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start investing

How do I start investing?

What a great question…

There seems to be a roar of noise out there in terms of telling you what to buy and where to invest, but it’s actually pretty simple to start buying shares if you ignore the shouting and take it step by step.

And the miracle of compound interest is why you should start doing it as early as you can.

The miracle of compound interest is why you should start.

Say you start saving $2000 a year or $38.46 a week when you are aged 25 and it earns 5 per cent a year, net, and you keep doing that until you are 65, you will have more than $250,000 extra put away for your retirement. By the time you’re 39 your savings will be going up by $2000 a year without any help from you, and if you keep those contributions coming you’ll hit $100,000 by the time you are 50.

This is the first of a series of articles designed to demystify the world of investing for beginners.

First of all, where do you put your money?

The Banking Royal Commission has heard a litany of dire stories about members of the public being dudded but the likelihood of individuals being ripped off is statistically very low.

The Financial Ombudsman Service, which deals with disputes in financial services, recently reported that in 2017-8 the most common complaints, about consumer finance, represented only a tiny percentage of the number of loans made. In the worst case, complaints raised against the HSBC bank amounted to 235.7 in 100,000 cases, or 02.357 per cent, and most of them were about financial hardship.

Don’t be put off by the problems, which will hopefully be rectified in the wake of the Commission. The best time to inspect a house you might want to buy is after a downpour.

Since there’s a better than 99 per cent chance of your not having a dispute with a financial institution, it still makes sense to leave your money with them, and not under the bed.

First of all, don’t just leave all your money on deposit at the bank.

It’s currently going to earn you less than three per cent a year and that’s before you pay tax.

Whats the quickest way to learn?

The quickest way to learn about investing is to buy a parcel of shares, whose value is going to go up and down but whose prices are posted daily by the ASX, the Australian Stock Exchange.

You should do your homework by subscribing for some of the myriad free or low cost investing newsletters you can find online. The ones you pay for are generally of higher quality than the free ones and the tax man allows you a deduction of the cost of the subscription if you’re buying it for investment purposes.

How to I buy shares?

And if you want to buy shares you have to have an account with a share broker, a group known by the ASX as market participants.

The ones like Commsec that provide an execution-only service are the cheapest, but they won’t offer advice as well.

Then you can follow the fortunes of the shares either via an app on your phone, or by going to asx.com.au for regular share price updates.

So, what about getting an adviser?  There’s been a big upheaval in the advice business because of commission based selling in the past, and the best advisers now charge you by the hour. Regardless, it’s always good to get some advice.

That’s a bit more of a hit at the start, rather than the old method of paying fees based on your invested assets, as but it’s the best system in the long run.

What’s more, as a starter in investing your advice session won’t need to take very long.

 

This article is the first of many in our starter series. Please read the next one on equities here.

This is the view of the author,  Andrew Main. This is general advice only and does not take into account your personal circumstances.