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How to start investing in Shares with small amounts of Money?

Discussion in 'Shares' started by KP, 12th Apr, 2007.

  1. KP

    KP Member

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    Hi,

    Good day All,

    I never invested in to shares or something else before,coz i never had supurplus money to invest.But after reading few articles/posts here, it inspired me to invest at least a little for better furture.

    I dont have any other investments ( we still live in rental house in sydney)

    I wish to invest say approx $1000 each month.I can take Medium risk.As single person working in my family, i cant offord to take lot of risk.

    Safer side,I am thinking to invest $500 each month in a bank account like V2Plus from ANZ and remaining money into shares etc..

    So, with that small amount how can i start investing in to shares?

    What is the best investment strategy for my situation?

    Thanks in advance.

    Kiran
     
  2. DaveA

    DaveA Well-Known Member

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    medium risk means no loan/margin lending...

    however you need to be aware that shares are high risk investments....

    maybe you should look at a regular savings plan (RSP) into a managed fund, with a $1000 a month you may be able to get a RSP into two funds, however the less funds you hold the higher risk you are at (due to lack of diversification)...

    the transaction costs for shares are a bit high for $1000 (2.5%) and with direct share owning you dont have the ability to diversify as much as with a managed fund..
     
  3. Simon

    Simon Well-Known Member

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    I can't agree with such a blanket statement. Sounds like an opinion rather than something quantified.

    But back to the original question.

    Before you decide to "invest in shares" you need to sit down and work out what your goals are. Post them here if you like.

    Timeframes are important too.

    Perhaps it may be something like this:

    "I wish to build a deposit to buy a home for my family in five years time. I can afford to contribute $X pm."

    Once you know exactly why you are investing it is easier to work out whether a high interest account, a share portfolio or a managed fund is the best vehicle to get you to your goal.

    Planning is something we often forget and find ourselves wanting to buy shares or buy an IP because we think we should.
     
  4. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    I was discussing shares with a friend yesterday and I said to her - remember when property seemed like a daunting investment (or something along those lines).

    Anything is risky - if you don't understand it.

    Kiran, if you're looking to hold long term, I would suggest reading Buffettology and The New Buffettology, along with Robert Hagstrom's books on Warren Buffett. Also Peter Lynch's books are great as well. If you want to trade, then I can't you there, I don't trade.

    Mark
     
  5. KP

    KP Member

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    Slow and steady wins the race.....

    Hi All,

    Thanks for the replies.

    Dave rightly pointed and i agree with him that very low investment doesnt provide the level of diversification required to manage the risk.Thats the reason i raised the question before.I understand it is small amount each month, but after couple of years it can accummalate in to sizeable amount.

    Being self employed and single earner of the family, I am bit scared to commit for an house loan in these high interest years and inflated house prices in Sydney.Rather i buy the house after i save atleast 20% to 30% equity of the house price so that it might keep my monthly payments close to my rental expenses.

    So i am looking to save money to buy a house after 3 or 4 years and continue to maintain an investment profile with longterm view.Typically more than 10 years.

    I can comfortably save $1000 per month from my income(after tax).

    Thanks once again for your time.

    Kiran.
     
  6. Simon

    Simon Well-Known Member

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    Why do you believe this old chestnut of diversification reducing risk?

    If you know one product inside out then surely that is safer than spreading across a number of less well known investments?

    I am not saying it is wrong but it certainly isn't a truism either.

    Think about it. When you start it is better to concentrate on one investment until you have built an asset.
     
  7. hiflo

    hiflo Well-Known Member

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    Kiranpinni,

    from you post I can sum as follows:

    1. can save $1,000.00 per month
    2. for a deposit on a PPOR in the near future.

    So you probably want to be conservative with your approach.

    I am not qualified to give you any financial advice. But perhaps you can consider following:

    IF YOU ARE BUYING SHARES:

    Save into high interest bearing account. And once you have around $3-10K buy shares based on your share selection criteria. (Assuming that you are accumulating until you have the "deposit" and not trading) because transaction cost for buying in lots of $1K is not very efficient.


    IF YOU WANT TO BUY MANAGED FUNDS

    If you have around spare $2-5K you can probably start investing in managed funds. Most have savings plan starting from $200 per month. Colonial First State has monthly plans starting from $100. Might consider looking into their website. This is by no means a recommendation for their product. So if you have $1,000 to spare every month, you can effectively invest in 10 different funds in Colonial.

    Diversifying is by no means reducing the spread of your risk!!!
     
  8. islandgirl

    islandgirl Well-Known Member

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    Kiran

    Why don't you try investing $1000 into a diversified fund just to get the feel of investing and gain some confidence. Shares are too hard when you are just starting out. Look at sites such as direct access where you can research funds and pick one that suits your aims. Either income or high growth or a bit of both.

    This is sort of what I did with my sons "education fund". Every time I had $1000 I invested it into a fund. All the dividends when into the bank account to build the funds up again.

    In my way of thinking managed funds are a good first step as you have a professional person (fund manager) who is paid to do nothing else but invest in shares. Their understanding of the market is way above mine. So long as you pick a fund with an understanding of its return history and potential gains you'll be ok.
     
