S1: Hello and welcome to It All Adds Up the podcast
S1: where we chat about money, how to get it, how
S1: to spend it, and how to invest it. I'm senior
S1: economics writer Jess Irvine, and you're listening to our summer series,
S1: where we're replaying some of our hottest hits to help
S1: you get in shipshape financial form for 2023. It all
S1: adds Up will resume normal programming in February with a
S1: brand new season full of money saving tips and insights.
S1: So until then, sit back, relax and enjoy. Hello and
S1: welcome to It All Adds Up the podcast where we
S1: chat about money, how to get it, how to spend it,
S1: and how to invest it. I'm senior economics writer Jess Irvine.
S2: And I'm money editor, Dumb Pal. And so far in
S2: the pod, we've covered a few things like how to
S2: get your pay rise and giving you some savings tips.
S2: But Jess, I think it's about time we moved on
S2: to the fun stuff.
S1: Investing so fun. I'm so excited to talk about investing
S1: because I think it's a topic that interests but scares
S1: a lot of people. But there has been a real
S1: revolution in the world of investing, and people talk about
S1: a democratization of sort of access to being able to
S1: directly invest in the share market. And it's really something
S1: that everyone should get up to speed with, at least. So, Dom,
S1: over the next few episodes, we've decided to tackle the big,
S1: scary world of share investing in three parts. And today
S1: we're going to start with the absolute basics. So what
S1: are shares? Why would you buy them and how can
S1: you buy them at all their various forms?
S2: Yeah. And by the end, we want to turn you
S2: into a bit of an investing whiz. And we're just
S2: going to rip through a lot of information this episode,
S2: just to give you a bit of a taste of
S2: what's out there. But if you'd like us to do
S2: a deeper dive into anything that we do, raise then
S2: as an email add, it all adds up at 9:00
S2: to you and we'll consider it for a future episode.
S2: And you can also still submit listener questions. We'll be
S2: taking those on. We'll be reading one out at the
S2: end of the episode, so please keep sending those through.
S1: Yeah, we love hearing from you. And as always, please
S1: do remember that the information we're about to discuss is
S1: general in nature and does not take into account your
S1: personal goals, objectives or circumstances. And you should always seek
S1: some professional advice before making any major financial decisions. So
S1: Dom Yeah, let's have a quick chat about where we're
S1: at personally in terms of share market investing. I've written
S1: copious amounts of columns about the fact that I became
S1: a direct share market investor just over a year ago. Now,
S1: where are you at? Have you ever bought any shares?
S2: I dabbled very briefly, I would say pre-COVID with some
S2: some ETFs, but in sort of a meaningful way. I've
S2: never really invested in the share market. I've never really,
S2: like thought about it, which is bad for for me
S2: being the money at it. I feel like there's a
S2: really sort of terrible thing to admit, but at the
S2: same time, it's also an opportunity for me to learn
S2: as we go. So I'm going to sort of be
S2: a bit of a learner as well through this whole process.
S1: Exactly. And I'm excited. We've had the idea that we
S1: could actually buy shares during a podcast episode so people
S1: could hear, you know, what that process is actually like.
S1: Because I remember just I actually just started by like
S1: going to the ASX website and going like, how do
S1: you buy shares? And I thought maybe I could buy
S1: them through the ASX website.
S2: I'm stuff that you can't. I mean, I thought exactly
S2: the same thing. I was like, surely we can just
S2: go onto this, this website, you know, and buy them there.
S2: But no, alas, yeah.
S1: No, you have to, you must have a broker and
S1: there's all sorts of different brokers, so we'll get into
S1: that in a later episode. But first, you know, just
S1: to let people know that there has been this massive,
S1: you know, explosion in the number of Aussies. It's something
S1: like the ASX did an investor study and it's something
S1: like more than a million Australians bought shares for the
S1: first time during the sort of COVID pandemic era, which
S1: is just kind of incredible, isn't it?
S2: Yeah, it's really shocking. And it's not just like shares.
S2: People just got into investing in a huge way. Like,
S2: you know, we saw something last week or last month
S2: from ASIC's talking about the number of people who bought
S2: things like crypto during COVID. Like people just went bananas for,
S2: for investing. And there's a lot of like reasons behind that.
S2: Like I suppose like the broad reason why people did
S2: it during COVID is that people had a lot more
S2: time on their hands. It was a lot of stimulus
S2: in the economy. People weren't spending money on many other things.
S2: So all those sort of things combined meant people were
S2: more sort of keen, I guess, to get involved with
S2: shares of, especially if they had never done it before. But,
S2: you know, we do have a lot of new tech
S2: and other things in the market as well. That helps.
S1: Yeah. So you can do sort of micro investing apps
S1: where you can invest for as little as a dollar
S1: or $10. You know, there's sites like just to name
S1: a few shares is Pearler, CommSec Pocket Raiz Invest Spaceship Voyager.
S1: So there's all these sort of micro investing apps where
S1: you can get a foot in the door without sort
S1: of necessarily needing the big lump of cash that you
S1: would take to a broker as you did in the
S1: olden days. And it's so easy. It's it's in your pocket.
S1: I'm going to make a confession, which is to say
S1: that I have bought shares while literally sitting on the toilet.
S3: Which is.
S1: Unhygienic. But, you know, we all do it.
S3: Yeah, exactly. And I decided to do it for the
S3: sake of it to just be like I bought shares.
S3: I'll Citigo Yeah, I mean, that's and.
S2: That's that is, I think, the perfect example of how
S2: far we've come in terms of buying shares. Because if
S2: you look back, you know, 20 years ago. Right. Yeah,
S2: you literally would have had to go into your broker
S2: or like, go walk into the CBD and talk to
S2: your broker and hand the big bag of cash, I assume.
S2: I assume all transactions were done with big bags of cash.
S2: 20 years ago. So yeah, things are modernized a lot.
S2: And also during COVID, you know, we didn't have any
S2: like a lot of great investment options and interest rates
S2: were at record lows. Like if you had money in cash,
S2: it was almost you almost losing money. It was such
S2: a bad investment. So people were people were out there
S2: looking for other ways to get a better return on
S2: on their cash. So all these sort of things, a
S2: big confluence of reasons sort of produced this, this massive
S2: investing boom. So people are more interested in it than
S2: they ever have been before.
S1: Yeah, and it has turned out to be a bit
S1: of a rocky ride over the last year if, you know,
S1: the share market has been all over the shop and
S1: mostly down since I've been buying it. And so it
S1: is a bumpy ride and I think we want to
S1: sort of talk people through that and let people know
S1: it's not there's no guaranteed returns. You know, historical performance
S1: is not is no guarantee. And, you know, if you're
S1: someone who's saving up for a home and you're parking
S1: your money in shares and I want to have a
S1: really good talk to you. So I thought we could
S1: just start with some super basics, which is like so
S1: I mean, basically the first thing you need to do
S1: if you want invested shares is you need to have
S1: some cash to invest. So you need to spend less
S1: than you earn. Pretty essential and you got some savings.
S1: And then I want to remind people of the there
S1: are lots of different ways that you can save and
S1: buy assets and invest of which shares is one. But
S1: we thought we would just talk through the sort of
S1: the risk spectrum, starting with like what is the lowest
S1: risk thing to do with your money?
S2: Well, it's cash. You know, as I mentioned before, you know,
S2: we've seen historically over the past few years very, very
S2: low returns for cash because your interest rate is not
S2: only what you pay on your mortgage and affects your
S2: mortgage repayments, but it also affects the money you get
S2: back from the bank if you have cash in your
S2: bank account. So when that was 8.1%, you were getting
S2: virtually nothing back. We've you had money sitting in your
S2: bank account or sitting in a term deposit. So cash
S2: is super safe, but very low returns, though they are
S2: slowly increasing as interest rates are increasing.
S1: Yeah. And the next thing sort of moving slightly up,
S1: but not too far is sort of fixed interest type products.
S1: And we're talking here about bonds. And bonds can be
S1: issued by the governments or corporates. And so government bonds,
S1: you know, you give the government your cash and they say, Alright,
S1: we'll pay you this fixed amount of interest every year
S1: and at the end we'll give you your money back
S1: too and they can be traded in secondary markets etc.
S1: and the price can go up and down. But if
S1: you just want to give your money to the to
S1: the government, you know, you get that fixed return and
S1: the same corporates, you know, companies can also issue bonds
S1: and same sort of arrangement, although you've got a little
S1: bit more risk of course that the company, you know,
S1: things go pear shaped and well is your money is safe,
S1: will it come back in the same way that you
S1: could be guaranteed with the government? So bonds are an option?
S2: Yep, you can again. Bonds. The first time I ever
S2: heard about bonds was in the Alvin and the Chipmunks movie.
