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Money tip #8 – share trading

Want your share portfolio to be less of a gamble, more of an investment? Here are five tips:

1. Time in the market vs. timing the market

Invest for the long-term to avoid the stress of daily volatility on the markets.

2. Follow the Rule of 72

The Rule of 72 captures the beauty of time and the compound interest of good quality shares. Imagine if your portfolio averages 12 per cent. If you divide this into the number 72 you find your money doubles every six years.

While there will be crashes and booms that distort the averaging number along the way, over 20 years, the ups and downs will move back to the average.

3. Diversify

Don’t be subject to the gains and losses of just one company – instead, consider diversifying. Your portfolio could have 10 or, even better, 20 stocks. If you have 10 stocks, each one gives you a 10 per cent chance of helping or hindering your portfolio’s advancement. By having 20 stocks you’re only vulnerable to one stock to the tune of five per cent.

4. Plan your investments

Like anything worth doing, it’s wise to plan ahead. You should approach the construction of a share portfolio in a business-like manner. Create a step-by-step plan that will look at both the potential upside and the possible downside.

5. Seek advice

If in doubt over your stock picks and whether they suit your risk appetite, speak with a stockbroker who will listen to your demands and create a portfolio for you.

A broker often charges one per cent to create a portfolio and one per cent to buy the shares, so if you invest $100,000, it could cost you $2000.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, December 30, 2011

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