Women & Investing Part 6’ written by Dr Bill Dodd is part of the GHG ‘Best of 2016’ Series and was originally published in Great Health Guide (October 2016). ‘Women & Investing’ is a 6 part series particularly for women with tips on how to invest in the stock market. The concluding article to the series, part 6, specifically focusses on how to invest in shares.
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FINANCE: Women & Investing Part 6 – Starting To Invest In Shares
written by Dr Bill Dodd
This series on investing has provided information on investing in the stock market particularly for women. It aimed to provide an understanding of the risks in investing, the importance of an investment plan and introduce analytical techniques which provide information on what stocks to buy and when to sell them. It is important to understand that all Australians and particularly women need to have an understanding of how to invest.
But this raises the question:
It is essential to have a plan
Your investment plan should include what asset classes you will invest in, how you will manage risk, how you will select the stocks and when you will buy and sell.
Should you use an investment manager or invest directly by yourself?
One of the problems facing an investor is the huge amount of information that is available, so it is often difficult to find appropriate information. One solution is to use a professional to provide advice or to use a fund manager who will manage your money.
Investment professionals aggressively promote a diversity of investment products and are very persuasive in competing for your investment funds. They also charge high fees and may or may not be competent so it is important to seek independent advice about the competency and services of any professional before you make a commitment.
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Have you decided to invest directly?
If you plan to invest directly in the stock market, then you should make a start by opening an account with a stock broker but what sort of broker? There are full service brokers who will talk with you and provide advice and charge quite high fees. A lower cost alternative is the online or internet broker who will not offer advice and provide fewer services but will provide and efficient platform that will allow you to effectively buy and sell stocks over the internet.
Do you have limited funds to invest?
First time investors often have limited funds. If you decide to invest directly in shares there are a number of ways to go about it. If for example your investment capital is about $5000:
The internet broker CommSec allows new investors with smaller amounts of capital to invest using a ‘Share Pack’ which contains a diversified portfolio of six Australian companies. There are a number of different investment styles available and this provides diversity at a reasonable cost for the new investor with limited capital.
Another alternative is to use a Listed Investment Company (LIC) which is one of a number of companies which themselves invest in stocks that are listed on the ASX200. An LIC can be bought simply through your stock broker as if you were buying shares in a company. There are many LIC alternatives which offer good returns and broad diversification at very low cost.
There is always the option of investing directly in the shares of one or more of the blue chip stocks such as Woolworths, Commonwealth Bank or BHP. These are examples of very large Australian companies which have a long record of regular dividend payments.
Investors need to frequently monitor their portfolio
Once you have invested it is essential to monitor your portfolio frequently and ask the following questions:
is the return on this investment meeting my expectations?
are there any stocks that I should now sell (or buy?)
do I need to rebalance my portfolio?
Understand the effects of investor psychology
Although the process of investing is relatively simple, actually obtaining a good and consistent return is not easy. The human emotions of fear, greed, hope and despair make what should be a relatively simple process, quite complex. Emotions are heightened by our constant exposure to news about the stock market and much of it is emotional and often inaccurate. The best way to avoid making erratic investment decisions is to have a sound written investment plan which will guide your decisions and protect you from making rash and emotional judgements about the market.
Above all, understand the risks
There is a risk when investing in the stock market but as an investor you need to understand that while you cannot control the market:
you can control the amount of money you are prepared to risk
you can control when you sell.