It’s not uncommon for our brains to switch off the second we hear words like stock market, growth, capital, recession and shares. Snooze, right? We like spending money, not incrementally growing a portfolio of some kind of investment. But it pays to get over your fear of investing, understand these things and get in on it.
It turns out, getting started in shares and investing isn’t all that difficult and the younger you get involved, the better the results could be, because it give your investment more time to grow – especially if you’re investing for retirement. So let’s start with the basics of shares and take a look at why we should care about the share market in the first place.
What is the share market?
When you buy a share, you purchase a small part of a company. You could be buying just one small part of a company that has millions of individual shares on the market. Those millions of shares are split between many owners, including those who control the company – but if you’re buying shares in small amounts you’re not likely to have much of a say in the company’s actions.
The share market is where you go to buy shares and where companies go to sell them. All companies aim to make money and when a company that you’ve bought a share in performs well, the value of their shares increase. You may also receive a cut of that profit, called a dividend. This increase in value, and dividends paid, are the most common ways to make money from owning shares and why they are a common thing for both long- and short-term investments.
The amount of money you make is determined by how much the company and therefore, its shares, are worth. Shares fluctuate in value and while there are many reasons why this happens, it really comes down to how investors (that’s people buying the shares like you and me) feel about the share.
If the investors think a company will do well, more people will want to buy its shares and so the company value will be driven up. Similarly, if people think a company is going to perform badly on the market, people will sell their shares, or pay less for a share, resulting in the share value being driven down.
Why is all this important?
There are a few reasons why understanding shares and the share market is important and these are linked to job security, rate of pay, retirement and also how much money someone could make in the short term by owning shares.
One way people judge the performance of the economy is by looking at the stock market for an indication of whether it’s in a boom (ie, increasing in value) or recession (ie, decreasing in value) period – ie, if most companies are generally doing well, the economy in general usually benefits.
The key factor to the stock market relevant for potential investors, is that purchasing shares in companies or projects, hoping for them to increase in value, can generate cash to be used at a later date. Many people invest in shares to generate cash for their retirement, so knowing about the stock market could be a crucial part of planning for the future.
How do you get started ?
There are a number of ways that you can start to invest in shares and one of them is creating an account with a managed portfolio. A managed portfolio fund will help you work out which investments are good for you, create investment goals and balance share risk with performance. You can also usually create your own share portfolio by buying shares through an account with your bank.
“Diversification is the most important thing because there is a lot of risk in individual share prices and the way that you minimise that risk is a reasonably large basket of shares, so the downs of one particular investment are compensated by the unexpected ups of another investment.”
There are a number of different managed portfolios out there and each of them charge different fees. Essentially, there is a lot of choice, so taking the time to research and pick the right one for you is step in the right direction. You could also speak to a financial planner to figure out your options.
How often should you change your shares?
Buying shares could be seen as a long term investment, where the money you make from them could be part of how you fund your retirement or other parts of your later life. It is possible to invest for shorter term reward, but shares that change price quickly are generally seen as riskier for investors, and more unpredictable.
In a long term investment, the important thing to do there is not to be worried too much by short term movement, because we’re investing for when we reach 70.” Pointing out that what the portfolio does in the next month is less relevant.
It’s all about having a diverse balance between companies and also industries represented in your portfolio.
When is the best time to start investing?
There’s a lot of movement in the market and one of the best times to get involved in shares is straight after a fall in share prices. This is known as a market correction. It means you can take advantage of an often temporary lower price for shares.
If you are looking back at the historical data, the one thing that seems to be very constant is that if there seems to be sort of a fall in stock market prices, you are going to have a recovery.
If you are looking for a time to invest, it’s a good idea to start following a market correction and also if you are [already] invested in the market and there is a market correction in my opinion, that’s a good time to increase your investment.
The share market presents an excellent opportunity for smaller-scale investments, especially if you find it difficult to save for larger investments, such as a house deposit. So claim your share of the money on the stock market by getting started in shares.
Be sure always to seek professional financial help with investment, to help you choose the right path as investments may be speculative. Whether you are budget conscious or seeking to maximize your earning potential, we have investment options to help grow your financial nest. Feel free to contact us at info@centrawealth.com.au or give us a call at 08 8231 4709.
Article reproduced from TheCusp
by Siobhan Kenna