S2: For any Alvin and the Chipmunks fans out there, that's
S2: the first time I ever heard the phrase bonds and
S2: wonder what they were. So anyway, moving on.
S3: I just I need.
S1: To know, did they invest.
S3: In both of them?
S2: So there's like a scene, I think in like the
S2: early in the movie where like the dad of the Chipmunks, like,
S2: gives them a gift for Christmas and he buys them
S2: bonds and they really disappoint because obviously they'd like kids
S2: and they want to toys. Anyway, this is we're going
S2: way off the rails here anyway. Next thing up, the
S2: sort of the risk scale would be things like shares.
S2: So these are sort of income producing assets they can
S2: appreciate in value. They can also drop in value. Property
S2: is also included in this. In this bracket, though, we'll
S2: probably leave talking about investing in property for another podcast's
S2: another day.
S1: I mean, the thing with shares is that people always
S1: focus on the share market going up, but actually a
S1: lot of the return that you get from shares is dividends.
S1: So that's another component and that's sort of like, you know,
S1: you have an investment property, you get paid rent, you
S1: have shares, you get paid dividends, and then also, you know,
S1: the asset valuation can fluctuate as well in a way
S1: that gets you return. So we'll get into a bit
S1: more of that. And then so I mean, finally up
S1: the chain of things like assets that you can hold
S1: which don't necessarily pay you the income like dividends or rent,
S1: you know, could be commodities and could be crypto. And
S1: then within that, there's a risk spectrum of, you know,
S1: like maybe gold is perhaps something that's going to be
S1: a bit more stable in value or that to fluctuate too.
S1: But you're sort of taking a punt on supply and demand,
S1: sort of driving demand for that and whether you would
S1: get a capital appreciation. So crypto probably being on the
S1: out there and scale.
S2: Absolutely, especially at the moment. One other thing to note
S2: is that through superannuation, we are all shareholders in, you know, many,
S2: many and broad companies and that has has various tax
S2: benefits in terms of being another way to invest in
S2: shares indirectly. But we'll discuss that in a sort of
S2: another episode when we talk about what you should think
S2: about before you invest in shares. But for now, I mean,
S2: what is it? What do you do when you own
S2: a share? What does that mean? What happens when I
S2: when I buy, buy my share? What does that represent
S2: for me as a person?
S1: You become a capitalist. You become an owner of capital.
S1: And this is something that I tell myself and I've
S1: told myself several times, the share market prices go up
S1: and down, Bring it back to. What does it mean
S1: when you have purchased a share? What does it mean
S1: to own a share? It means that you are the
S1: part owner of the company in which you've bought the share.
S1: So you're in there. Congratulations. And so if that company
S1: makes some money and it decides not to reinvest the
S1: money in the business and it decides instead to distribute
S1: some of the profit to its shareholders, of which you
S1: are now, one, you'll get something called a dividend. And
S1: then if the you know, the value of the shares
S1: go up over time, because the company is performing very well,
S1: you can sort of sell out your shares perhaps for
S1: a capital gain versus what you bought them for. So
S1: there's two elements to returns on shares is the dividends
S1: and then there's any capital appreciation. And what we economists
S1: have observed historically, at least, is that there is this
S1: something called an equity premium puzzle, which is to say
S1: that over the last century or so, it is true
S1: that the value of shares have gone up by more
S1: than what returns would be on those safe, secure assets
S1: like government bonds have. So, you know, does it always
S1: happen that shares go up in value by the 8%
S1: every year? Absolutely not. But over the last century, if
S1: you averaged it out, you know, we're talking about a
S1: return that is higher because of that element of risk
S1: as well. But gosh, there's a lot of volatility.
S2: Yes. And as we're speaking today, I think the market
S2: has fallen 2.5% this morning. So that is an indication
S2: of the sort of volatility that you kind of experience.
S2: And like putting my my former retail reporter hat on
S2: like a bit of an example of this. If we
S2: look at something like Woolies, which is a household name,
S2: if we look over the past year, Woolworths, the price
S2: of its shares have fallen 8%, but it's been very
S2: volatile during that time. And then if you look over
S2: the past five years, it's actually up 68% and then
S2: if you look over the past 20 years it's grown
S2: 600 over 600%, so that gives you a bit of
S2: an idea of like the short term. It's been volatile,
S2: it's been down, but then if you stretch it out
S2: over a longer term, it's actually gone up quite a lot.
S2: But then obviously there's companies that like the opposite of that,
S2: which like again, putting my retail hat on Myer. Much
S2: loved department store had some struggles it's seen some short
S2: term gains in its shed share price but if you
S2: look since it's listed, it's actually down very significantly. So
S2: these are the sort of trials and tribulations you've got
S2: to deal with if you do buy a share and
S2: if you do become an owner, a part owner of
S2: of a company.
S1: Yeah. And we could talk to perhaps the importance of
S1: diversification there because, you know, owning one single stock, that's
S1: a risky business. But there are ways that you can
S1: buy into shares where you're sort of purchasing a big
S1: bundle of lots of different shares, which just spreads some
S1: of the risk. So let's run through some of the
S1: ways that you can buy shares, because I think people go, Oh,
S1: buy shares are better, just go buy some, you know,
S1: BHP or some CBA shares. And that's what I'll do.
S1: But I mean, that is legitimately something you can do.
S1: You could get a brokerage account and just buy one
S1: individual share and watch it in a very scared fashion.
S2: You're not going to make much money, but you could
S2: do it. You could just own the single.
S3: Share, if.
S1: You like, want to troll through a lot of company
S1: reports and if you have a lot of inside information.
S3: About.
S1: That particular company, it would be illegal to trade on that.
S1: But I guess the advantage of individual shares is this
S1: You don't pay management fees. You're not paying somebody else
S1: to make decisions about what to buy. So you don't pay,
S1: you know, an annual management fee. But gosh, it's a
S1: lot of risk. So individual shares are one option. Another
S1: way is sort of pooled investment vehicles and there's a
S1: lots of different types of them. But basically you go
S1: in with other people and you put your money altogether
S1: and then instead of just, you know, having a small
S1: amount of money and only buying one share, the fund
S1: can buy a little slice of a lot of different
S1: shares and or other asset classes. So if you're looking
S1: at the Australian share market, the sort of things you're
S1: looking at, things like listed investment companies or even exchange
S1: traded management funds, and those funds will own a little
S1: slice of a lot of different assets and you can
S1: purchase a unit in that fund and you get instant.
S1: Diversification and access to all the underlying assets in that fund. Now,
S1: one of the ones that has become really popular in
S1: recent years are things called exchange traded funds or ETFs,
S1: and not to be confused with EFT.
S3: I see a lot of novice nifty. I've got to
S3: get into the different fees.
S1: Yeah. ETF so exchange traded funds. Dom Do you want
S1: to have a go at explaining what an exchange traded
S1: fund is?
S3: Yeah. So it's very, it's sort of quite similar.
S2: Like basically you are buying rather than an individual share.
S2: They are Woolies or BHP. You're buying effectively a basket
S2: of shares like a shopping basket full of different things.
S2: And these various ETFs exist that will intentionally invest in
S2: different shares and different sort of things on the market.
S2: So very popular. There's ETFs for Australian shares, there's ETFs
S2: for international shares. There's specifically ETFs for like American tech stocks.
S2: They've been very popular. There's a lot of ethical ETFs
S2: which only invest in companies that fit into certain parameters
S2: or environment, social and governance sort of aspects. And these
S2: like shares, like like individual shares, these can be bought
S2: and sold on the share market. So hence why they
S2: are called Exchange-traded. And they're great because you get immediate diversification.
S2: So like and you can also then tailor them to
S2: exactly what you want. Again, if you're super into sustainability
S2: and all that sort of stuff, you can buy some ethical,
S2: ethical ETFs or if you really want exposure to, you know,
S2: water rights in Texas, I'm sure there's an ETF there
S2: for that. So, you know, there's there's hundreds of thousands
S2: of different of ETFs. You can you can buy and
S2: they're very popular and they've got very low fees, I believe.
S1: Yeah. I mean, back in the old days when you
S1: were doing sort of managed funds, you could be paying
S1: 2 to 3% a year of your, you know, view
S1: of money to the investment manager. And. Whereas some ETFs,
S1: you can pay as low a management fee of 0.07%,
S1: so you're still paying a management fee to the ETF creator, the,
S1: the company that sort of bundles all the assets together
S1: and manages them and make sure they don't deviate too
S1: much in value from from the underlying assets. So there's
S1: still a fee payable, but it can be super, super small,
S1: which is great.
