Are you thinking about starting to invest? Awesome – you don’t need to know as much as you might think. Here are five simple principles for you to get started.
1. The best time to invest was yesterday
Hey Kernel, I can’t do that…Yeah we know, but just remember that the best time to invest is not today or tomorrow – it was yesterday. What we mean by that is no one knows what the stock market or economy are going to do, so “timing the market” is just guess work. There’s lots of research that proves this too. How do we know that yesterday was the best day to invest? Well we don’t, and that is the point. You should just get started.
2. Low costs, more returns
It makes logical sense that lower fees = more money in your pocket. This can have a huge impact on your portfolio balance over the longer term. The amount you pay in fees reduces the amount you’ve got invested, so you’re missing out on the chance to earn a return on those lost dollars. Lots more research has shown that in the long term, very few fund managers can outperform by more than their fees and the ability to do this year after year is unproven. We are super proud that our business model allows us to have seriously great investment management fees (if we do think so ourselves).
3. Diversification is king
In short, diversification is basically not putting all your financial eggs in one basket, or spreading your risk. There is such a thing as too much property, too much cash or too many shares!
Diversification across asset classes is key; this means having exposure to shares, cash, bonds, property. It’s also important to diversify within those asset classes.
4. Match your investments to your years
When do you need the money you want to invest? Ah Kernel, what do you mean? Let’s say you want to buy a bach – but you think this is something you are likely to do in 8-10 years. This is quite a long time frame before you need the funds. Therefore, you should really consider this when looking at your investment options.
If you have a longer time frame you may be more comfortable with more volatility. Typically this means considering investment options with higher risk and (therefore) higher return. If you wanted to buy the bach in two years, your investment options & tolerance for volatility is likely to be very different (lower) to buying in 8 years. Match your investments to your years, people.
5. Live your life
Have you ever bought a new jacket then checked back on the store website for the next seven days to see if price has changed? No – you’re just busy showing off your new threads. What about when you bought a car? Hmmm, maybe, just checking you got a good deal. A house? You probably kept an eye on recent sales. After a big decision it’s natural to want to know we’ve made the right choice – and in the case of investing, have this confirmed by seeing our investments increase in value. This natural inkling driving you to look is called post purchase dissonance.
But guess what? Markets are unpredictable (refer point 1). So, do yourself a favour, live your life, enjoy your smashed avo and let your portfolio do its thing.