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Ten share-trading tips for beginners

I know investing in shares is a complex game and you need to do a lot of homework and you need to talk to advisers or brokers but could you give me some simple rules of thumb, so I can start and do my learning relatively safely? I am 25 and want to build a portfolio of shares.

This is a handful of simple rules which could start you off.

  1. Work out a percentage of money you can afford to lose but think of it as saving in riskier assets compared to a fixed deposit. We hope to get better than six per cent, which these deposits are paying for one year.
  2. Buy good name companies that pay dividends around four per cent or better. This way you only have to make three per cent on the share price to beat the six per cent mark.
  3. Buy the companies when the market is in retreat, if you can, but let me warn it can be tricky trying to time the market.
  4. Buy shares regularly, say every month or quarter. If share prices are down and you buy the same companies, you bring down the average price of the shares.
  5. Use a discount broker to save on fees in the early days but later a full service broker can offer you services that can be helpful, such as getting share allocations of a newly listed company.
  6. Invest in yourself by reading about shares but be careful of ‘get rich’ merchants. You can listen to them for tips but don’t sign up for anything.
  7. Understand the tax benefits of buying fully franked shares and how selling shares can be used to manage capital gains tax on shares you sell to make profit.
  8. Generally, be a long-term investor until you are smart enough and have the time to trade short-term.
  9. Don’t put all of your eggs in one basket and have at least 10 shares for 10 per cent exposure to any one share but maybe 20 shares would be better over time.
  10. Finally, you should look into the lessons taught by Warren Buffett. Good luck.

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.

Published on: Tuesday, August 24, 2010

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