S2: Yeah, because they're not they're not doing they're not making
S2: any hard decisions about their investments. They're just buying these
S2: exact stocks that they've told you that they're going to
S2: buy and that's it. Yeah. So it's very simple. But
S2: some like there's not the ETFs aren't the sort of
S2: the be all end all for for diversified investment opportunities.
S2: They do have some cons like some aren't located in Australia.
S2: So you have to think about the tax implications of
S2: those and not all of them are indexed. So some
S2: of them have sort of riskier underlying assets that you
S2: also have been directly into investing your money in.
S1: Yeah, the early days ETFs were by and large index ETFs,
S1: so that you were sort of buying, you know, a
S1: bundle of shares that tracked the broad value of like
S1: the ASX 200 or the S&P 500. But it has
S1: been the case in more recent years we've seen this
S1: proliferation of more exotic things. You know, as you say,
S1: you know, investing and lots of weird things. So an ETF,
S1: you know, it had that reputation of, oh, it's a
S1: very solid sort of index strategy, passive investing. They're actually
S1: actively managed, you know, ETFs now where you where the
S1: underlying assets are going up and down depending on how
S1: the active investment manager. So you have to be a
S1: little bit bit careful. And one thing to look out
S1: for is, you know, the big reputable sort of names
S1: in ETFs these days are like Vanguard, iShares Betashares. Not
S1: to endorse any of those companies, but it can. Before
S1: you do invest in something like an ETF, you do
S1: need to have a look at, you know, their funds
S1: under management. Is there a significant amount of other people
S1: with their money in the fund because you don't want,
S1: you know, a small upstart that might, you know, close
S1: in a few years and you have to sell your
S1: assets when they decide to close the fund, you know,
S1: so just checking, checking the qualifications or, you know, who's
S1: the money manager who you're really entrusting to and making
S1: sure that they've got enough size and history to be
S1: able to nail it.
S3: Hmm.
S1: So that's just sort of a broad wrap up of
S1: the world of why you buy, invest in shares and
S1: some various ways to go about it, which I hope
S1: sort of just brings down to earth some of the
S1: language involved, particularly the know the acronyms evolved of ETFs.
S1: There's a lot to wrap your head around and yet
S1: can't end a podcast about investing without quoting Warren Buffett.
S3: Of course you have to so.
S2: It legally be done.
S1: It's interesting to note that he was sort of asked, Oh, well, he's.
S1: Had to instruct the trustee of his own estate. You know,
S1: Warren Buffett is famous for picking stocks and value stocks
S1: and getting that alpha return. But even he has said that,
S1: you know, for when he's leaving his money to his wife,
S1: he just wants to whack it all in an S&P
S1: 500 index fund. And and that is, you know, a good,
S1: solid way to protect the value of the money and,
S1: you know, versus any more active strategy. So that's the
S1: advice of Warren Buffett. Of course, everyone needs to do
S1: what's right for them. Dump. But ETFs are definitely something
S1: to keep in mind if you are really new to
S1: share market investing and you want to just be able
S1: to get that instant diversification as you dip your toe in.
S2: Yeah, ETFs are a good way to sort of get
S2: a bit of a sense of how sort of easy
S2: diversification works. And, you know, if you're feeling confused and
S2: you feel like you still don't know everything, don't worry.
S2: This is the first episode. We've got more coming up.
S2: We'll talking about all the things you should ask yourself
S2: before you take the plunge, all the things you should
S2: know before you actually put that money into the share market.
S2: And then the one after that will be how to
S2: actually do it. And we'll. We'll do it. We'll do
S2: it on the podcast with you. Well, not with you,
S2: but you know, I.
S1: Won't be on the toilet, I promise.
S3: Yeah. No.
S2: Absolutely not. And that'll only be about how to find
S2: a broker to execute a trade, all that sort of stuff. So.
S2: So we can really fill you in and make you
S2: that in investing ways. But we've come to the to
S2: the twilight hours of the podcast. So it's time for
S2: our listener question, which has come from Arjun this week.
S2: And he has said that he recently refinanced his home
S2: onto a 30 year variable rate loan. And from that
S2: he makes an additional $500 repayment alongside his monthly mortgage repayments.
S2: And he's been doing that for a couple of years
S2: and he wants to know if it makes more sense
S2: to change the terms of his loan so he can
S2: match what he actually can actually afford to pay each month,
S2: or if he should just keep making his extra repayments.
S2: And at first glance, I think that he's probably fine
S2: just making his actually payments. I think that's that's a
S2: good move. The wisdom imparted to me when I got
S2: my home loan is that you set it at 30
S2: years and you don't fiddle with it too much and
S2: just sort of just let it let it roll out.
S2: But what do you think, Jess?
S1: Yeah, I mean, some people suggest as a savings strategy,
S1: you know, to pay your home off sooner when you refinance,
S1: you should, you know, not just reset to the 30 year,
S1: you should go to the 27 or 26 or whatever
S1: you're up to. But I don't think it makes too
S1: much of a difference. If I just wanted to, you know,
S1: that would involve refinancing to a different loan term, which
S1: could be quite complicated. You can just as is doing,
S1: pay it off quicker and then when you pay it back,
S1: it's done. The the 30 year term just means that
S1: he'll be have a lower minimum repayment that is required.
S1: But he's already making excess repayments, in which case congratulations.
S1: And I would just keep going with that strategy.
S2: Yeah, absolutely. And then you've got a bit of, you know,
S2: money for those sort of rainy days. And, you know,
S2: especially if interest rates increase, that sort of $500 is
S2: a good little buffer for for any sort of things
S2: that may happen. And just to bring us home just once,
S2: the money tip of the week.
S1: Yes. So power bills. Ouch. Bottom line there. Now, both
S1: wanted to just remind everyone of my most favorite websites
S1: in the world. Check my browser history. It's true. W
S1: w w dot energy made easy dot gov dot aew.
S1: Being the government making your life easier for everyone except
S1: for Victoria because it's a separate site. Energy made easy
S1: dot gov today you go in there, whack a few
S1: details about your power bill and it spits you out
S1: a list of the cheapest provider. It changes a bit
S1: and we're seeing a lot of companies coming in and
S1: out of the market. So you have to be on
S1: top of this and you have to be on top
S1: of your energy provider because we've seen some ridiculously high
S1: price hikes and you don't want to be caught on
S1: some of those ridiculously high plans. So check that out today.
S1: For Victorians, there has never been a better time to
S1: be a Victorian go to compare dot energy dot Victoria
S1: because you get all the same benefits. You got a
S1: government website and the Victorian Government is paying you a
S1: $250 energy bonus just for going to the site and
S1: lodging an application for for the bonus. So you just
S1: get 250 bucks, you know, that's been open since one July,
S1: you've got until June 30 next year to do it,
S1: but get onto it today. Dom, have you done it?
S2: Oh, I've done it. I did it as soon as
S2: it opened. And I tell you what, there's I don't
S2: bring up the Sydney-melbourne rivalry too much. I try to
S2: keep things civil on the podcast, but I don't see
S2: New South Wales getting any any free 250 bucks from
S2: the government just for go in and check out our
S2: energy bills. So I'm just going to I'm going to
S2: put that there as a look a little sort of
S2: a marker as to why Melbourne may be the superior city.
S3: I feel like you're coming off a period in.
S1: Which there was never a worst time to be a Victorian.
S3: Given.
S2: You know, we won't talk about that. We want to mention.
S3: The relevant for if you can't remember. Okay, so we're
S3: talking about a veil argument, I think.
S2: But thanks to everyone for tuning in this week. Again,
S2: join us next week. We will be continuing this theme
S2: of share market investing and we'll be talking about everything
S2: you need to know and think about before. You actually
S2: do buy a share. So come back, Gina. Next week.
S2: We'll still be here.
S1: See you next week.
S2: Hello and welcome to It All ends up the podcast
S2: where we chat about money, how to get it, how
S2: to spend it and how to invest it. I'm money
S2: editor Dom Powell.
S1: And I'm senior economics writer Jess Irvine. And today we're
S1: continuing with the second episode of our special three part
S1: series on share market Investing for Beginners. So if you
S1: haven't already, we do suggest going back and listening to
S1: the episode before this, which will be labeled episode four
S1: in your podcast player and get up to speed with
S1: some of the basics of what buying shares really is
S1: and different ways to go about it to get yourself
S1: a diversified portfolio.
S2: Yeah, the Images episode is to give you a checklist
S2: of things to consider before jumping on the share market
S2: bandwagon and investing your hard earned money in shares directly.
S2: It's not an exhaustive list, but there certainly are some
S2: good questions in there to hopefully get you thinking like
S2: a long term investor.
S1: Yeah, and we want to make it really clear that
S1: the information we're about to discuss is general in nature,
S1: and it doesn't take into account your personal financial goals
S1: and objectives. And you should always do your own research
S1: and seek some professional advice before making any major financial decisions.
