Too Busy to Research an Investment? A Quick Start Guide

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Basic Step by Step of Getting Your Investments Started

  • Work out some goals or choose to invest 20% of your net income
  • Save an emergency fund whilst researching options
  • Consider opening a microinvestment account if you have less than $200 to invest at a time, perform risk tolerance assessment and set up a direct debit into the investment account. Lookinto Commsec pocket instead if you already bank with CBA
  • Do your research on a Vanguard Personal investor account if you are keen to invest in (particularly diversified) managed funds. Pretty much like a micro-investment account on a bigger scale. Now offering auto-invest, brokerage and account fee free! From $200 investments
  • Look into a Pearler account if you have more than $2000 to invest at a time. Vanguard diversified funds offer an easy option to get started and can be brought with any broker. Set up a direct debit to invest your chosen sum regularly.
  • Stay invested. Keep direct debiting. Review in 2 years and consider optimizing further. Avoid frequent fiddling! It does take time, and a watched investment account doesn’t grow very fast (yes I’m still working on this!)

The Detail of Building your Investment

You’re a busy professional. There is so much to do, and so little time. You think you’re “bad with money”. You may have had one or two hurried attempts to invest that didn’t go well. It’s easier to stick with your area of expertise. There you know exactly what’s going on. And you earn plenty of money, surely everything will work out, right?

Maybe. Maybe not. One thing I do know is that you deserve better.

Looking after your personal finances is a form of self-care.

How many thousands of hours have you put into becoming the best you can be at work? How many unpaid work hours do you put in? You take on a lot of risks and stress. You probably made significant sacrifices in your 20s and 30s to get where you are today, perhaps these are ongoing.

Why shouldn’t reward yourself with the peace of financial security?

We may even be fooled into thinking we have it by a big paycheque each month. It’s nice to be paid well, but unless you are building income-producing assets of your own, you remain vulnerable to external events (COVID-19) and with limited choices should circumstances change.

Your Why of Investment

Hopefully, you love your job, but what happens if you get sick or injured? Do you have the insurance you need set up? Will the insurance company even pay up when you make a claim?

Do you want the option of more “Income flexibility” in a few years? The ability to cut work hours or take a break to meet family obligations or want to take on a new adventure?

Would you feel upset if when you are finally ready to retire, your financial situation means you need to keep working for a few more years?

These are the strong reasons for not ignoring your finances. But I know, it’s hard. You’re busy, and even knowing where to start investing can be overwhelming.

The good news is, you’re smart.

Investing can be as simple or as complex as you like it. Some (like me) enjoy learning about finance as a side hobby, greedily consuming every investing book I can get my hands on. Many others think the topic is brain numbingly boring and would rather do anything else than sort out their finances.

Both types can do well investing.

In fact, those not that interested may be less tempted to fiddle with investments. Leaving them alone is usually for the best anyway.

Do you Need a Financial Advisor?

You may benefit from a financial advisor if your situation is complex. But I see many of my colleagues trying to outsource their financial life completely to an advisor. The complexity of the fee structures involved has meant that many people don’t realise how much they were paying for often lacklustre advice or financial management.

If you want to use a financial advisor, you still need to educate and protect yourself.

Ideally, a financial advisor is used when you have a specific strategic question you need help with- eg Should I invest in property vs shares? Paying for a financial advisor before working out goals you want to work towards is an inefficient use of time and money.

If you do choose to employ a financial advisor, make sure they are qualified (do I need to mention Melissa Caddick?), and are paid by you, not by commission. Most “financial advisors” are really just salespeople trained to sell insurance and investment products.

Find an independent, fee-only advisor and use this checklist to screen them.

Investments: Where Do I Start?

Ideally, you want some goals. Set some time aside, with your partner if you have one to dream about your ideal life. From there, narrow them down to specific goals with time frames. Common goals include:

Next, you need to find out where you are financially already. Make a record of your current salary, house debt and equity, savings, superannuation and any investments you have. You can use a super calculator to work out if you are heading in the right direction for your desired retirement age. You can use a savings calculator to work out whether you are on track for other goals.

