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

Bill Gates isn't a bad investor. Perhaps the ULTIMATE investor. I think he did pretty well with his stock selection.

I think we may be on different lines of thought. When I think investor, I don't think 'share market' investor. If that's the case, I agree with your comments, if not, we can agree to disagree.

BR

 

Hi!

Since you are worried about taking risks, how about buying the shares and then buy a put option as an insurance to your shares. This way, if the share price goes up, you make profits and if the share price drops, your loses is covered by the put option. Your risk is just the cost of the put option instead of the money you put in to buy the share. The cost of the put option is easily covered by the dividend you receive.

But put options covers 1000 shares. You might need to invest more.

 

What about Rockefeller?

Rockefeller amassed a fortune that beggared description. When his net worth peaked at $900 million in 1913, it was equivalent to more than 2% of the gross national product; such a share today would be worth $190 billion, or nearly three times as much as Bill Gates' wealth.

Rockefeller, Carnegie and Morgan were the most successful Robber Barons of early last century investing in oil, steel, and railroads. Worth reading up on if so inclined.

Cheers,

 

I think Mark is differentiating "investor" to "businessman".

 

Give the man a prize! Spot on Glebe.

Mark

 

a very simple strategy which could save you a lot of money.... to be honest i have never thought about doing this but it makes some great sense....

to make it a little bit clearer, would you mind giving me a practicle example of this??

 

Ok. Lets take an example: Lets say West Pac on 1 Sept 2005 is $19.50. You buy 1000 shares that cost $19,500. Traditionally, all of the $19,500 is subjected risk if the share price drops.

Now if you buy 1 June 19.50 put option, it will cost you $1150. Now your risk is only $1150 because any share price drop will be offset by the put options price increase.

Then you will receive dividend and franking credit for the share you hold that might come up to $1330. So the cost of the put option is covered by this dividend. Worst case is you still make a little of money. You will only start to lose little bit of money if the company suddenly refuse to pay dividend.

If the share price goes up, you are still open for all the upside gain!

To go a step further, you can generate monthly income by selling covered call.
I wrote a book on this strategy and selling it for the US market for $49, but I posting it here for free. Go to Secrets Of Investing Revealed to download it. All I ask for is that if you find it useful, please give me a testimonial

 

I think this thread has got a bit diverted...
I agree with jason, an effective smaller share investment might be an index fund, this way you're not at the mercy of a single fund manager's performance, and the fees (MER) are significantly lower.
Vanguard are the kings of index funds, Home - Vanguard Investments Australia Ltd. Even if you don't choose to invest with them, it's worth reviewing the website.
FYI, my Vanguard investment represents only about 5% of my Aus share portfolio now, but it's where I started.

 

Leveraged Equities has a savings type product Wealthbuilder where as you deposit more savings it automatically increases the margin amount and reinvests is for you. Can start with $1000.

Leveraged Equities Public Online Services

I would start there as you get leverage and automation with little work.

I wish I had access to this at 18 .....

 

Do you reckon this guy's ready for gearing? He has already indicated that he might need the money in 3-4 years, and that he's probably going to put half into the bank.
Sure, I wouldn't go big on the bank account option, but there's also little sense gearing into a conservative fund with any fixed interest component. So should he gear into 100% shares / growth funds? Only if he's prepared to lock it away for at least the next full cycle; otherwise he's just punting.

 

The strategy that I first used was the cash management trust and a managed fund. I personally did not like the managed fund as it had an entry fee and as such needed to have a great return to generate a good return for me... This I guess is the entry level uneducated approach. You are unlikely to lose money, demostrate a savings pattern and develop a budget discipline and it worked. If you are serious about investment EDUCATION is the key. Action is also important. I have to say this is not the way I would go about things today, however I am still a babe in the woods with this investment thing....

 

Lets use Todays prices

WBC closed at $22.45

Stock Purchase = $22.45

Dividend Assume same as last time ($0.68)
Dividend = $0.68

PUT
Dividend is in early June. So the JUN08 $22.00PUT = $2.03 (Theoretical Fair value)
PUT = $2.03

Difference in Strike price to share price ($22.45 - $22.00)
Difference = $0.45

Therefore costs = $0.68 - $2.03 - $0.45 = -$1.80Dr

So for 1 contract = 1000 * $1.80 = -$1,800

So you are actually $1,800 behind and not a free trade.

