If you started your investor journey in 2020, you were in for a wild ride that, generally, came out positive in the end. But if you are just now considering buying shares, here are a few tips to consider before you dive in.
Define your investing goals
Many may think that trading shares is a way to get rich quick – but that is not the entire picture. No doubt you have already heard the story of a guy who picked the 1c stock that went up to $4, and then he walked away set for life (Both Reddit and GameStop stocks came to my mind as recent examples). Despite this, understanding your reasons for investing, as well as your short, medium and long term financial goals, is ultimately more important. Remember to note these down before you start, as it will almost certainly influence your decisions on what kinds of stocks to invest in.
Find the best share trading platform for you
The main focus is on the words ‘for you’ – due to the wide variety of platforms in the current trading market. Personally, as an Australian investing mostly in ASX stocks, I have been using CommSec for years, because I consider their brokerage fees as rather reasonable (Note that your country of tax residence likely influences your choice here). I also have an international trading account with Commsec, which makes it easy to keep everything in one place. On the other hand, there are fairly new players in the market who offer very low-priced trades – particularly if you are only trading Australian shares. SelfWealth is a prime example. Started as just a community board, SelfWealth is now widely considered as a leader in trading. Make sure that whatever trading platform you end up choosing, you are able to trade all the equities (or other investments) that you are interested in at a reasonable price.
Plan what you will invest in
Planning is essential to ensure that your investments will meet your goals in the end. Diversify your portfolio is key. You may decide to invest a little money across several longer-term shares; a little in some medium-term shares and a little to “play the market” – meaning to look for the speculative stock that may do well in the future. Whatever you do, do not put all your money into one single investment; for when something happens to that company, your capital is likely to be gone. One tip is to plan on transferring a small amount of cash every payday into your investment account so that when you see an investment you are interested in, you will have the cash put aside ready to go. Apps like Acorns can help with this kind of hands-off investing experience.
Understand your investments
Stock picking can be a complex process and there are many different methodologies that you may utilise to build your own ideal portfolio. If you are a complete newbie, you might want to subscribe to investment services or even magazines, which could provide you with helpful stock tips and some early ideas about what to add to your portfolio. Do your research as much as you can at this point, because whilst people’s opinions vary, you will need to learn to evaluate companies for yourself. Although you can rely on someone else’s tip directing you to an investment, eventually it is you that needs to do the due diligence for researching every stock that you buy. Do not get caught in the herd mentality that is often driven by community sites, where people try to drive stock prices up by posting positive news that is not always accurate.
Track your investments
A share portfolio tracking tool that allows you to easily track your shares and other investments is a worthwhile consideration. Depending on the number of stocks and other investments that you have, your tax may begin to become slightly more complicated and your accounting bills can start to add up. A portfolio management tool such as Migain can help track your investments as well as provide all the reports you need for tax time. Your accountant will probably love you – despite charging you less – because no one likes the tedious task of going through long spreadsheets of trades and dividends to determine what your tax liability will be.
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Invest for the long term
When I look at a business, I often assume an investment horizon of longer than 2 years. Occasionally that is not the case, but it is still mostly longer. The reality is that businesses take time to grow, and you want to be with that business while it grows. If the business can grow its share price at more than 10% every year, then you will be doing a whole lot better than any other investment you could make! Most cash accounts these days barely even offer anything close to 2%. Understand that you are investing in the company and not just buying a stock – will help you to get more involved with your investment and encourage you to learn about the companies you have invested in.
“The most important quality for an investor is temperament, not intellect.”warren buffet
Give up the get-rich-quick mindset
The reality is that your investment portfolio will grow slowly. That is how investing works and the reason why the government encourages us to invest in our superannuation (401K in the United States) from an early age. There is no get-rich-quick scheme and trading shares will not make you rich overnight. Therefore, be patient with your investments and know that you are in it for the long haul. Having a good understanding of your investment goals and objectives at this point is also worthwhile. If you know you’re investing for retirement, and you are 35, then what’s the rush! Take your time to pick a great company to invest in and then watch your portfolio grow. It worked for Warren Buffet!