Investing — Other Than a Home
A few of you have asked what to do with your money if you’re not quite ready to purchase your first home. Before I purchased mine, I had my savings locked away in a term deposit account — that way, I wouldn't be tempted to spend the money and I’d earn a little more interest than a standard savings account.
As I started to search more seriously, I didn't refix my term deposit as I knew I would need the money some day soon. I looked online to see what banks were offering the best interest rates for an online bonus saver account and then got my bank to match this.
When it comes to investing beyond savings accounts and housing, I’m going to leave Adam Stewart an Authorised Financial Adviser to share some top tips for investors starting.
Adam shares his top tips on how you can generate long-term wealth by investing in the share market
Over the past few years investing in the share market has got a whole lot easier to do with platforms like Sharesies, Investnow and Smartshares. These platforms are also low-cost options, as you can start from as little as $5 per investment, that’s the price of one coffee!
Here’s Adam’s Top Tips:
The biggest risk investors face is not investing in the first place. Investing is a virtuous habit best started as early as possible. Enjoy the magic of compounding returns. Even modest investments made in one’s early 20s are likely to grow to staggering amounts over the course of an investment lifetime.
Before making any investment, set some standards. Take some time to note down the following:
- Investment goals
- Income needs
- Risk appetite
- Investment Structure
Know your investor type:
To be a successful investor you need to know what type of investor you are – essentially: How much volatility can you take? (ups and downs in the value of your investment) How much money are you willing to lose? What is your investment timeframe?
Sorted’s investor kickstarter can help you understand what mix of investments will be best suited to your ‘investor type’.
Stay the course and invest for the long term:
Changing your strategy at the wrong time can be a devastating mistake. It's better to stick to your long-term plan, making small adjustments here and there as needed.
Manage your emotions:
One of the biggest obstacles to investment success is investor psychology. Some Behavioral biases that lead to poor investment decision-making include:
- Loss Aversion — The fear of loss leads to a withdrawal of capital at the worst possible time. Also known as “panic selling.”
- Herding — Following what everyone else is doing. Leads to “buy high/sell low.”
- Lack of Diversification — Believing a portfolio is diversified when in fact it is a highly correlated pool of assets.
Keep your investment expenses low:
Fees are one of the most important determinants of investment performance and something every investor should focus on. Net return is simply the gross return of your investment portfolio less the costs you incur. However, it is important not to let fees dominate your investment decision-making process. Investors should select the appropriate investment provider for them and determine their appropriate asset allocation to help meet their financial goals. Only then should the investor turn their attention toward minimizing fees.
Learn about compounding interest:
For those that are unfamiliar with the word, compounding interest is the interest you earn on your interest e.g. you invest $50, you then earn interest which is added to the $50 so now its $55, and then you earn interest on the increased dollar amount being $55. Einstein called it the ‘eighth wonder of the world’. Chuck compound interest into Google and look at how saving $50 per week compounding over 40 years can turn into a small fortune.
Want to get started?
- You can buy shares online with only a couple of hundred dollars. Beware of brokerage costs though, they eat into your initial investment if it’s a small amount.
- Another option is to buy an exchange-traded fund which is basically a parcel of shares. Smartshares, Investnow, Sharesies have regular savings plans — you can get started from as little as $5. This option gives you diversification across a number of different stocks, which is normally hard to do if you do not have much money to invest.
- Don't be too concerned about daily fluctuations in the value of your managed fund (highs & lows) — they even out over time. Remember invest for the long-term!
- Be clear on your time frames. If you are investing in shares, you need to have a reasonable period of time in mind. This could be 10+ years!
- Don't put all of your eggs in one basket — make sure you invest in a diversified share portfolio. Investing in one share leaves you too exposed to the performance of that one company. Sorted’s investor kickstarter can help you understand your best mix.
If you want further information about investments, and where to begin, jump online to Compound Wealth and contact Adam directly.