  9. DaveA

    DaveA Well-Known Member

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    for something that with in days you are able to lose 10,20 even 50% of your money in, they will always have the blanket of 'high risk'

    if you say shares are not high risk, then what is a term deposit or tresary bond?

    follow the simple forumla, high return=higher risk... look how many people in fincorp got court by this

    im not saying he shouldnt invest in shares but he does need to understand risks, you dont want to be saving for something with a short time frame in a share market... why does everything say 5 years requriement.

    i was reading in a financial planning university textbook on average you will get 1 negative year of growth for every 3-4 years, however average returns are similar to the housing market which does not have as many negative years.

    diversifying does reduce risk of negative returns, its unlike that every company in the asx 200 will have negative return in one year, however if you pick one company and invest everything in it your odds of a negative return has just dramatically increased..
     
  10. Simon

    Simon Well-Known Member

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    I am guessing that you think all shares are the same?
     
  11. Redwing

    Redwing Well-Known Member

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    Not me..


    I always remember this:


    [​IMG]
     
  12. Nigel Ward

    Nigel Ward Team InvestEd

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    Yes! Slow and steady WILL win the race here...and who says it has to be a race anyway. From small seeds big trees do grow ;)

    Couple of observations here Kiran.

    1) we are definitely NOT in high interest times. We're much closer to all time lows in interest rates than we are to historical highs. On that point, some people argue that we'll never again see the 18% days due to structural changes in the economy, globalisation etc etc. To some extent I agree. Others would say that at the moment debt is incredibly cheap and risk is being mispriced on a global scale... What has all that to do with you? Well interest rates are (at the moment at least) more likely to go up than down and you will need to factor that in if you're taking on substantial debt to buy a home.

    2) if you think borrowing is suitable for you then perhaps you could look at gearing progressively into a managed fund which invests in shares (to get the instant diversification that most managed funds can provide). For example, you could get a margin loan whereby you put in say $800 a month and the lender matches that with another $800 per month so that you've got twice as much dripping into the market over time. Of course there's an interest cost, but on a small loan the extra $200 you've got over could easily service the interest cost on 20-30k debt you'd build up over the course of a couple of years. Perhaps stash away the extra cash in a high interest on-line savings account to avoid any temptation to spend it.

    In this way rather than taking on straight away a massive debt burden, you can ease your way into it by investing in a LIQUID investment. Get used to the idea and start building your wealth to set you up for the bigger deposit on a home or a (I'd suggest) a much smaller deposit for an investment property or 10 :D

    Just some suggestions to get you thinking. You should, of course, get financial advice specific to your circumstances.

    You can't save your way to wealth but without surplus cashflow which you've managed to achieve you CANNOT become wealthy. Having some Free cash flow is the foundation stone of wealth. Well done!

    Cheers
    N.
     
  13. HulbertJ

    HulbertJ Member

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    Dave,

    1.You seem to define risk as risk=volitility (ie. price movement).

    This is a common mistake people make. Risk is actually the risk of losing your capital, NOT the risk that on Thursday the market says your share is worth $1 per share and then on Friday it is only worth $0.90 per share for no fundamental reason (ie. market sentiment).

    2. Buying Shares is about being a part owner of a business, and it is the actual month to month and year to year business performance not the day to day share price volitility that should be your focus.

    Jase
     
  14. bundy1964

    bundy1964 Well-Known Member

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    1. If you gear into the market heavily enough volitility is a risk. Some margin loans only give you a 5% buffer, mine does 10%, a 25% drop in a day will see me losing all my share capital.

    2. Have to agree as an intestor it's performance over time although you can pick your buying time to boost your performance.
     
  15. jscott

    jscott Well-Known Member

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    It was Warren Buffett who said: "Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing".

    Meaning that if you don't have the time and passion to devote to finding fantastic companies then your best to diversify as widely as possible... and I would add to that: by the lowest cost means -> i.e. index funds.


    For Buffett's thoughts on risk - have a read of his Chairman's letter for 1993: http://www.berkshirehathaway.com/letters/1993.html


    If anyone here hasn't heard of Buffett - go and buy some of the books on him as you can't call yourself an investor otherwise...

    jason.





     
  16. Bantam Roosta

    Bantam Roosta Well-Known Member

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    How did Buffet become an investor as he couldn't go out and read books about himself in order to become one. There are probably a million people in the world who don't know Buffet who are very successful investors and many people before Buffet who did just as well.

    If you want to invest in the same manner as Buffet, then by all means read about him, if not, don't. It doesn't mean you're not an investor.

    BR
     
  17. jscott

    jscott Well-Known Member

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    Bantom - don't take everything you read on a forum so seriously. WB is one of the most sucessful investors in our time, so I was simply stating that you'd be mad not to read up on him ;-)
    I've found that most people don't know the difference between investing and speculating anyway.
     
  18. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Yeah, fair call. I can be a bit stoopid at times.:)

    BR
     
  19. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    I don't think so Tim! WB is by a million miles the most successful investor in history. Note that he is the only person on the Forbes rich list to have achieved his wealth purely from the share market (well,that was the case ten years ago, at least - I don't know about now). I initially found this statement contentious, as he is known for buying private businesses. However, I figure that those businesses are owned by BH, so technically it's still correct.

    Mark
     
  20. HulbertJ

    HulbertJ Member

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    Dave,

    My comment referred to the underlying assets (ie shares) held not to gearing heavily into them.

    Gearing heavily into shares (or anything really) is a whole different ball game and I agree brings its own separate/added risk.

    In fact I think the gearing balancing act between being over extended and vunerable to a correction/crash and having no or little gearing and limiting your growth is one of the most difficult but important aspects of long term investing. (particularly as debt dollar amounts get signiicant!)


    Jase