This article appeared in the January 2015 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
Five key New Year resolutions and how to commit to them.
By Janine Cox, Wealth Within
There is an old saying that you can't buy new clothes until you clean out your wardrobe, which basically means you can't move forward until you create some space in your life. There is no better time to do that than now, to help make 2015 your best year yet. I'll get you started by giving a few resolutions, tips and ideas to improve your sharemarket investing for a new year.
First, it is the Year of the Sheep and 1.5 billion people in China think 2015 is likely to be a special year, so perhaps we should sit up and listen. You are probably wondering what sheep could possibly have to do with our sharemarket. Well, the Year of the Sheep is the eighth sign in the Chinese calendar and the number 8 is considered to be very lucky, symbolising wisdom, fortune and prosperity.
It is easy to think of New Year resolutions such as losing a few kilos or cutting up the credit card. After all, we tend to eat too much and some spend too much, particularly at this time of year. However, when it comes to investments, ask yourself if you really gave them the attention they deserved in 2014.
Your decisions in 2015, and every year, could mean the difference between being financially free or not. It could mean much more in your pocket, now and in the future; it could mean a better school for your children; or it could mean an early and/or very comfortable retirement. The possibilities are endless.
Most people start investing with the best of intentions, but execution is often poor. There are four very good reasons for this.
- They have not created a strong enough 'why'. This is the big one, so if you don't know the answer to "How can I create a strong why?" you may as well skip the rest as you are more likely to fail than succeed. Remember, focus on what you want rather than what you don't, and be sure to clearly document your why. You need to commit to your why and that means making a decision, which for most people is the hardest part and the reason your why needs to be strong.
- Create the space in your daily/weekly routine to include time to develop the habits of successful investors, otherwise your goal is just wishful thinking.
- Set small milestones and celebrate them when completed. This way you can see your progress and that you are getting closer to what you truly want.
- Many give up before they start. If this is you, go back to point one. Remember that even small steps will get you to your goal.
Resolution 1 - Save money
Document how much money you can free up for investing, before you look for investments. I hear many cases where people decide to buy property and then struggle to get finance. Your available money dictates where you can invest. For example, the amount you need to invest in shares is a lot less than for property.
Therefore, your first resolution is to put away money each week until you save enough to invest in shares. For example, $10,000 is a good starting amount, to buy five different shares with equal amounts in each. As you continue to save, add more shares until you have between eight and 12 different companies.
Resolution 2 - Make regular contributions
Make regular contributions to your investments. Remember, you need to develop the habits of successful investors. If you are building a portfolio, as a general rule add half the value of the original purchase to each share, once in profit.
Resolution 3 - Acquire knowledge
The best investment you will ever make is in yourself. Decide to study, to lift your level of knowledge and increase your chances of success. The best place to start is the ASX website, which has courses to get you started.
Also books, such as Dale Gillham's (Wealth Within founder) How To Beat The Managed Funds By 20%, will teach how to run a portfolio. Or Share Investing for Dummies, by James Dunn. If you are looking to be more active, or to trade, Wealth Within has put together an inexpensive 10-lesson course called Trading Mentor, which will get you started on the right track.
Resolution 4 - Research
Dedicate time each week to apply your knowledge and research suitable investments. Again, a good place to start is the ASX website. You may like to read Wealth Within's fortnightly newsletter or listen to our regular podcasts.
Resolution 5 - Get everyone involved
A great idea is to get the children involved in discussions about investments around the dinner table rather than watch them play games. Get them involved in the learning and research, which can be a lot of fun, especially with companies they know, such as Myer Holdings, Village Roadshow, Domino's Pizza Enterprises and Woolworths, to name a few.
Five tips for writing resolutions
- Document your why - why do you want to invest and what will investing give you?
- Write clear resolutions/goals and list sub-goals or mini steps to achieving them.
- Put your goal and your why where they are a visible reminder.
- Mark in your calendar regular times to spend on achieving resolutions.
- Work out a reward for achieving milestones.
My seven tips to better investing
- More information is not better, and relying on free services will cost you. I suggest you limit your information and either pay for quality independent research, or invest in yourself and learn how to DIY.
- Find a mentor. Learning to invest is easy when you have a mentor to guide you.
- Have in your mantra that investing is for the long term, so don't think you will get rich quick. Remember, this is your life, not a roulette wheel.
- Start small and build up. You do not need to become Warren Buffett in a day. Buy big blue-chip companies until you get comfortable with investing and only then expand into other things.
- Do not throw more money at a losing investment. Many people think they are buying a share cheaply, only to watch it go lower. Only buy shares that are rising in price. There are some very simple strategies taught in the available resources mentioned, for investors and traders, that take little time to learn, teach you to be safe in the market, and are very profitable.
- Spread your investments across different stocks and sectors. Buy between eight and 12 shares. Having only a portion of your capital in one area of the market allows you to weather a storm. If the market, or a stock, falls, make sure you have a stop-loss set to manage your risk.
- Most importantly, have a plan, and learning how to test it will give you more confidence to invest. This way you will know when to buy and sell.
About the author
Janine Cox is an analyst at Wealth Within.
ASX online courses cover shares, interest-rate securities, warrants and instalments, exchange-traded funds, options and futures. The shares course has 11 modules, each taking 10 to 15 minutes to complete. Topics covered include: What is a share? How to invest; Risk and benefits of shares; What to consider in an investment; How to buy and sell shares. Simple summaries and quizzes in each module make learning fast, easy and enjoyable.
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