Not sure when and where to start with investing?

Investing is something everyone should think about, whether you are a University student or coming into retirement. I believe the earlier you start investing the better, primarily because of the missed opportunities if you don’t. You don’t need to have a lump sum ready for investment and you don’t need to be an expert in finance or follow daily market fluctuations to be a successful investor. As an introduction blog into investments I hope I can help you understand the basic elements that go into an investment strategy.

The ‘why’:
We need to establish why you are investing. The ‘why’ is important because it enables you as the investor and the advisor to perceive a goal for the future, whether it is to accumulate funds for a future house deposit, to buy a new car or just to increase your net wealth.

How much are you willing to invest?
Wanting to invest your funds is always exciting and is a major step in setting up your financial future. It is important to establish how much you are willing to commit to an investment strategy, no matter what amount you have available to invest you must be comfortable with it. You shouldn’t feel like you have little room to move with your finances after commencing an investment strategy, so this is why finding out how much you are willing to commit is vital. You should do this by firstly establishing and understanding your current financial situation and determine whether you can cater for an investment portfolio. If you’re tight with your cash flow you should explore ways to widen your cash flow surplus by reducing your spending, I’ve written a blog on this that you can refer to.

What do I invest in?
This is something I can talk your ear off about because there is such a range of diversifiable assets you can implement within a portfolio. However, for this blog I will only brake up two components of what makes up an investment portfolio and that is Growth assets (higher risk) and Defensive assets (lower risk). Growth assets are used to grow your investment, they include shares, property and other alternatives. Defensive assets are used to reduce your risk and they include cash and fixed interest assets. There is a trade off between risk and return when it comes to investing, which is that they are positively correlated, the higher the risk of an asset the higher potential the return. You must accept the risk that comes along with investing, highlighting that there always is risk associated with investments, but that is why you seek financial advice to minimise but most importantly understand this risk. I bring this up because every investor should understand and be comfortable with the risk they are taking on with their investments, at Pekada we have tools to determine this using a Risk Profile.

How do I buy and sell?
To buy a stock of a company on a securities exchange it’s typical to go through a broker or you can go directly to the company. You can set up an online trading account where you deposit cash that’s used to buy.  There is a brokerage fee for every trade (buy and sell) and the fees are different for all providers. when buying the asking price is what the sellers are willing to sell it for and a bid is what the buyer is willing to pay for the stock. Typically the ask price is higher than the bid.

Is there a best time to buy and sell?
I’d like to make a brief note about the timing of buying and selling in the market, which is that you should not rely on buying in the downturn of the market and selling at the peak, but to rely on the long term fundamentals of the investment because that is the key to achieving long term gains. If you intend to buy at the dip and sell at the tip to achieve those larger gains you are setting yourself up for unprecedented lower gains, even possible losses. This is something I will discuss in another blog which discusses the difference between active managed funds vs index funds.

After we have established the ‘why’ you are investing, the amount of funds we have available and what risk element you are comfortable with, it’s time for you to have a think about whether or not you should consider commencing a investment portfolio. As stated earlier I wish I started investing in funds when I was younger because even the slightest amount each month would’ve accumulated a little sum. As seen in the below image, if I invested into a growth managed fund with an initial deposit of $1,000 and a $100 per month contribution over a 3-year period (the length of my University course) I could’ve made a net gain of $784.

Taking this even further, what if you undertook additional study, possibly a master’s degree which adds 3 years (estimate), we would obtain a net gain of $3,890. You have the ability to invest as much as you want or as little as you want, that’s up to you but the importance is just starting.

Now let’s look if you double your monthly contributions to $200. Over the 7-year period you would have a net gain of $6,957.

It’s worth noting that there is a lot more I can talk about with investments but the purpose of this blog was just to introduce some basic concepts and give you some value in thinking about investing. If you want to follow up your interests about investing feel free to email me. There’ll be a lot more to discuss over the year about investments so keep an eye out for upcoming blogs.

If you wish to discuss these ideas and concepts, feel free to leave a question in the comments or send an email to me directly at daniel@pekada.com.au and I will happily reply.

Post contributor:

Daniel-Reaper-headshot-BW
Daniel Reaper

Client Services @ Pekada

Disclaimer: The information provided on this website is general in nature and does not constitute advice. You need to consider with your financial situation and your particular needs prior to making any strategy or products decision. Pekada will endeavour to update the website as needed. However, information can change without notice and Pekada does not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time Unless otherwise specified, copyright or information provided on this website is owned by Charter Financial Planning. You may not alter or modify this information in any way, including the removal of this copyright notice.

The Trustee for Pekada Unit Trust (ABN 32 736 044 776), corporate authorised representative (CAR), number 443518 trading as Pekada and The Trustee for Pekada Group Trust (ABN 53 194 543 746) corporate authorised representative (CAR), number 235514 trading as Pekada are authorised to provide financial services on behalf of Charter Financial Planning Limited (Charter Financial Planning). AFSL Number 234665

The information provided on this website is general in nature and does not constitute advice. You need to consider with your financial situation and your particular needs prior to making any strategy or products decision. Pekada will endeavour to update the website as needed. However, information can change without notice and Pekada does not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time Unless otherwise specified, copyright or information provided on this website is owned by Charter Financial Planning. You may not alter or modify this information in any way, including the removal of this copyright notice.