Canstar asked 10 experts for their top tip for anyone investing in shares or ETFs for the first time. Here’s what they had to say.
Chris Brycki: Leave your investments alone
When it comes to your investing account, throw away your password and leave your investments alone. Essentially, when it comes to investing, the less you do, the more you earn. When people log in to their investment accounts, they’re tempted to buy or sell when the market moves, and it’s never a good idea to time the market. But, if you invest low-cost index funds and you’re well-diversified across different asset classes (i.e. you invest in Australian shares and global shares, as well as defensive assets like bonds and gold), then you can let your investments get to work over the years, which will give you the benefits of compound growth over the long term.
Chris Brycki is the founder and CEO of Stockspot. He sits on two Advisory Committees for the industry regulator ASIC.
Danielle Ecuyer: Distance gives better clarity
One of the most important tips for new share investors is not to look at their portfolios too often. It is far too tempting to become a slave to share price movements, especially on easy-to-use online trading platforms. A share price does not equal value.
Short-term price movements – the volatility of prices going up and down – can invoke basic emotions such as fear and greed; both of which can limit more reasonable and considered share investment decisions.
One of the most important lessons is “you can’t own all the best shares, all the time”. Following sharemarkets too closely could lead you to buyer’s regret or selling regret.
Adopting distance to the market and your portfolio will help you to invest through the stock market volatility.
Danielle Ecuyer has been involved in share investing in Australia and internationally for more than three decades. She is also the author of Shareplicity: A simple approach to share investing.
Dale Gillham: Don’t follow the herd
Be patient and open to opportunities as they present, so you don’t fall into the trap of following the herd.
Those new to investing are getting caught in herd mentality through FOMO, and we are seeing this in both the property and stock markets. Investors are chasing the ‘stock of the day’ hoping to hit it big, whilst real estate buyers are scrambling to gain a foothold with many properties selling way over reserves.
What many do not realise is that you can’t buy yesterday’s return. It pays to do your research and be patient as you will do far better.
Dale Gillham is chief analyst at Wealth Within and the bestselling author of How to Beat the Managed Funds by 20%.
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Julia Lee: Don’t think, just start!
When it comes to investing, it can seem scary. Despite that, jump into the water and start. There is something about having skin in the game which means that you are likely to learn much faster.
The key is to start early, continue contributing and watch your wealth grow. The power of compounding is about using time to do the heavy lifting for you. To give you an idea of how that works: $10,000 invested at 8% per year is worth more than $20,000 after 10 years, around $50,000 after 20 years and more than $500,000 after 50 years! Start as soon as possible and use the power of time.
Julia Lee is the founder and Chief Investment Officer at Burman Invest. She has 20 years of experience in financial markets.
Evan Lucas: Start with solid foundations
Investing, like anything, requires really solid foundations. I like to think of investing like building a house – you need to build the foundations first before you can start adding on all of the exciting ‘cladding’ and ‘fixings’.
It’s the same with investing. If you choose to start with new-age investment products such as cryptocurrency or start-ups, you’re more likely to fail in the long term because you don’t have that underlying investment foundation to buffer you when markets inevitably take a turn.
One of the best starting foundations in 2021 is Exchange Traded Funds (ETFs). They give you immediate ‘scale’, by scale we mean you are diversified across sectors and markets even with a relatively small initial investment.
This scale provides a solid foundation that can smooth out market volatility much better than just an individual stock selection. For example, if you brought an ASX 200 ETF rather than just one stock (even if that stock is CBA) the ETF minimises the stock-specific risks that come with a single holding.
Once you have that ‘core’ investment foundation using ETFs you can then look to add those more ‘exciting’ investment options knowing that your overall portfolio has a solid foundation that can withstand market shocks that can come over your investment journey.
Evan Lucas is head of strategy at InvestSMART. Evan has been investing and researching global markets for over a decade.
Andreas Lundberg: Diversify to some extent
A beginner stock investor should spread their holdings to some extent but also keep in mind that excess diversification does not reduce portfolio risk as long as the investments themselves are not closely correlated. Roughly 15 different holdings should be plenty and good diversification can be achieved with a lot less. A beginner investor should though start out more diversified while honing their investment skills so that individual mistakes do not hurt too much, as believe me, you will make mistakes and you do not want to be burnt too badly early as it can turn you off investing.
Andreas Lundberg is joint portfolio manager at Montgomery Investment Management.
Marcus Padley: Take your time
We recently asked Marcus Today Members for the one piece of investment advice they would pass on to other members on their deathbed. One I like was this: “The first 60 years are the hardest, after that it gets easier”. My wisdom for a beginner would be to understand as you set out to invest that the stock market is an industry – it is not there to serve you, it is there to serve itself. Everyone in the industry is selling, and the more certain they sound and the easier they make it appear, the more gullible they think you are. So, the first thing you need to do is learn to navigate the bull****. Question what they are saying, why they are saying it, and what they are not saying. It takes time. So, start slow, take your time, don’t do anything that makes you uncomfortable.
Marcus Padley is the author of the daily stock market newsletter Marcus Today. He has been writing about the stock market since 1998.
Scott Phillips: Just get started
Just get started. Yes, really. That’s it. You will make mistakes. You will wish you’d done things differently. But that’s going to happen no matter what. Don’t let the fear of the unknown keep you from taking the plunge.
Yes, there are forms to fill in. Yes, it feels like a foreign language sometimes. So does everything new. Prices will be volatile. Headlines will be scary sometimes. That’s always been the case, yet compound returns have built enormous wealth over decades.
So, stop with the excuses — even the reasonable ones. Just get started. You’ll be glad you did.
Scott Phillips is Chief Investment Officer at The Motley Fool and runs the Motley Fool Share Advisor, Million Dollar Portfolio and Everlasting Income services.
→ Related: The Motley Fool: 5 things I look for when choosing shares
Peter Switzer: ETFs can be a great way to start
If I was asked by someone, who wanted to invest in the sharemarket for the first time and they simply wanted me to nominate a stock, I would encourage them to buy the top 200 listed companies in Australia in one trade, via the iShares Core S&P/ASX 200 ETF (ASX: IOZ) or the BetaShares Australia 200 ETF (ASX: A200). These are exchange-traded funds (ETFs), are relatively inexpensive and also pay an annual dividend of around 4% or higher. If you wanted the top 300 companies you may consider the Vanguard Australian Shares Index ETF (ASX: VAS).
As a financial adviser, I encourage our clients to be invested overseas and iShares has an ETF that gives you the top 500 US companies in one trade – iShares Core S&P 500 ETF (ASX: IVV). The annual fee is 0.04%. However, because I think the Aussie dollar will rise, I’d opt for the iShares S&P 500 AUD Hedged ETF (ASX: IHVV), which is hedged to reduce the loss effects of a rising local dollar. The cost is 0.10%.
If you wanted a speculative stock, I’d suggest Elmo Software (ELO), which the analysts think has 80% upside.
Peter Switzer is one of Australia’s leading business and financial commentators. He launched his own business 20 years ago. The Switzer Group spans media and publishing, financial services and business coaching.
Paul Taylor: Play to your strengths
A tip I’d give to new investors is to stick to your knitting and play to your strengths. There’s a lot of noise in financial markets and the stock market is very emotional. I think the best way to deal with this is to focus on the long term. For me it comes down to one simple question; is this going to be a better, more profitable business in five years’ time? Screening out noise and sentiment and really concentrating on the facts is the key to good investing.
Paul Taylor is portfolio manager of the Fidelity Australian Equities Fund.
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