S1: So in our third episode in this series were actually
S1: both of us going to purchase some shares and you'll
S1: actually be able to hear on that episode what that
S1: process involves. But we really wanted to spend some time
S1: stressing that there are things that you need to ask
S1: yourself and considerations you need to take into account before
S1: you even decide that investing directly is the right thing
S1: for you, because it's definitely not the right thing for everyone.
S1: Is it dumb?
S2: No. And I'm pretty excited because like as I mentioned
S2: in the prior episode, I have actually never properly invested
S2: in shares. I have been a crypto investor for my sins.
S2: It feels dirty to say, but I used to invest
S2: in crypto quite seriously. So you know that I'm familiar
S2: with the markets in that sense, but I've never actually
S2: sort of sat down and thought about building a portfolio.
S2: So I think this is like, this is a great
S2: opportunity because you get to see me and all my
S2: incompetence and just can lead me through it with the
S2: like the grizzled investor she is. So I think the
S2: first thing that I especially thought about when, when I
S2: was sort of contemplating this whole process is the sort
S2: of it's a it seems like a very early, like
S2: basic and sort of almost silly thing to think about,
S2: but why do you want to invest Like don't just
S2: do it because you think that you should do it
S2: with a goal in mind. And we've sort of mentioned
S2: this a bit about having sort of money goals and
S2: sort of not not explicitly long term, but at least,
S2: you know, future of planning or your investments and all
S2: that sort of stuff. So there is a little bit
S2: of a broad sort of question you have to ask
S2: yourself about why the the inherent why of why you
S2: want to actually put money into the share market. So,
S2: you know, having a at least a little rough plan
S2: is is probably a good thing to to get before
S2: you actually take the plunge.
S1: Yeah. My why is that I'm hoping that I can
S1: amass some assets outside of super which I might be
S1: able to grow such to be big enough before the
S1: age of 60 that I could retire a little bit
S1: early and live off not just, you know, the earnings
S1: from that, but actually sell down some of the capital.
S1: So I'm 41, so I've I've actually only got a
S1: sort of 19 years left in the market there in 50.
S1: And if I want to actually do the early retirement,
S1: I'd say so that's my sort of a goal at least.
S1: What's your thoughts with investing in shares?
S2: It seems like fun and I haven't done it before.
S3: But I mean.
S2: I'm 26, so I'm just like, Yeah, cool. That sounds
S2: like something to do. So.
S3: You know, Well, that's good.
S1: I think we've got some more questions.
S2: But looking through different ends of the spectrum here. So,
S2: you know, we could we're really covering all bases.
S3: Well, I'm.
S1: Glad we're doing this episode to maybe force you to
S1: think through some more elements of.
S3: Your strategy.
S2: And then possibly give.
S3: Us that.
S1: Number two question to ask yourself is this is just
S1: sort of a knock out one before you put money
S1: buying directly in shares. Do you have any high interest debts,
S1: like high interest credit cards or personal loans? So do
S1: you have either of those things?
S2: I mean, does a mortgage account.
S1: A mortgage does not count in my mind, but it's
S1: really like a credit card. You're paying an average interest
S1: rate of about 20% or something. You're going to be
S1: hard pressed to find, you know, a share that you
S1: can buy that's going to guarantee you 20% return, which
S1: is what you will get if you park your dollar
S1: instead in paying off that credit card balance. So that's
S1: really the one that I want people to think about
S1: is the credit cards and Hick's I mean is another issue.
S1: People have different opinions on that, but again, that it's
S1: a relatively low interest rate that you're talking about compared
S1: to those really punitive 10% plus interest rates that I
S1: really would want anyone to clear before they thought about
S1: purchasing shares.
S2: All right. Well, that's great because I don't have any headaches.
S2: I've only got a mortgage. So tick. Check this. Second question.
S2: Number three is thinking about the amount of cash that
S2: you've got to spend on things that, like might be unexpected.
S2: So imagine. Sees upcoming bills like all of these things
S2: have to take priority before investing in things like shares because,
S2: you know, obviously you need to be able to pay
S2: rent or pay your water bill or eat or, you know,
S2: pay for an unexpected hospital visit or something like that.
S2: So that another sort of almost obvious sort of thing.
S2: But it really must take precedence over any of this
S2: sort of stuff. Yeah.
S1: And I just caution people to think through the myriad
S1: of things like needing new tires for your car or,
S1: you know, these sort of little, you know, this sort
S1: of unexpected but expected things. So you don't want to
S1: have put your money into your shares and then you
S1: have to pull it out again because you've got to
S1: buy a new tyres like you should not be running
S1: your self that close to the wind. People talk about
S1: having an emergency fund of maybe 3 to 6 months
S1: of living expenses so that if you do have, you know,
S1: one of those larger events like you lose your job,
S1: can you feed yourself for long enough because you don't
S1: want to lose your job At the same time the
S1: share market has crashed and then you're sort of selling
S1: out your shares at a loss. You know that a
S1: really bad situation to be in. So do you have
S1: an emergency fund?
S2: I do.
S1: You do?
S3: There we go.
S1: Excellent. And I guess, you know, it's important, whatever it
S1: is that lets you sleep at night. So I have
S1: about six months of basic living expenses in there, which
S1: is it's about $36,000 in cash that I have sitting there. Yeah.
S2: And I don't have anything new.
S3: Yeah.
S1: So, I mean, I like to run it pretty conservative,
S1: you know? And, you know, there's no back up for me. Really.
S1: I need to have that money in place so I
S1: don't invest anything that eats into that for me.
S2: I have a few thousand dollars. So again, different different
S2: ends of the.
S3: Spectrum, I guess.
S1: I mean, you don't have any dependents. I've got a son.
S1: So maybe there's a few more sort of things that
S1: I have to to consider.
S2: Yeah, I think. I think so. Now, number four is
S2: Jess's favourite topic, which is putting extra money into your super. So, Jess,
S2: why would someone want to do that instead of possibly
S2: buying it?
S1: Because you're going to be old one day. We will
S1: all be over. We will not all be over 60,
S1: but we hope to be. And the government has a
S1: system in place where you pay ultra low tax on
S1: putting your money into super. You're only going to pay
S1: $0.15 on the dollar compared to your marginal income tax rate,
S1: which might be as high as $0.47 in the dollar
S1: if you're on the higher tax thresholds. And you know,
S1: so there is a great way the best one of
S1: the best ways to make money is to avoid paying tax.
S1: And if you are happy to park your money away
S1: for that sort of longer term horizon, you're going to
S1: have a bigger cost base. You know, you're going to
S1: have more money up front because you pay less tax
S1: on it to invest, and that will grow over time.
S1: So people forget that we are all shareholders basically through
S1: our superannuation accounts. And you can, as an alternative to
S1: parking money in a brokerage and buying, you know, shares directly,
S1: you can just be paying money into your super account.
S1: And for people to know that you can contribute up
S1: to $27,500 each year into your super and get all
S1: those great low tax rates that includes your employer's contributions.
S1: But you know that that is some headroom to play in.
S1: It can be a good tax dodge if you don't
S1: want the money back. And also just to flag for
S1: people that you can also use previous year's unused caps
S1: so that you might have some extra headway there for
S1: previous years that can be rolled over. And that's new.
S1: And not everyone knows that. But yes, super. I mean,
S1: it is it is a way of buying shares. You
S1: just can't and you lock the way, the money, you
S1: can't access it until you're old.
S2: I feel like we need a podcast episode where justice
S2: talks about how great it is to just put extra
S2: money into super. And you just you just told the
S2: whole time and I'm just like.
S1: You do it. Do it. But having said that, you know,
S1: it's your money. And people, particularly at the younger end
S1: of the spectrum and if you want to retire early,
S1: you know, you're entitled to hold some money outside of super.
S1: The tax breaks won't be as great. But yeah, you
S1: might just prefer to live your life, you know, having
S1: some of that money before you are 60. So that's,
S1: you know, something to consider if you if you are
S1: going down the path of direct share ownership, which, you know,
S1: we're both doing so. Hmm. Also Poké Nola's DOS, which
S1: is my favorite financial. Why not both? You can do
S1: a bit of both, you know, put half in half
S1: somewhere else. You know, it doesn't have to all go
S1: in the share market. So speaking of getting old, question
S1: number five to ask yourself is what is your investment
S1: time horizon? So, you know, you've got a bit longer
S1: on the clock.
S3: Dom That's more than just a little bit.
S1: But people, you know, you know, how long should you
S1: be thinking? Do you think a minimum that you'd want
S1: to be parking your money away in the share market
S1: before you'd want to get it back to your.
