Getting Started with investing
When it comes to investing, often the most challenging part is knowing how and when to get started.
There are so many choices of investments and platforms; it can be easy to get stuck in the search for the perfect answer and timing.
The truth is there’s no such thing. You just need to get started.
But before you do, you need to be able to answer yes to each of these three questions:
- Do you spend less than you earn, every paycheque?
- Have you paid off all of your debts (except your car, mortgage and HECS)?
- Do you have an emergency stash of at least three month’s spending?
If you got less than three from three, fix that first.
You should also consider whether you are best to use your surplus to reduce your home loan, contribute to super or to invest.
Now set a goal
Work out why you are investing. Maybe you are saving to buy your first home or investment property or perhaps to pay for your kid’s school fees. In most cases, you will have an amount in mind and a date when you’ll need it.
There are only three levers you can pull to achieve your goal: the amount you invest, how long you invest for and the return you earn (net of fees). At this stage, how much you invest will have the largest impact, and your goal will help you stick to the plan.
Are you starting small?
If you’ve got more than $20,000 (or $10,000 and can commit to $500 a month), then get some professional advice before investing.
If you are starting with less, use this as an opportunity to learn about yourself.
The most valuable lesson you can learn at this stage is how you react when your investments go up or down. If they go up, do you think you’re the next Warren Buffet? Or do you just get a warm feeling inside? If they go down, do you feel like selling and hiding under the doona? Or do you feel like buying more?
These insights into your reactions to volatility will put you in good stead when you’re ready to get serious.
With a small sum, the best place to get this experience is one of the micro-investing platforms such as Raiz or Spaceship.
With a little more consider one of the low-cost share trading sites such as Pearler, Self Wealth or Commsec.
Raiz and Spaceship both offer diversified investments with a range of risk/return profiles. I have a review of Raiz and a Spaceship review.
Don’t get too obsessed with returns, fees or structure at this point. The important thing is to get started, gather a pool large enough to get serious and learn some valuable personal lessons.
Have a plan
The most significant impact you can have on growing our investment is how much you invest, so have a plan to add some more. If you automate this, it will make it easier and avoid having to decide what day to invest. Raiz makes this easy with their cool roundup feature.
When you’re ready to get serious
Once you’ve built up a decent pool, say, $20,000 (or $10,000 and can commit to $500 a month), its time to get some advice. Book a discovery call with your Sherpa.
Your advisor will help you build a long term investment plan based on your circumstances, goals, risk profile and time horizon.
Your plan will include the right asset allocation to maximise returns for the level of risk that you need and can tolerate. It will also recommend the best way to implement that allocation and the right product for your needs, taking into account fees, performance and taxation.
An advisor will improve your likelihood of sticking to the plan and achieving your goal. I’ve written a piece on why you need an advisor where you can read more about the benefits an advisor brings to your investment journey.