Your questions answered by an industry expert
Advice for getting started in the stock market
I am in my 20s and keep hearing about how the stock market is now a great buying opportunity. Some say it is a once in a lifetime opportunity but I have no experience in buying shares. I am not ready to buy a house, which seems easier to pick a good one from a bad one, but I need help with shares. What are your suggestions? Ben, Glenelg, SA.
You know a well-constructed portfolio of shares can be as good, if not better than a property, as there is no maintenance, tenant, rates and taxes as well as unfair property taxes. But you are right, it's hard for an inexperienced person to buy shares as a long-term investor.
One way is to buy five great shares to start with.
If you had $10,000, put $2,000 on each company and buy them through an internet broking business.
Do your homework by going to the website and first pretend you are buying to get the hang of it. Do this until you feel confident with the transaction process. Next select five blue chip companies that pay dividends around 4-5% at least. Go to the stock section in a newspaper and look at the column that says "dividend yield" and that's the percentage they pay on dividends. Get a list of Australia's top 20 companies and find, say one bank, one miner, one retailer, one building company and say a property business such as Westefield or Stocklands.
Get to know these companies - really understand them and you then could add five more and have 10 companies. These might be smaller but good name companies.
You could build up to 20 companies and that means you will only have 5% exposure to each company. Then build up your stakes in these companies.
On the other hand, you could go to the ASX website and look up exchange traded funds. A company such as Vanguard have these funds that buy the index of shares and have 300 companies in them. When the market rises you are making money, but when it falls you are losing but the dividends they collect on these companies softens the losses and adds to the gain.
You could also buy into an investment fund offered by well-known banks and others, but be careful of their fees. The bottom line is you can do it - just do the homework. Good luck.
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