S2: I would say five years? Like that's probably when I'm
S2: thinking about investing shares. I'm thinking, Well, I'm just going
S2: to put it here and like leave it for five
S2: years and see what happens. Right? Like again, for my sins,
S2: I was a crypto investor and that is such a
S2: different mindset. You would buy something one day and then
S2: the next day you probably sell it because over that.
S2: Course of time, it would have doubled in value. So
S2: like me getting into this, into the traditional traditional share
S2: share market is like a complete change in sort of
S2: perspective for me because like it's thinking about, well, I'm
S2: not going to touch this for like five, maybe ten years.
S2: So I think a really longer term sort of investment
S2: time horizon is really needed for this because, you know,
S2: share markets can underperform for quite a long time. And
S2: look at the ASX at the moment. We've had 12 months,
S2: is it nearly 12 months of of decline? So, you know,
S2: that's and that's just a little taste of it really.
S1: Yeah. And there can be periods for as long as
S1: a decade where, you know, you're getting below average returns.
S1: And I, I'm a worrier. So I listen to a
S1: lot of negative naysayers and there's any number of people
S1: who will tell you that we've now come off a
S1: period where shares have been historically highly valued and we're
S1: in a super bubble which could unwind for years to come.
S1: So I like to be conservative and think I'm kissing
S1: goodbye to my money for at least ten years, because
S1: I think that's but in my mind, I'm comfortable with
S1: believing that, you know, over a ten year horizon should
S1: generate a positive return. But I want to know that
S1: I've got a lot of leeway to play with. If
S1: we are sort of in a situation where it's going
S1: to take longer for the share market to recover.
S2: Number six on the list of things to think about
S2: is plans for your home ownership, because securing getting yourself
S2: a place to live in without having to pay rent
S2: is one of the best ways you can sort of
S2: minimize your costs and set yourself up for the future.
S2: So I think if you're sitting on, you know, let's
S2: say a home deposit ish size of amount of money,
S2: it's probably better to think about that rather than putting
S2: that money into the share market. But, you know, that
S2: obviously depends on your circumstances. Maybe you really think you're
S2: not going to buy a home for the next five
S2: years and maybe putting money into shares isn't such a
S2: bad option. But of course it varies on where you
S2: are in your life.
S1: Yeah, there's a bit of a debate about should you
S1: invest your your home deposit in shares if you're maybe
S1: not looking to buy for the 5 to 10 year horizon.
S1: But if you're looking to buy in the next sort
S1: of five years, I really question whether that's where you
S1: should have your money and if you should have your
S1: money in more conservative cash options that you can, you know, act.
S1: If you see something, you can act on the property
S1: market as needs be. And one thing to flag for
S1: people is, again, super.
S3: No, just if you want to leave it alone, if
S3: you want a little.
S1: Bit of both, you want to own a home, you
S1: can look at the government's first home super saver scheme
S1: where you can park, you can make sort of voluntary
S1: contributions into the super account, get the tax breaks and
S1: then put out when it comes time to purchase your property.
S1: And in that way you are getting yourself a little
S1: bit of access to share market returns because the super
S1: is ultimately invested in some proportion in shares. So that's
S1: worth thinking. But yes, I also agree that, you know,
S1: people get really mean. Younger people are understandably so frustrated
S1: with the housing market and so worried or, you know,
S1: just throwing up your hands and saying, I will never
S1: be able to afford a property, I'll just put my
S1: money in shares. I can understand that feeling, but really
S1: have a hard think about saving for for that first
S1: home deposit, making some sacrifices. Go back and listen to
S1: our episode, number one, because as a way of securing
S1: your financial future, it's it's really something. Don't just dismiss it.
S1: See what compromises you could make to to get yourself
S1: that debt shelter that you're going to need when you're old.
S2: Absolutely.
S1: So question number seven is to think whether you have
S1: any other short to medium term savings goals. So maybe
S1: it's not your first home deposit, but you might have
S1: other things you kind of want to do in the
S1: next couple of years, which again, would fall short of
S1: that sort of 5 to 10 year investment horizon. Are
S1: you going to need to replace your car? Are you
S1: going to get married soon? Is there a big overseas
S1: trip you want to do? Is there maybe some home renovations?
S1: So thinking about your sort of short to medium term consumption,
S1: things that you might want to do just thinking through
S1: that so that you don't go, Oh, well, one day
S1: I will sell out the shares a little bit earlier
S1: or at a time. You know, it's about planning ahead
S1: and thinking it's it's okay to spend some money now
S1: and you don't want to be locking away the money
S1: for the short term in having bought your shares again
S1: and selling out if it's a bad time. So just thinking,
S1: you know, what are some other goals aside from home
S1: ownership that you might want to just put the cash,
S1: you know, and savings accounts are coming back up? I
S1: did notice there's like a Bank of Queensland at Cole,
S1: you know, online saving. It's now paying 4% if you
S1: are aged between 15 and 34 years old. So you
S1: know there is now money to be made from putting
S1: your money in the bank, which wasn't the case for
S1: a couple of years. But that is something to consider.
S2: Well, look, I'm not planning on getting married anytime soon.
S1: You never know.
S2: Whenever I'll, I'll look. It'll be it would surprise us both, Jess,
S2: if I got married in the next 12 months. Right.
S2: But don't need a new car. I do have a
S2: couple of overseas trips planned, so I think this is
S2: a tick as well. I think I'm alright. I don't
S2: have anything massive to do to save up for the
S2: the eighth sort of thing is, is another sort of
S2: quite a broad sort of concept that you do not
S2: really need to think about when investing in shares, which
S2: is your appetite for risk, because as we've sort of
S2: said a couple of times now, the share markets do
S2: not always go up, and especially individual shares. If you
S2: go down the path of buying individual shares in individual
S2: companies don't always go up either. You can see 20
S2: to 40% drops in value. And if that happens, you've
S2: got to think about how you're going to react to that,
S2: because if you're going to go, Oh, no, time to sell,
S2: you know, it's dropped 40%, it'll never recover sort of thing.
S2: Maybe investing in shares or maybe investing in specific companies
S2: is not really for you. Maybe you should think about
S2: some other sort of investment options. So and also think
S2: about how compulsively you're going to check the balance of
S2: your portfolio. It's like it can get very addictive to
S2: open up your share trading app and go, you know,
S2: shares are down 3% today. Oh, it's up 5% today. Like,
S2: you know, that's. Almost useless unless you want to day trade,
S2: which you probably shouldn't do.
S1: Yeah, there's. I mean, there's two costs to consider. There's
S1: the cost of actually, you might make a panicky decision
S1: and lose some money because you've sold out at at
S1: inopportune time. But there's also just like a mental cost of,
S1: you know, I think it's only human to sort of
S1: look at those balances, see the red ticks, the red numbers,
S1: you know, with the negative side. I mean, I have
S1: experienced this having started investing over the last year. You know,
S1: prices have come off. I am in the red on
S1: paper and I am a long term investor and I
S1: want to hold that for the long term. But I
S1: still have to admit there's a psychic cost there. You know,
S1: we're humans. We are loss averse. We fear losses more
S1: than we value gains. You know, Can you stomach that?
S1: Is it just going to make your life unpleasant to
S1: see those red numbers? And that will depend, you know,
S1: on who you are, what other stresses you've got in
S1: your life. So number nine is about really what are
S1: you going to actually invest in? Do you have an
S1: investment strategy and particularly one that will give you diversification.
S1: So in the next episode, we are both going to
S1: be purchasing shares that we've decided.
S2: So I'm so excited to.
S1: Look at and we can reveal that they're not going
S1: to be single stock investments. So both of us, you know,
S1: we see the value in diversification and instant diversification. You know,
S1: we've talked a lot in the last episode as well
S1: about exchange traded funds and in particular ETFs, which track
S1: a broader index. So like the ASX 200 or the
S1: S&P 500, you can sort of from day dot be
S1: purchasing something which gives you access to a range of
S1: different companies, not just one. And you know that this
S1: is a classic lesson for investors. Be diversified across asset
S1: classes and also within shares across geographies and across industries
S1: so that something we can't give financial advice. But I'm
S1: more than happy to let people know that diversification is
S1: a good thing and there are ways to buy shares,
S1: you know, through those index ETFs, which which do give
S1: you that instant diversification, which, if you're a beginner investor,
S1: would probably help smooth your way into the market.
S2: Absolutely. I think it's I don't think it's particularly controversial
S2: to say that diversification is good. Like it's just you know,
S2: it is in many aspects of life, you know, not
S2: just shares. And the last question to ask yourself is
S2: how much you'll be investing and how regularly this is
S2: sort of getting down to the real nuts and bolts
S2: of it. But like, you've got to think about, you know,
S2: your total pool of money that you wish, willing to invest.
