*Please note this is not investment advice but my personal opinions and thoughts on investing. Please read my full disclosure statement.
Buying Your First Shares
So you’ve opened a share trading account and are ready to get started investing in shares. But where do you start? Particularly if you’ve only got a small amount to invest at the moment? You don’t want your first pick to be a loser. You’ve heard about diversification, but without a truckload of money how do you get that? Here’s a few suggestions for buying your first shares.
Buy a LIC
What’s a LIC? It’s a listed investment company. That is, a company that buys a wide range of other companies to make money. Kind of like, well, exactly like a manged fund that you can buy as shares. Unlike you, they have a lot of money to invest, they do a lot of research (at least you would hope) and have great diversification. They also often charge far lower fees that most managed funds. There’s a bunch of LIC’s out there, but here are a few that have a good track record, low fees and will likely be around in a 100 years from now (don’t quote me on this!).
AFIC: Australian Foundation Investment Company. AFIC hold many of the top 100 companies and so their share price tends to follow ASX 200. They pay a dividend of 4.06% which has been steadily increasing. Their fees are a super low 0.16%. They have several billions of dollars invested, so they aren’t going anywhere soon. The returns won’t be spectacular but steady. They trade with the ASX code AFI. I own AFIC shares.
ARGO: Argo Investments is very similar to AFIC. Low fees (0.15%), decent dividends (3.98%), investing in many of Australia’s top 100 companies. Both have billions (Argo $5B) in invested money and focus on long term investing. Very safe companies with decent diversification. The only caveat is that both own a lot of bank shares. So if Banks take a hit, so do they. That said, i can’t remember when bank profits haven’t grown, but one day they will. I’ve owned ARGO shares in the past.
WAM: WAM (Wilson Asset Management) capital differs from the above two in that they invest in smaller growing companies. This means the potential for greater gains, but also greater losses. Over the past years WAM have performed extremely well. They pay a larger 6% franked dividend and have returned an annualised 18.1% since inception. With this comes higher fees of 1% plus a 20% outperformance fee if they beat the index. The benefit of WAM is a wider exposure to ASX shares from a group with a proven performace. ASX code WAM. They also have 3 other LIC’s with different focuses.
You can research other LIC’s over at eftwatch.com.au, here’s a list of last years best performers. Other notable LIC’s to consider would be Mirabooka Investments (MIR). Low fees, good returns over a long period; QV Equities (QVE) Again reasonably low fees and really great returns in its short history so far; Contango microcap (CTN), high returns but higher risk and higher fees.
All of the above options allow you to buy one share, but gain a far wider market diversification. Of course it’s best to buy in a downturn, but over time these shares will perform well as stock markets typically rise over time. If I could only afford to buy one or two shares, these would be my first port of call. They also continue to be a part of my current investments.
Buy an ETF
Exchange Traded Funds is another way of buying diversification on the share market. ETF’s are essentially index funds that you can buy as shares. They are typically low fee index funds that track the major indices around the world. That is, they buy every stock in say the ASX 300 by market weighting. That means as the ASX 300 goes up, so too do these shares, typically. ETF’s also enable you to gain both local and global share exposure buy buying different ETF’s. You can also buy ETF’s that focus on a particular segment of the share market, say a Gold ETF or Heathcare, etc. I have owned ETF’s.
Vanguard’s index funds are probably the ones I’d lean to and are very popular and well traded. For example, VAS tracks the ASX 300, VGS tracks international markets around the world, VTS tracks american markets and so will rise and fall with stock indices in the US. This is a very simple way to be exposed to Australian, American and world stock markets.
So there’s a few different options to consider when buying your first shares. Each gives you far greater diversification than just 1 company. That minimizes the risk of losing it all. Of course they will still rise and fall. But over time they have performed well.
The other option is to try to pick individual stocks of different companies. Provided you can grow your investment over time and add diversification, this can be a great way to go too. On my next post I walk through how to pick stocks when you’ve got no clue. Hopefully I can point you to a few resources to help you on your own investment journey.