Then you can play with the calculators to work out how much you need to save and what you need to earn on your savings to meet your goals.

That Sounds too Hard, I just want to Start my Investment

Setting a retirement age and life goals seems pretty overwhelming in your 20s and early 30s. There are so many variables, it is impossible to project long term results with any accuracy anyway.

An alternative method is to save and invest 20% of your income. This method is suggested by Dev Raga our own medical finance podcaster, as well as the Whitecoat investor.

Taking 20% of your take-home pay (excluding super) and investing this sensibly for the long-term will get you closer to any goals that form over the years, and provide you with lots of options in life.

Save that Emergency Fund before Investing

Any consumer debt needs to go. This means anything apart from your mortgage, student loans and investment debt should be paid off. Particularly if the interest rate is over 4%. There is no point in paying guaranteed interest with no guarantee that investment returns will match them.

Traditionally a 3-6 month emergency fund is recommended. This is very individual. If you own your own home, your mortgage offset is the sensible place to leave this unless you will be tempted to dip into it for “fake emergencies”.

As your responsibilities increase, your emergency fund probably needs to. Unfortunately, those still on lower incomes have a greater need for the emergency fund.

It really doesn’t make sense to start an investment until you have funds to cover at least basic, common emergencies such as a car repair. You do not want to be withdrawing from your investments for a long time.

Check out your Current Investments

You should have a list of any investments you have collected from the earlier steps. It’s time to look at your current asset allocation.

For many of you, your only investment will be super. The good news is your superannuation is an excellent investment.

I wouldn’t start fiddling with your super asset allocation at this early stage. Most people overestimate their risk tolerance (particularly during good times). Being invested more aggressively than you can tolerate during the bad times risks you selling out and changing your investments during a market crash, locking in losses.

But you do need to make sure you are being ripped off with fees. These make a massive difference to long term performance, and are the only factor guaranteed to affect your returns.

Choose a fund with a low expense ratio (<0.6%) that suits your risk tolerance.

There is no ideal fund. Opening an account with one that’s just won an award for best performance is a bad idea. Many supers get their turn in the limelight of being the best performing super for a year. You don’t want to to pick a fund that has just had it’s best year. Another fund will win next year.

No-one can tell you which fund will outperform the others over the next decade. But you can control the fees. Minimise them.

Choose an Investment – Property or Shares.

Yes, there are other options, gold, collectibles, bonds. You will have exposure to some of these in your super. But the bulk of your investments will likely be in the stock market and/or shares for long-term growth.

I wrote an article on my approach to the property vs shares debate. Hang out in any investing forum online for a short period and you will notice a fight breaking out over which is superior. Whenever something is so hotly contested as this, there are certainly merits to both sides.

I am a big property fan for the use of leverage and diversification of income away from the volatility of the stock market. But the property market’s complexity is frequently underestimated by investors.

I have known so many people that regretted investing in dud (often off the plan) properties and swear of property investing for life. The issue with property is massive concentration risk and the risk (as well as the potential reward) of leverage.

If you are putting hundreds of thousands of dollars into one asset, you had better be sure it’s a good’un. And many aren’t. If you don’t have significant time to invest in education and research and don’t want to pay for professional advice, I wouldn’t invest in property.

But Sharemarket Investments are Volatile

The share market is often portrayed as some sort of risky casino. Yet we are all invested in the share market already, through our superannuation accounts. Everyone needs a basic understanding so they can ensure their super is invested appropriately.

Making an investment in the share market can also be surprisingly easy. It can be as simple or as complex as you like. Conveniently, research suggests simple “boring” investing* outperforms the sexier, time consuming and complicated version the vast majority of the time.

Risk is Not the Same as Volatility

The terms risk and volatility are often used interchangeably in personal finance books. I see them very differently. The stock market is extremely volatile. If you make your first investment in a broad-based index fund ETF, your money will grow exponentially over time but could also halve in value overnight.

This sounds terrifying! But over a long enough time period, the value of the stock market as a whole always goes up.

An investment in a single stock could take off like a rocket, or collapse to zero, taking your savings with it. But an investment in the entire stock market is not going to zero.