S2: How you going to split that up or if you're
S2: going to split it up amongst different sort of assets
S2: and think about, you know, if you're going to be
S2: buying and selling over a period of time like dollar
S2: cost averaging, which is quite a common strategy when it
S2: comes to investing in in shares, or if you're just
S2: going to go all in one day, get it done,
S2: leave it sort of thing. So these are all sort
S2: of things you have to sort of ask yourself before
S2: you actually press the button and buy the shares. And
S2: especially when it comes to things like fees, certain assets
S2: and certain investment offerings will have different fees that are
S2: higher or lower. And that is something really important to
S2: think about alongside your brokerage fees, which, you know, can
S2: range from being as low as $3 I think.
S3: We get to these days just.
S1: Yes, as a 3.1. Yep.
S2: Wow. Cheapest chips. So, you know, these are all these
S2: sort of like really practical things you need to think
S2: about before you actually purchase a share or multiple. Yeah.
S1: And we'll get into this more in the next episode. But,
S1: you know, there traditionally is a sort of a $500
S1: minimum investment with a lot of brokers. So if you
S1: haven't got the $500, you're looking at micro investing sites,
S1: which we will talk about, and they've got ongoing fees
S1: rather than, you know, upfront fees. So there's a bit
S1: to think about, which I think we should flesh out
S1: further in episode number three when we actually get around
S1: to to making the decisions about how to actually put
S1: our money in the market.
S2: Yep. And look, this is not an exhaustive list. You know,
S2: there's just sort of some prompts to help you think
S2: about this once once you decide to go down the
S2: path of buying shares. But yeah, as as just as mentioned,
S2: we next week, we will be buying shares on the
S2: podcast live. Not that I think you can really do
S2: a live podcast, but it will be live to us,
S2: which is enough. And we'll do talking about the whole thing.
S2: Like literally what buttons do you press? What is a
S2: market order versus like a limit order? What brokers should
S2: you choose? So many questions and we'll answer most of them, probably.
S3: Some of them, some of them.
S1: Pertinent good ones. Yeah.
S2: And speaking of questions, we'll listen to question.
S1: Excellent. We love listener questions. Please do keep emailing them
S1: to us at it all adds up at Nine.com.au today.
S1: And this week's question is from Belinda. She says that
S1: she and her husband are new to Australia and looking
S1: for some tips on how to build up a good
S1: credit score rating. She wants to know what kind of
S1: purchases would help build a good credit score. And what
S1: do banks look at when someone wants to buy a
S1: home in terms of the credit score? So what what
S1: do you think?
S2: It's interesting because I was worried about this when I
S2: before I bought my home, too. And I thought the
S2: credit scores of these huge deals, you really have to
S2: worry about them, like, oh, God, like I got no
S2: credit score and we've borrowed anything. And the bank did
S2: not ask me once about it. It was never even mentioned.
S2: And for all my friends who have also bought property,
S2: it has never been mentioned for them, ever. Like the
S2: credit score just never comes up. So I think there
S2: is this perception that credit scores are really big and
S2: important things, but I think that might have been a
S2: bit of an American import where it is actually quite
S2: a big deal over there. And it does change how
S2: you what and how you can borrow from a bank
S2: where here it doesn't really matter that much. So. I
S2: think whilst building a credit score is a good thing
S2: to do, it's probably not that much of a big deal,
S2: especially if you're looking to borrow. But Jess, I'm not
S2: sure if you have any other thoughts on this.
S1: Yeah, and I mean people sort of think us in
S1: an American context. Should I go out and get a
S1: credit card just so that I can where, you know,
S1: I've got I can demonstrate that I could pay a
S1: credit card, but actually that can work against you in
S1: an Australian context, because if you've got a credit card
S1: with a $10,000 limit on it, say they assume that
S1: you have that maxed out and you're paying that off.
S1: So it actually reduces how much you can borrow. So
S1: that is another little twist. If you're looking at buying
S1: property in Australia, you know, the credit score, I think
S1: they do do a credit check on you, but it's
S1: it's not sort of as important as it is in
S1: some other jurisdictions.
S2: And just take us home with your budget tip of
S2: the week, which I believe this week involves picking up
S2: trash from the side of the road.
S1: It does. It's it's the wonderful world of street bounty.
S1: And I just want everyone to know that I furnished
S1: most of my house with stuff off the street. And
S1: I want a Nobel Prize that for everyone. When I
S1: first bought my my house I was addicted to. I
S1: would literally look up the website for the local council
S1: areas covering some of Sydney's most salubrious suburbs. I would
S1: figure out which local areas were having their sort of
S1: regular household clean up day. That's when you could put
S1: all your rubbish out on the streets, you know, furniture.
S1: And I would get in my car and I would
S1: go pick up that good stuff and put it in
S1: my car and put it in my home because rich
S1: people throw out some good stuff.
S3: So this is.
S1: True. So that's just it. I just and I mean,
S1: if it if it's not off the street Facebook marketplace,
S1: you can pick up secondhand furniture for free. So that
S1: that's just my top tip. Get get rubbish off the
S1: streets and finish your home with.
S3: Well, look.
S2: To be fair. One of my favourite things in my home,
S2: which I get complimented on every time someone comes over,
S2: is these very two very large giraffe wooden giraffe statues,
S2: which I found outside my apartment block one day during lockdown.
S2: And I bought them because I thought they were funny.
S2: And I just haven't been able to get rid of
S2: them because I can't bring myself to to get rid
S2: of them. So stray batty.
S1: It's also it's recycling. It's saving stuff from landfill. And
S1: I'll also confess, my couch is from a neighbour who
S1: was walking it out to the street on hard rubbish
S1: collection day. And I said, Just put that in my house, please.
S1: And then I sold my other couch on Facebook. Marketplace.
S2: Money, money, money. Alright, well everyone, thanks for listening in
S2: this week and joining us. Tune in this time next
S2: week for our final episode in Share Market Investing, where
S2: we will be buying shares on podcast though.
S1: What fun it is going to be fun. Is it
S1: a first? I think it will probably be a first
S1: for podcasting.
S2: Let's say.
S3: It is. See you next.
S2: Week, then. Next week.
S1: Hello and welcome to It All Adds Up the podcast
S1: where we chat about money, how to get it, how
S1: to spend it and how to invest it. I'm senior
S1: economics writer Jess Irvine.
S2: And I'm money an added on PAL. And this is
S2: the grand finale, not the one that was last weekend.
S2: But of our three part series on investing in shares
S2: for beginners. And if you haven't before already listening to
S2: this episode, I would highly recommend going back and listening
S2: to episodes four and five in your podcast player, where
S2: we cover sort of the basics of share investing and
S2: some really important questions. So ask yourself before you actually
S2: decide to invest in shares.
S1: Yes, because I think this has got to be fun.
S1: We're going to buy shares live on air, although we're
S1: not sure if you can be live on and.
S2: It's live in spirit.
S1: But yes, so which is going to be fun. But
S1: everybody know that we have done our due diligence on
S1: that and made some really important questions and answered them on,
S1: you know, whether we should be investing at all. But
S1: I think there is value for people in just being
S1: able to hear what it's like or what steps you
S1: have to actually go through to execute share trade, you know,
S1: like which I remember when I did it for the
S1: first time, I was, you know, in conniptions because I'm black.
S1: Which button do I press? Do I do a limit
S1: order or a market order? And the amount of time
S1: I spent sort of in analysis paralysis and trying to choose,
S1: you know, which is the best broker, etc.. So I'm
S1: hoping we can talk you through some of that and
S1: just sort of hold your hand if you have decided
S1: that it's right for you that you want to buy
S1: shares directly, you know, you can hear what it's like
S1: when someone does it.
S2: And look, we're not going to tell you which says specifically,
S2: of course, because you should always do your own research
S2: and we don't want to get arrested by ask. I
S2: don't want Joe Longo busting in the door behind me
S2: with a pair of handcuffs. We are not qualified financial advisors.
S2: We are just financial journalists, which are very different things.
S2: But we are sort of happy to share that we're
S2: both buying into exchange traded funds, which sort of investing
S2: in a bundle of shares. So we're not going to
S2: give you any hot stock tips. So don't try and
S2: copycat us, please.
S1: Yeah, definitely don't copycat us. And this is a really
S1: good time to stress that the information we're about to
S1: discuss is general in nature and doesn't take into account
S1: your personal financial goals and objectives. And you should always
S1: do your own research and seek professional advice before making
S1: any major financial decisions.
S2: Yeah, I just we are both very well educated and experienced.
S2: Financial journalist.
S1: Yes, we are. Congratulations to.
S3: Us. I didn't realize we.
S2: Were, but apparently we are. Really.
