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Share Market Investing

Share Market Investing

Blue Chip vs. Risk is very important when looking at long term growth of your share portfolio. 

Learning about Share Market Investing has never been easier. Buying shares once you have set up a share trading account is quick, can be easily monitored, exciting and easily liquidated in the event of an emergency.

So the best place to start would be, take stock (pun intended) of:

What is your current financial position and goals

Gather Information / Educate yourself

Understand Investing for long term growth / Income

Know the difference between trading and long term investment

Maintain good records for tax purposes – both brokerage fees as a deduction and income must be declared in your tax return

The share market has been kind to our investment journey over the years, and there are different ways to be involved. You can use a share broker, buy managed shares or just make the purchase of shares from your own share trading account.  We have tried all of these methods and it is a personal choice as to what you feel more comfortable with and how good your blood pressure is!

We often tell friends and family investing in the share market is like going to the casino. Only put in what you are prepared to lose – but this is only partly true.  With good research and diversification you can do very well in shares, in any market. 

It is very important not to listen to friends and acquaintances giving you hot tips. Especially if you hear the words ‘hot tip’, ‘heard about this great company’ or ‘got some great inside information that this company and it’s shares are about to take off’. Only put your money in an investment that you understand and can see value in.   If just starting out maybe look to companies that in any economic climate their products or services are going to be required.

Read, Read and Read some more

In one of my favourite books, The Richest Man in Babylon by George Samuel Clason it states “Any man who will put by one-tenth of his earnings consistently and invest it wisely will surely create a valuable estate that will provide an income for him in the future and further guarantee safety for his family in case the gods call him to the  world of darkness.  This law always sayeth that gold cometh gladly to such a man.”  The more you save the more you attract wealth to you.  There are countless books that will inspire you, teach you and propel you forward on your journey.  I can not stress enough READ!

When looking to start Share Market Investing and create a share portfolio considering shares blue chip vs. risk it is important to remember this, like your other investment classes, is not a get rich quick scheme, it is a long term measured investment focus that will provide a residual income in the future for when you retire and then turn the dividend re-investments to payments to your bank account as wages/income.

The main benefit of share market investing, you don’t need much to  start, unlike other investment classes.

You will be at some time during your portfolio development be tempted to “take a chance” on a developing, upcoming company and you may or may not do well as a result.

Risk Component

The main thing to keep in mind when building a share portfolio is remember you risk component of your share portfolio should account for no more than 10% of your holdings.  With this in mind, it is recommended you focus on building the long-term non risk component of your share portfolio before adding “risk” shares.

If you were to invest in a risk share as first time share investor and the company folded (more common in the current economy, than ever before) you would be less inclined to venture into further share market purchases.  Irrespective of the risk level based on that first bad experience. 

This can happen across all investment classes.  You often hear people who have bought an investment property and for whatever reason (lack of research, bad tenants, no capital growth) it has not performed as well as they had hoped.  It was a disaster and they will never do it again – you get the idea. 

When looking to invest in any investment class, research, education and understanding what you would like the investment to achieve will help you achieve the desired result.

There are lots of online resources to help you get started even if you are getting started with no idea of what shares are and where to start.  I would the the Australian Stock Exchange website (ASX) which offers an excellent education portal with a wealth of information, tools and courses (free!) tutorials and you tube videos.  Fantastic resource for both learning and research of companies if you don’t have a share trade account.

So, back to Share, Blue chip vs. risk

What is a ‘Blue-Chip Stock’

As described by Investopedia – A blue-chip stock is the stock of a large, well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name.

While dividend payments are not absolutely necessary for a stock to be considered a blue-chip, most blue-chips have a record of paying stable or rising dividends for years, if not decades. The term is believed to have been derived from poker, where blue chips are the most expensive chips.

What is a ‘Risk Stock’

A risk share is one that you are hopeful the company may develop a product or cure, discover mineral deposits or invent the next “big thing” that will see the share price exceed expectations in a short period of time.  This can and does happen but it is a risk and plenty of companies fold in the process – hence the risk.
 
Some things to take into consideration:
  • When picking a share trade account (commsec, suncorp share trade, Etrade etc) some will not allow overseas share market purchases and monitoring of shares held on overseas markets so if you intend on purchasing shares in overseas markets make sure you check they can
  • They all charge different amounts for brokerage per transaction and this can vary with the value of each transaction too – understand the fee structure to help structure your purchases
  • As depressing as it sometimes can be, start taking an interest in world events, elections as these can play a big part in the success or downfall of particular sectors and companies
  • Take note of dividend payment dates and understand that the price of the share will fluctuate around this time as profit takers get out with their dividends
  • Don’t panic if something causes the share market to drop dramatically, you do not lose money until you sell.  You can not check the price of shares every five minutes or you will have high blood pressure before you know it! That is why a long term focus is important

So when considering Share Market Investing, there is room in everyone’s portfolio for both blue chip and risk shares.  When starting out it is generally advisable to stick to shares that will provide solid growth and income to allow you to grow your portfolio.

It is also important to pass on this education and the importance of accumulative wealth to your children so they understand its value and hear positive talk about money.  Our other blog Ripe Wealth Creation will be coming soon, you can follow it on facebook now so you know when it launches.  We will be providing tips and education to start your investment portfolio in simple easy to understand language.  We have years of experience in a variety of investment areas which we will be sharing what worked for us (and what didn’t) to help others take control of their financial future.

Happy Investing!

 

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