Your success in the stock market depends on your ability to withstand volatility.

It’s tougher than you expect to see your investments plummet, as they did last year by 30%. The protracted GFC in 2008 was even more challenging. But in all cases, those that held were rewarded with a mighty rebound and record-breaking growth eventually. The same cannot be said for individual stock pickers, who depending on their skill and luck may have lost everything or made a tidy profit.

For these reasons, it’s probably best to dip your toe into the stock market before diving right in. Starting investing before you can afford to is ideal.

You Can Get Started Very Quickly

It has never been easier to start investing in the stock market. Investments can start from just $5! It is also cheaper than it has ever been, which is great. The minimising of fees is a major factor in maximising returns.

For those wanting to dip their toes in the market, a micro-investment app is an ideal way to start. Start a regular investment of $50 per pay. The fees will be relatively expensive, but it’s a pretty cheap education in investing. I used one starting out and remain a fan. RAIZ even offer a rewards website, through which you can shop to offset your fee (and more).

Open a Micro-Investment Account if You Don’t have Much Money to Invest

There are several other options including Stockspot, Sharesies or Commsec pocket (ideal for those already banking with CBA) and spaceship.

RAIZ (and several of the others) offer Robo-advice. This is not individualized, and cannot take into account complex situations or questions. It assumes you want to invest in the stock market, and suggests a portfolio based on your risk tolerance (which it will help you assess). Most people overestimate their risk tolerance. You then set up a direct debit, and the money is transferred into your investments. Most of these platforms charge a fee per month but no brokerage, but Commsec pocket charges brokerage and no monthly fee (if you have a CBA account).

I am always raving about micro-investing accounts. I found it a great way to get started, as a cautious first-time investor. It allowed me to risk very little, but to start to experience volatility, get nervous and think about withdrawing my cash to then see it rebound.

Over time, confidence grows. Upgrade to a Brokerage Account

Most of the platforms offer some financial literacy education, which is variably useful. Once you have outgrown your micro-investment account (the fees get too expensive eventually), you could replicate the same portfolio or choose your own with your choice of broker, or choose a similarly diversified portfolio with Vanguard personal investor.

Unfortunately, Vanguard personal investors don’t yet offer the ability to automatically direct debit your investment from your bank regularly. You have to organise the transfer manually each time. Although this doesn’t sound like a big deal, it dramatically reduces the likelihood you actually follow through with your plan to make the investment each time.

Vanguard has just announced its new auto-invest feature. It is available with managed funds only but is brokerage and account keeping fee-free. If you are happy to invest in Vanguard managed funds, Vanguard personal investor is designed for you. With their range of diversified managed funds, it comes down to a choice of 4.

I have written an article about asset allocation if you wish to know more. I feel you could learn everything you need to start your own portfolio from scratch in a weekend from reading through each article at Passive investing Australia. But it is probably far easier to start with an easy diversified option such as a micro-investment account or a diversified Vanguard product. You have the choice of buying the latter brokerage free through Vanguard personal investor, or with brokerage charges but the ability to automate with Pearler. This article explains limit orders vs market orders vs auto -investing.

How to Get Started Investing Summary

  • Work out some goals or choose to invest 20% of your net income
  • Save an emergency fund whilst researching options
  • Open a microinvestment account if you have less than $1000 to invest at a time, perform risk tolerance assessment and set up a direct debit into the investment account. Consider Commsec pocket instead if you already bank with CBA<
  • Open a brokerage account if you have more than $2000 to invest at a time. Choose a vanguard diversified fund that matches your risk tolerance. Set up a direct debit to invest your chosen sum regularly.
  • Stay invested. Keep direct debiting. Review in 2 years and consider optimizing further. Avoid frequent fiddling! It does take time, and a watched investment account doesn’t grow very fast (yes I’m still working on this!)

Time is of the essence with investing, so you really need to make a decision and get started. Depending on your interest levels, you can dive into investing books, or spend a weekend reading the fabulous site Passive investing Australia to learn more. If you want to grow knowledge gradually over time, subscrib to this blog, money magazine or a podcast that you will listen to or read once a week to grow your financial literacy over time.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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