S1: I wrote it in the script, so it must be.
S2: It must be true. But even so, we've both sort
S2: of found the process of buying shares a bit tricky
S2: to navigate. There is a lot of things to consider.
S1: Yeah, and we're going to walk through the sort of
S1: basic steps. We've got about six steps of how you
S1: actually go move through the process. And I remember when
S1: I did it for the first time, I actually had
S1: a morningstar, an analyst who's like way overqualified to be
S1: doing this, but I was just like texting him or
S1: on the phone guy.
S3: I don't know what a market order is.
S1: And it was very kind to talk me through the step.
S1: Number one is you have to choose a broker. If
S1: you want to buy shares, you have to get in
S1: touch with a broker. And how do you choose one?
S2: Well, there are so many different ones, and I think
S2: like a lot of the ones that people will be
S2: familiar with are things like the ones that provided by
S2: the big banks. So things like CommSec, which is very
S2: popular like these, you know, linked to the big four banks,
S2: they give you a pathway into the share market. Often
S2: you can use the bank balance, all that sort of stuff.
S2: But you know, we're in the OR in the 21st century,
S2: you know, you can do anything on your phone these
S2: days and there are a myriad of various different online
S2: share trading apps which allow you to buy and sell shares.
S2: So they're sort of, I guess, what would you call them, micro.
S3: Investing sort of sites.
S1: Well, I consider the micro investing sites are more the
S1: ones where you're buying in with this sort of $50
S1: or so. And I think we can namedrop a few,
S1: but we're not recommending any of them. So like your
S1: you're micro investing sites of things like Rays, CommSec, Pocket
S1: Spaceship Voyager shares these acorns. And so they're actually the
S1: micro investing in my mind is you sort of paying
S1: that you know the smaller amounts and paying like a
S1: monthly fee too to be participating on that platform rather
S1: than paying the brokerage fee all the time. So if
S1: you've got smaller sums, you may be looking at those
S1: sorts of sites. If you've got sort of over the
S1: traditional $500 that you need to purchase, you know, into
S1: a share for the first time, you're talking about the
S1: sort of bigger brokers. And if we want to namedrop
S1: a few of those, You've mentioned CommSec, there's NAB trade,
S1: you know, the major banks mostly all have a platform
S1: and you're thinking stake superhero Pearler self Well CMC markets
S1: think markets eToro. If I say the first off I'm
S1: not endorsing any of them but definitely you have to
S1: have a bit of research. And one thing to note
S1: about those type of brokers is some of them operate
S1: on a custodial model, which means you're sort of they
S1: will own the shares for you. You're definitely still the
S1: beneficial owner of it, but they're sort of pooled. And
S1: other brokers will be what's called chess sponsored. So you'll
S1: be issued what's also known as a hidden number from
S1: the ASX and those shares will be held sort of
S1: identifiable directly to you. So that's something to have a
S1: little think about when you're choosing a broker.
S2: Yeah, and I think it's good to not get too
S2: bogged down in that sort of stuff. You know, just
S2: have a Google look at some of the lists of
S2: the cheapest ones, because obviously that is a factor when
S2: you're buying shares, you don't want to pay massive amounts
S2: of money in brokerage fees and other sort of fees.
S2: So you can get as low as $3 for brokerage
S2: fees in the market at the moment, which is pretty cheap.
S2: And some places often do like free brokerage to you
S2: buying us shares or free brokerage if it's, you know,
S2: Sunday afternoon or something like that. Like, you know, there's
S2: different sort of times that they'll give you like deals
S2: and all that sort of stuff. So these are things
S2: to keep in mind when you are buying shares. And
S2: then once you've sort of picked your your broker, your
S2: second step is to set up an account, which is
S2: kind of like setting up an account on on any
S2: sort of online platform, really, except involves a little more paperwork.
S3: Yeah.
S1: And in the olden days, you used to have to
S1: like faxing a copy of your driver's licence and all
S1: the rest, and that would take days. Now, there are
S1: some brokers where you can set up pretty much in
S1: an instant. There are some brokers where it takes maybe
S1: a day or so because they do want you to
S1: scan your license and send it in. You know, there
S1: is a bit of email back and forth to set
S1: up the account. So yeah, you have to you have
S1: to set up an account with a broker to be
S1: able to buy.
S3: Shares and.
S2: You'll need a few things on hand, like a tax
S2: file number and all that sort of stuff like that.
S2: You will need a little bit of documentation. But you know,
S2: I think it only took me maybe a day or
S2: two to set up my account. So really, it's not
S2: that hard any more.
S1: Yep. And step number three, once you've got the account
S1: all set up is you have to put money into
S1: your account. So you have to transfer money across from
S1: your savings account to actually be in your share brokerage
S1: account ready to deploy. I mean, and that's just a
S1: matter of doing a BPAY. But it can sort of,
S1: you know, you have to allow time for that money
S1: to get across. So as you can see, it's not
S1: as easy as just sort of pressing by, although that
S1: is the next step.
S2: That is the next step. But just on that, I
S2: actually my platform, which I use, allows me to pay
S2: ID money, which is, you know, sort of very new age.
S2: But it came across almost instantly like, you know. So
S2: there are ways that you can get money in very quickly.
S2: But I don't think I don't think all services offer that.
S1: Yeah, mine is like an Osco transfer, which is pretty,
S1: pretty quick. So but I have used other brokerage accounts
S1: where it did take a little bit longer than that.
S2: And then step number four is opening up the app
S2: and placing a buy order. And just I believe we're
S2: going to do that right now.
S1: So we've just run through a few of the steps
S1: that we're about to do to give people sort of
S1: some lay of the land, do you think?
S2: Yes, I think that's probably that probably makes the most sense.
S2: The number one thing to think about is when the
S2: market opens, the market does not run at all times.
S2: You cannot buy, you know, shares on the toilet at
S2: 8 p.m. at night. You have to think about when
S2: the market is actually running.
S1: You have to wait until 10:00 in the morning and
S1: then you can buy on the toilet. Although I do
S1: sort of say to people, sometimes the market pricing can
S1: be a little bit, you know, more erratic just as
S1: the market opens or closes. So the hours a 10 a.m.
S1: to 4 p.m. and I sort of like to leave
S1: a little bit of leeway. So you're sort of more
S1: avoiding those open and closed times. When you first go
S1: in and you check the the app and you press buy,
S1: it's going to show you something called a buy, sell
S1: spread or the bid ask spread and that. Is the
S1: gap between the sort of the highest price that buyers
S1: are wanting to pay and the lowest price that sellers
S1: are willing to accept and is usually a bit of
S1: a gap there. You know, of a couple of cents
S1: or whatever, and that's called the buy sell spread. And
S1: it pays to make sure that that spread isn't too
S1: big like so there isn't something weird. The market isn't
S1: particularly liquid for that particular asset or something because you
S1: know that that's just something to check.
S2: You'll also be presented with a number of different options
S2: when it comes to how you actually want to buy
S2: the shares. And commonly you'll see an option for a
S2: limit order or a market order. And a market order
S2: is where you just tell the platform to buy the
S2: shares at the whatever the best market price they can
S2: get for you at that moment. Then when you press
S2: buy a limit order lets you set a sort of
S2: a maximum that you're willing to pay for the shares. So,
S2: you know, say you, you know, you refuse to buy
S2: these shares unless they're $8. You can put in an
S2: order to say once they hit $8, I will buy
S2: them then.
S1: Yeah. And I need to confess at this point that
S1: I did use to put limit orders in and I
S1: became incredibly obsessed with not paying like $0.01 above the
S1: buy sell spread. So I was always putting in offers
S1: which were sort of outside of the spread and sort
S1: of below and sort of just hoping that the market
S1: would move that that such that there would be a
S1: seller that would accept my low offer and sometimes I
S1: would put in an order and it wouldn't clear because I,
S1: you know, the market had moved the other way and
S1: I was just torturing myself for a couple of cents.
S1: And I have I now tend to I'll just pop
S1: in and do a market order. As long as I've
S1: checked that the market is nice and liquid and that buy,
S1: sell spread isn't isn't to it, something weird isn't happening.
S1: I just pop in a market order because I was
S1: absolutely sending myself crazy over a few cents.
S2: Yeah. And you know, it's no no sense crying over
S2: a few cents.
S3: A little bit of comedy for you, but.
S2: You also need to think about how many shares you're
S2: going to actually buy. So divide the amount of money
S2: you going to spend by the current share price and
S2: also factor in a few things like brokerage cost and
S2: any other fees.
S1: Yep. And if you are doing a limit order, it will.
S1: One of the last steps is it usually asks you
S1: to set an expiration date for your order so you're
S1: not waiting around all day for that share to execute.
