March 3, 2014
Whether you choose to get the help and advice of a share trader or financial advisor (something we recommend) or not, there are some key things about investing in the share market every woman should know. Here are some of the key considerations from the team at ms money:
Simple, simple, simple: When you start out it can seem pretty complicated, so the best strategy is to keep it simple. Ask yourself if you clearly understand the company and industry you are looking at investing in. When we are armed with knowledge about an industry and understand how it operates, it is easier to get a feel for how it will perform as an investment option.
More than a crystal ball: Obviously when investing you want to maximise what you get back so getting this right takes a bit of sleuthing. Review how the industry performed over the last ten years; the opportunities for above average growth; any issues you can see coming out of the woodwork.
Set the threshold: When considering the shares you are interested in, make sure you have a strategy in place for potential highs and lows. For example, if you buy a share at $4 you might choose to sell at a high of $6 or cut your losses at a low of $3. Work out what you are comfortable to lose if things go South and what you’ll be happy with if your shares perform well. Be realistic and don’t hold on past your thresholds unless you have very good reason to.
Like shopping, bargains can be just as rewarding as top-notch brands: Don’t fall into the trap of thinking that expensive, complicated shares are the best on the market. You’re looking for movement after all (hopefully of the upwards variety) so you don’t have to start with Gucci when Sportsgirl would do the job.
Take note of the trends: Share charts tell a story – is the price heading down or up. Have a look at the trend over time and buy in a clear upward trend and sell in a clear downwards trend.
Be realistic: If you look at how the Australian share market has performed over the very long term, returns sit around 7% per annum. Don’t expect to be 20% wealthier by the end of your first year. While some stocks outperform the average, you need to set your expectations at a reasonable level which reflects historic performance over time.
Don’t buy the latest fads: Just like fashion, often it’s the tried and true – the outfits you turn to time and time again – that can be relied on. Do your homework: iidentify what tomorrow’s trends will be, but don’t turn your back on the proven and reliable options.
Have a bit of variety – but not too much: All your eggs in one basket (or industry type) means you are more vulnerable to events or new regulations that can hurt all or most companies in one industry. And on the other hand, diversifying too much means you’ll need to be schooled in too many industries to realistically keep up with events and trends that can affect your investment.
No substitute for information: The thing about the share market is that it changes on a regular basis depending on local and government events. Unlike property, there is often more movement in the value of your shares over shorter periods of time. So keep informed about your shares, the industry category and local and international events.
Don’t sit on your laurels: While there is a perception that taking a long term approach to your shares you’ll be protected from dips along the way, this is not always true. If there is clear evidence that your shares are heading on a long dive south, rethink your options. The share market is well suited to a long term wealth creation strategy, but don’t fall into the trap of ignoring the obvious.