The most important step in any journey is the first step. When it comes to investing in the sharemarket, the sooner you get started the easier it can be to get ahead.
Creating wealth can seem like a pipedream when you’re setting out in life, but it’s the choices you make early on that can help determine just how wealthy you become. And it’s not necessarily the biggest wage earners who finish ahead.
The key to wealth creation is to save regularly and invest those savings in the types of investments that will work hard to produce an income for you long after you stop working.
The benefit of investing from earlier in life rather than later is simple. Even small dollar amounts can grow into a substantial nest egg if you start early enough and let compound interest work its magic.
Take a simple example. Sarah and Adam are both keen to boost their retirement savings. Sarah invests $100 a month in Australian shares and reinvests all her investment earnings. Let’s assume her shares generate a return of 8.7 per cent a year, which is the actual return for Australian shares over the past 20 years. At the end of 20 years she has a lump sum of $128,598.
Adam delays investing for a further 10 years. All things being equal, he will need to invest close to $700 a month over 10 years to achieve the same retirement nest egg as Sarah.
When it comes to share investing, educating yourself and taking the longer term view are usually your friends. Here are some of the things to consider before choosing to invest in shares.
When choosing shares to invest in, you need to do your homework first. Three things you might like to do when deciding which shares to buy are 1) think about investing in companies you know and understand, 2) consider blue-chip companies with a long history of stable growth, and 3) research the company by making use of reports and recommendations from independent analysts, as well as charts, watchlists and company alerts to help keep you up to date.
You can use an online investing platform to buy and sell shares, and applying for an online account has never been easier. Simply sign up on the Grow by ANZTM app for a share investing account and then it can be just a few clicks and you’ll own your first parcel of shares. Grow by ANZ also provides access to information for investment ideas and news to help you research shares you want to buy. To get started in shares through a share investing account, you will need an initial sum of at least $600, with trades you make attracting brokerage fees.
Researching companies listed on the sharemarket takes time. If you don’t have the time then you may prefer to invest in exchange traded funds (ETFs), at least until you gain confidence and experience. You will find a wide selection of ETFs on the Australian Securities Exchange (ASX) that can be bought and sold as easily as shares.
Don’t put all your eggs in one basket
The advantage of investing in an ETF is that your money is spread across a wide range of investments for instant diversification.
Some funds specialise in particular industry sectors or geographic regions while others provide broad market exposure; some funds actively manage their underlying investments while others passively track a particular market index.
If you are buying shares in individual companies then experts suggest 12-20 stocks should be enough to spread your risk. Any more than this and it is difficult to keep an eye on your investments.
Monitor your progress regularly
It’s important to set aside time to monitor your portfolio on a regular basis. Rather than putting your shares in a drawer and forgetting them, it may be necessary at times to sell poor performers and put the money into investments with better long-term prospects.
Investing is a marathon, not a sprint. The sooner you take that first step the easier your investment journey will be.