss the different investment vehicles to help you gain a broader picture of the market. You may also decide to go to a few seminars, however be wary of pushy sales tactics.
Often simple is best. If set up right, apart from adding water and a little TLC every now and then, a great garden will look after itself and give you pleasure for years to come. So too, this applies to the share market. By gaining some knowledge before you start, selecting a focus for your portfolio and continuing to add to your investments, you will see your wealth grow over time.
Diversified portfolio
The financial industry tells investors to diversify by investing in overseas markets. This is supposed to lower your risk, however the data shows spreading your investments this way doesn’t necessarily get you better results and instead can make investing more complicated.
Further, the true meaning of diversification is to diversify into different asset classes such as property, shares or fixed interest, which I am all for. However, the industry use the term to encourage investors to diversify across lots of different shares (often between 30 to 50), which can actually dilute returns and increase your overall risk as you will require more time, knowledge and effort to manage so many shares.
One simple strategy
If you are thinking about investing in the share market and believe it is too complicated then you are looking at it the wrong way. It is possible to keep investing very simple, here are two options:
- Gain exposure to the Australian share market by investing in an Exchange Traded Fund (ETF), which aims to track the ASX200 index, or the top 200 shares. The advantages are that you can invest in one ETF rather than lots of different shares and the costs are usually less than you will find with managed funds.
- Design your own portfolio by choosing between 8 and 12 different stocks from the top 20 shares on our market that are rising in value. To see which shares are rising you can look up a chart on the ASX website under Prices and research, Charting.
Like your garden, your investments can be designed to suit you, taking into account the time required to manage them, the amount you have to invest and most importantly, your current level of knowledge. Remember too, your seedlings don’t become trees overnight, and hence, you need to give your portfolio time to grow.