S1: Or you can say at the end of the day,
S1: just don't worry about it if it if it doesn't clear.
S2: So those are the steps. So I'm now opening my
S2: phone and I am putting in my password for my
S2: shared trading app. I'm going to go buy some shares.
S2: And I'm just doing a quick search for the ETF,
S2: which I'm looking to buy, and I've found it, so
S2: I've opened it up having a look at the the
S2: current trading price and its volume and its performance over
S2: the past month. Always a good thing to have a
S2: quick look at just to make sure that you know,
S2: you're not buying at a real peak or a real
S2: trough or anything like that. And there's a big green
S2: buy button down the bottom. I'm going to hit that
S2: big green buy button.
S3: I know. They make it so easy.
S2: So I'm going to put in the amount I'm going
S2: to invest. I'm not going wild today. I'm only going
S2: to invest $100. So put that in it. Asked me
S2: to review it. I'm doing a market order. So it's
S2: just whatever the best price is, it's available. And then
S2: there you go. It's done. And it processes and and easy, easy, done.
S3: You are.
S1: So quick. Dave. Okay, I'm going to alter my style,
S1: which is to get really nervous. I'm worried about all
S1: the money I'm about to, you know, transform into ownership
S1: of a a share, which is fantastic, but it's also
S1: my cash going in. Okay, so what? Okay, I'm going
S1: to open my share app. Here we go. And it's
S1: presenting me with information about my full balance. I know
S1: what I'm going to buy. It's an index ETF that
S1: I've bought before, so I'm just going to click on that.
S3: Where we go.
S1: Okay. And it's saying again it green button by okay.
S1: So I'm rolling in cash and I've got $1,000 I'm
S1: going to invest. So I now need to just have
S1: a look at what's the bid and the ask price.
S1: And I'll just just I've got my calculator out to
S1: divide 1000 divided by that price to know how many
S1: shares I can get. Okay, So it's telling me I
S1: can buy about ten units. I'm so I'm really close.
S1: Other amount to maybe it's 11, but it would depend
S1: what price that goes through. So I'm gonna I'm going
S1: to go for gold to try and buy 11 units
S1: in it. So I punch in shares. Number 11. And
S1: then I'm changing it from a limit order to a
S1: market order. And I'm saying so 11 shares at market,
S1: it's giving me an estimate of how much that would cost,
S1: which is above. So I'm gonna have to knock it
S1: down to 1010 at market. Max amount would be that amount. Yes.
S1: It expires saying end of the day it doesn't matter.
S1: It's a market order. And then I just take some
S1: deep breaths. Done.
S2: You can purchase. I believe in you.
S1: And it says review. Okay, review the buy. And that
S1: buy sell spreads nice and tight. I there's my brokerage cost. Okay.
S1: So I go and I've got a submit button. And
S1: I'm going to press that now. Sending done. Order placed.
S2: And then you.
S1: Go to go.
S2: And that's that's it's is easy Is that.
S1: Did we make that sound like.
S3: Fun. Yeah it is fun.
S1: As I still find it, I get a bit nerve wracking,
S1: although I'm down with it. I know what I'm doing,
S1: you know?
S2: You cool with it?
S1: Yeah. And then, I mean, now what I love to do,
S1: I don't know if you would need to do this for,
S1: but I like to review my contract notes, so I
S1: actually get the PDF report of, of my contract note,
S1: which is my purchase order and I printed out and
S1: I have a binder at home where I have a
S1: whole bunch and I keep every contract. Note that for
S1: everything I've ever bought.
S2: Yeah, I mean, I was not going to do any
S2: of that. I'm just going to probably just leave it
S2: and and think about it another time. But, you know,
S2: if you want to be as as diligent as Jess is,
S2: you can do that too.
S1: Another thing I do like those. I use a website
S1: called Share Site, which offers a free sort of share
S1: tracking and you can enter your holdings and if you
S1: have under ten different holdings, you can access that for free.
S1: So I do immediately I printed out and then I
S1: go enter it as a trade on my share site account,
S1: and then it sort of gives me a record. So
S1: if you do make purchases across multiple brokerage apps, you know,
S1: you can get a complete picture of your holdings.
S2: And then the last step is to close your app
S2: and then never think about it again. Well, not never again,
S2: but just trying to try to put it out of
S2: your mind. Ignore the fact that you just you just
S2: spent $1,000 on some shares and just, you know, go
S2: and go and make a cup of tea and think
S2: about anything else because don't need to obsessively check it
S2: because it's not going to be healthy to do that.
S1: Yes. Take it for me as someone who has obsessively
S1: checked it for for way too long. But I'm I'm
S1: getting better. And I just know up or down, you know,
S1: what I've done is I've got myself a toehold, a
S1: foothold in an asset that, you know, may increase in
S1: value over time. I hope it does. It will probably
S1: pay me distributions or dividends, you know, and I can
S1: look forward to that. And I you know, just keeping
S1: an eye on the bigger picture of what you're doing.
S1: You know, I think with the apps, it can sort
S1: of make it feel like a game or a bit
S1: like not real as real money we've just said goodbye
S1: to and hopefully we'll leave it there for enough time
S1: that it will prove to be a good investment for us. Still,
S1: I wish you well.
S2: And I wish you well too. Just and you go
S2: over on that. There it is. There's at the end
S2: of our sort of three part episode on how to
S2: buy shares and how to get involved in the share market.
S2: I hope you found them interesting. You know, it was
S2: interesting for us to talk about it and interesting to
S2: buy shares live again. Live Not really live. We think
S2: it's live. And as always, you know, we're rounding off
S2: the end of this episode with a listener question, I believe.
S1: Yes. So our listener question is from Lloyd, who knew
S1: we were going to be talking about shares and he
S1: was wondering if we're going to talk about international investments
S1: in the podcast. So maybe we could just talk quickly
S1: about international having an international element to your portfolio.
S2: Yeah, I mean, as we mentioned a couple of times,
S2: diversification is really important and if you only invest in
S2: Australian shares, you're going to get a bit of a
S2: limited exposure to different things. Like Australia is really sort
S2: of overweight as an economy to things like mining and
S2: resources and all that sort of stuff, because obviously that's
S2: what we make a lot of our money out of.
S2: So I think international shares can be really good to
S2: give you that little bit of extra edge on sort
S2: of thing, especially like tech stocks and stuff like that,
S2: because we don't have a huge number of tech stocks
S2: on the local market. So yeah, things like that. International
S2: shares are really important.
S1: Yeah, and it's really easy these days to get yourself
S1: access to that. There's any number of sort of international shares, ETFs.
S1: You know, if you want to pick a particular market,
S1: you can do that or you can get ones that
S1: sort of buy you a slice of everything across lots
S1: of different countries as well.
S2: And just your budget tip of the week, I believe,
S2: is style related.
S1: It is. You look amazing, Don. Thank you. I'm not
S1: sure about myself. This is one thing I feel like
S1: I'm kind of talking to my lady friends here, which
S1: is that we do spend quite a lot of money
S1: on hair treatments and haircuts and, you know, power to
S1: you if you value that. But one thing that I
S1: have really saved and I've got more money to invest
S1: in shares is because I don't pay a hairdresser anymore.
S1: I just well, I did once try to cut my
S1: own hair and I don't actually recommend that. But I
S1: now have a friend who I've equipped with a pair
S1: of $10 scissors and she comes over and she gives
S1: me a hair trim for free every couple of weeks
S1: and it's totally free. And I just like to have
S1: a word. Yes. As I say to my lady friends,
S1: you know, don't get caught up in the beauty gap,
S1: which or the beauty penalty where you're paying a lot
S1: of money to sort of shore up your appearances and
S1: try to boost your self-esteem. You're beautiful as you are.
S1: You look amazing. Get a friend to cut your hair.
S1: And if you if you haven't got any friends with
S1: steady hands, you can look out for tough training days.
S1: You know, there's always people needing to experiment on you
S1: or even search Facebook for hair model groups in your
S1: local area, which where you can connect with sort of
S1: trainee hairdressers so you can save a lot of cash
S1: that way.
S2: Yeah, I I've been told multiple times by barbers, which
S2: I view as an insult, to be quite honest, that
S2: I have a very difficult head of hair to cut.
S2: Something to do with having a double crown makes it
S2: really like hard to style anyway. So as much as
S2: I really like that idea, I think I'm probably going
S2: to stick with my with my local hairdresser.
S1: Okay. You might have special needs.
S2: I do have a specialty and a customer ahead.
S3: Of had a pound.
S2: But that does bring us to the end of the
S2: episode for another week. Keep sending in those listener questions.
S2: We love to read and we love to read them out.
S2: We love to answer them via email address. Is it
S2: all adds up At 9:00 today, you and next week
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