On this week’s Your Money & Your Life show, Alec Renehan from Equity Mates Investing Podcast shared his thoughts on how to decide what to invest in. General options include cash investments (such as term deposits), fixed income investments (like bonds), superannuation, P2P lending, cryptocurrency and property, but Renehan’s focus is on the sharemarket.
While most of us want to put our money into buying our own home, it’s not necessarily the best option. In fact, with house prices continuing to climb, Renehan reckons investing in a home is not even feasible for many everyday people.
Watch Renehan’s Your Money in a Minute segment:
In any case, you might also already own property and want to diversify your investments. It’s not all about the house. As Renehan points out, there are other investing options where returns make the risks worthwhile. While it’s worth considering all your options, Renehan’s money is squarely on investing in the sharemarket. Here are his tips to help you decide what to invest in.
1. Get into the sharemarket
The sharemarket has investing options to help you grow your wealth. It’s an investment option that’s open to everyone, and you can start investing with only a small amount of money.
More on investing: 10 tips to build wealth and keep it
2. Research your options
The most common types of investments in the sharemarket are individual companies. Buying shares (stocks, securities or equities) in individual companies makes you a part-owner. As a shareholder, you can get dividends (a share of the company’s profits) and other benefits (these vary with each company, but participation in annual general meetings and access to reinvestment plans and share issues, are just some of them).
Investing in individual companies requires a lot of research to know where to put your money. If you’ve got the time, though, this is the best option to tailor an investment option that perfectly suits your financial goals, risk profile and even your ethics.
If you do choose to go this route, you’ll need to use an online broking service or find a good full-service broker. This isn’t especially difficult, but it can be time consuming and overwhelming to get started.
“Investing in companies is great, but they require a lot of time to research and are not for everyone,” says Renehan. “If you are time poor, or not confident in investing in an individual company, there are still options for you to consider.”
3. Buy the whole market
If the time needed to research and invest in individual companies isn’t something you have, according to Renehan you can “just buy the whole market”. You can do this by buying into an index fund that holds all the biggest companies, or you can buy a fund that tracks a particular theme.”
Investing in this way is a low-cost, transparent, mostly hands-off way to get into the sharemarket. An easy way to get started is to become part of managed fund, which pools together investors’ funds to create a collective investment.
One a type of open-ended fund you can invest in is an ETF (Exchange Traded Fund), which tracks an index (such as the ASX200) or a specific commodity (like oil or gold). It’s similar to a managed fund and is traded on the ASX like a share. An ETF’s value goes up or down with the index or asset it’s tracking. ETF’s are a relatively low-risk investment.
Read this too: Strategies to help cope with volatile sharemarkets
4. Call in the professionals
If that all still seems like too much work, Renehan advises calling in the experts. They can help you decide what to invest in and even do the work for you. “You can buy listed investment companies that are managed by some of the best investors in Australia,” he says. “You buy shares in their company and you make money when they make money from their investments.”
The best way to work out what’s right for you is to do a bit of research. Decide how many hours a week you can put into your investments and whether you’ll go alone it or with others. Renehan’s Get Started Investing podcast is a good place to find out more.