I don't think describing your strategy so 'Easy' and 'Risk-free' is accurate.. The PUT contract will never be the same or cheaper then the amount you receive in dividends as the Dividends are incorporated into the pricing of the Option... If they ever are then buy as many as you can!!!!
IMHO

 

I generally don't like put options for the following reasons:

1) Capital expense - not deductible, but part of the cost base or a capital loss if not exercised.

2) Your portfolio is locked in

3) Unlike stop losses, you tend to let your losses run - partly a lack of urgency (a smug wait and see attitude) and partly because of point 2. There is a big opportunity cost if you could have jumped ship early and invested in a rising star in the meantime.

4) Every day your option is deep in the money you don't qualify for the 45 day holding period for franking credits.

They do have their uses, but you have to consider all angles.

Cheers,

Rob

 

Home Saver Accounts - Fact Sheet edit: looks like the information page about this is out-dated, or the API June2008 edition has incorrect information


I apologize as I have only read the first page, but has anyone mentioned maybe using the First Home Savers Account being brought in soon?

If the OP wishes to purchase a property in the next few years this may be one of the "safer" options.

From what I could understand of how it works*:

• You must open an account with $1000
• The funds in the account must be held for a minimum of 4 years
• You must contribute at least $1000 each year and will be made with after-tax dollars
• The government will co-contribute up to 15% based on the first $5000, totaling $750 OR
• The government will co-contribute up to 'the account holders marginal tax rate' minus 15% based on the first $5000, totaling $1500#
• Any interest paid to the account will be taxed at 15% tax rate.
• Maximum contributions are limited to $50,000 total, however the account may earn interest above this amount

#For someone currently in the 45% tax bracket, 45% - 15% = 30%. 30% of the first $5000 = $1500. Whichever results in the larger % will be the method used.


If the OP can afford to put $1000 away a month, that falls just outside of the limits set on these accounts, so they can take maximum advantage of the account in terms of contribution limits. If they're in the top tax bracket, they're guaranteed a "return" of 30% on the first 5k.

Funds can be withdrawn tax free after the first 4 years, but only to purchase or build their primary place of residence.

Depending on the OP's current situation, any extra money could be pumped into another persons FHSA as contributions to the account are not limited to just the account holder.



Of course these accounts are yet to be opened so we'll see how they go. My initial plan after hearing the new budget rules will be to stop salary sacrificing into my super and put some money into one of these accounts. Since government benefits will now be means tested by pre-tax dollars, I can no longer use Salary Sacrifice coupled with the government co-contribution to maximize my co-contribution amount.


#source: Australian Property Investor: June 2008.

 

Good thinking CJ - I honestly don't know too much about these proposed accounts, mainly because I miss out. Also I have a POV about owning property that most don't share and think that these sort of incentives shouldn't be around....

The only thing I have really seen about them since budget is that there isn't a huge amount of support from companies to offer them, but they'll still be going ahead. Huge amount of work to bring in a totally new idea like this and implement within months....
Super funds will shun home savers | NEWS.com.au

I'm recommending to my brother (18, Apprentice, Living at Home) to get on board with it, if it runs as proposed. Throw $100/wk in, $5000/yr and get your 15%. Throw the other amounts he wants to save (another $100/wk) into a Aus Share MF with Regular Contribution plan.

I do find it ridiculous they are going to further reward those on higher MTR's... why give higher interest benefits to those already earning big bucks? I think the whole thing is just going to boost house prices again.... maybe I should buy some more property...

 

Hi CJ,

This particular page (Home Saver Accounts - Fact Sheet) has been updated, you might want to clear your cache to read the updated page.

There is a thread you can read here http://www.invested.com.au/6/first-home-savers-account-34523/

Cheers,

Dan

 

Of course you know I have to ask what your POV is now . PM me if you don't want to share it publicly lol.

And thanks for the update Dan. Looks like API's information varies considerably from what's mentioned on the site. Just goes to show that I probably shouldn't comment on the accounts until they're released.