Hello, and need help diversifying

Hi all, first time poster, long time lurker.

Let me first just say what a great community you have here. I have been reading this and some other forums (mainly property related) since late last year. I was just starting on my wealth creation journey and found the forums immensely helpful.

In brief, I have purchase 2 IPs in QLD recently, and find myself with $60k left in my LOC. Don't plan on buying another IP until late 2008, but am keen to diversify into shares in the meantime and would like to start small and use $20k from my LOC. The aim is to build slowly so that I have some more liquid assets which I may have to sell when my kids start private senior school in 6 years time. (Or possibly not sell, if they are providing a large enough income in 6 years).

I have been reading up on MFs versus Index Funds versus direct shares. I have to admit I'm having a hard time getting enthusiastic about MFs with the fees they charge given that the average fund doesn't do much better than the index. I don't feel comfortable I could pick one of the few funds which would do better. Index funds I am happier with, but if we are coming to the end of the bull run I can't see why you would want to match the index. So, I'm slowly leaning towards direct shares, sticking with the ASX top 50 to begin with, picking 4 @ $5k each and build as equity allows each year. I currently have $40k in shares (all resources).

So, big question, what would you learned people do? I'm in it for growth rather than income at the moment. Don't mind slow and steady rather than fast and volatile, given that it's for the long-term. I feel I am procrastinating and am easily influenced by talk of 'impending recession' and 'imminent market correction', hence the lean towards nice blue chip cos to buy and hold.

Okay, so that wasn't so brief.

Thanks

 

Howdy mccheck
I reckon you've already positioned yourself well and have a good understanding of the market basics right now.

I agree with your thinking, and if you already have two IPs and $40k resources shares, then you need to diversify into non-resource shares (although I'm a firm believer in resources!)

Four stocks at $5k each is good thinking, at $5k your looking at about 0.6% brokerage if you use an online broker at $30, total costs $120. Very small in the overall scheme of things.

As far as I'm concerned, you can't go past the big four banks as a starting place for shares. They pay juicy dividends (around 4.4% fully franked) and show consistent earnings growth (and consequently consistent dividend and share price growth). The big four are about 20% of the ASX (BHP is about 11%!). The four banks and BHP should be the cornerstone shares (remember - my opinion only!)

But rather than buy four banks with your four share parcels, maybe pick two (my current faves are NAB and WBC - even though I own more CBA and ANZ than both of these!). I'd by NAB at current rates close to $40, and look to pick up WBC at around $25.80.

Then look at two more stocks ex-banks, maybe WES, which has been hit a bit since the Coles deal was anounced - but should come out smiling on the other side!

Just my two bob. Welcome on board.

 

Thanks Rod for the comprehensive reply.

Feeling somewhat reassured that most of the shares you mentioned are on my shortlist!

Despite being 100% resources at the moment, I still want to buy some BHP, don't have any of those yet.

Do you have a recommendation for an online broker. I registered with E-Trade some time ago, is there any better than that?

Thanks
Mcchech

 

E*trade except on days you realy need them are fine, big market days they have crashed at times. Most are in the same boat.

 

Good idea, BHP is my largest holding. You might have rather paid $24 for it six months ago! But there is still massive scope for growth, just look at today's production numbers. Just time your purchase; BHP goes up and down 2% a day, and there is no reason to buy on an 'up' day.

Doesn't matter, unless you're an active trader. A few months ago ETrade and Commsec were both offering 10 free trades for new members - if you can get this type of deal you can't lose. I'm not able to comment on the best research etc; I use Westpac Broking and they have research from Aspect Huntley, but it's pretty basic and I wouldn't rely on it alone! But if you plan to pick the stocks yourself, you can get current figures on earnings, dividends, ROE, historical prices, etc, from many places on the net, so your actual online broker probably doesn't matter. Go with the best $.