Share Investing.
Why Shares?
My Principles
How I Invest
IMPORTANT THINGS TO NOTE!
I’m sharing my own personal approach, remember, this isn't a recommendation, so it's best to do your own research. Consider reading the Australian Government Moneysmart site for more information. https://moneysmart.gov.au/how-to-invest
Why Shares?
So, shares are a type of asset that someone can chose to invest in. Other types of assets include cash, residential and commercial property, digital currencies such as bitcoin and rare art, cars and so on. My preference for shares is for several reasons and where most of my investment savings go towards weekly. Let me explain why.
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Buying and selling shares is inexpensive, typically costing under $10 each time and ongoing fees, usually called ‘management fees’ may be really cost effective. For example, the Vanguard ASX 300 ETF, VAS has annual management fees of 0.07% which is approximately $14 for a $20,000 investment.
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Liquidity is another name for how easily an asset can be bought or sold in the market without significantly affecting its price. Highly liquid assets can be quickly converted into cash with minimal impact on their value, whereas illiquid assets may take longer to sell or require selling at a discount. In essence, liquidity reflects the ease of turning an asset into cash. Shares have a high level of liquidity due to the continuous trading that takes place on stock exchanges. For example, let's say you own 100 shares of a company. If you want to sell them, you can usually find a buyer relatively quickly because there are thousands of investors actively buying and selling shares throughout the trading day. This constant activity allows you to convert your shares into cash promptly, making them highly liquid assets.
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At the end of the day, I want my investments to deliver solid performance over the long term to help me build a solid and independent financial future. Historically, shares have delivered attractive returns over the long term compared to other asset classes, and they also offer the potential to outpace inflation, preserving and growing investors' purchasing power.
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Investing in shares means buying a piece of real businesses or assets. For instance, if you own shares in ETFs, you're essentially a small owner of companies that you might use every day, like Google, Apple, Woolworths, Coles, Bunnings, and Toyota.
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Investing in shares is straightforward and accessible. You can open an investment account, add money, and buy shares easily. Shares offer clear transparency—you can see how much they're worth each day and track their performance over time.
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Starting to invest can be as simple as buying a small batch of shares, like $500 worth, and gradually adding more over time. If you need to sell some shares, you can sell them bit by bit too. Some people prefer using micro or fractional investing platforms, where you can buy and sell very small amounts, like $5 worth of shares. However, I personally like having the shares in my name, which means I get issued a Holder Identification Number (HIN) when using Australian platforms. With micro-investing platforms, the shares you buy are usually held on your behalf as part of a custodial model. While there's nothing wrong with micro investing, I'll be discussing my preference for buying shares with a HIN in an upcoming blog article.
My Principles
Investing principles are like rules or guidelines that help you make decisions when you're investing your money into things like shares. They're based on ideas that have been tested over time and are generally accepted as good ways to grow your money. Here are my principles for share investing.
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Investing for the long term offers a myriad of benefits for individuals seeking to build wealth and achieve their financial goals. Firstly, a long-term investment approach allows investors to harness the power of compounding returns. Over time, earnings from investments can generate additional gains, accelerating the growth of your portfolio exponentially. Moreover, investing in the long term provides the opportunity to ride out short-term market fluctuations and volatility. By staying committed to your investment strategy despite temporary downturns, you can avoid knee-jerk reactions and potentially capitalize on market upswings. Additionally, long-term investing enables investors to take advantage of historical market trends, which have shown that equities tend to appreciate in value over extended periods despite periodic fluctuations. Lastly, investing for the long term fosters discipline and patience, essential qualities for successful wealth accumulation. By focusing on the bigger picture and staying committed to your long-term financial plan, you can increase the likelihood of achieving your financial aspirations.
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Investing for the long term, rather than engaging in frequent share trading, offers numerous advantages for building a sustainable share portfolio. Firstly, long-term investing reduces the impact of short-term market fluctuations and volatility, allowing investors to focus on the fundamental value of their investments rather than reacting to daily price movements. By adopting a buy-and-hold strategy, investors can avoid transaction costs and potential tax implications associated with frequent trading. Moreover, long-term investing encourages patience and discipline, fostering a mindset conducive to achieving financial goals over time. Instead of trying to time the market, long-term investors benefit from the power of compounding returns, as earnings are reinvested to generate additional gains over the years. Ultimately, by maintaining a long-term perspective and staying invested in quality assets, investors can maximize their chances of building wealth steadily and sustainably.
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Maintaining a simple share portfolio through the use of a few Exchange-Traded Funds (ETFs) offers several compelling advantages for investors. Firstly, ETFs provide instant diversification across a wide range of assets, industries, or regions, reducing individual stock risk and increasing overall portfolio stability. This diversification can help cushion against the impact of market volatility and mitigate losses during downturns. Additionally, ETFs typically have lower fees compared to actively managed funds, allowing investors to keep more of their returns. Simplicity also translates to ease of management, as monitoring and rebalancing a small portfolio of ETFs requires less time and effort compared to selecting and tracking individual stocks. Finally, ETFs offer transparency, as their holdings are publicly disclosed, providing investors with clarity and confidence in their investment choices. By keeping a share portfolio simple with the use of a few ETFs, investors can build a solid foundation for long-term wealth accumulation with greater efficiency and peace of mind.
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Automating the process of purchasing a simple share portfolio through the use of a few Exchange-Traded Funds (ETFs) offers numerous advantages for investors. By setting up automatic contributions to your chosen ETFs on a regular basis, you ensure consistent and disciplined investing, regardless of market fluctuations or your busy schedule. This approach allows you to harness the power of dollar-cost averaging, buying more shares when prices are low and fewer when prices are high, ultimately smoothing out the impact of market volatility over time. Moreover, automation eliminates the need for frequent manual intervention, saving you time and reducing the potential for emotional decision-making. By streamlining the investment process, automation promotes financial discipline and helps you stay on track toward your long-term financial goals.
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Utilising index funds, particularly through the form of a few Exchange-Traded Funds (ETFs), offers a straightforward and effective means of gaining market returns for a share portfolio. These funds track the performance of a specific market index, such as the ASX 300, providing investors with broad exposure to the overall market. One of the primary benefits of index funds is their low expense ratios, as they require minimal active management compared to actively managed funds. This translates to lower fees for investors, allowing them to retain more of their investment returns over time. Additionally, index funds offer diversification across a wide range of companies within the index, reducing individual stock risk and enhancing portfolio stability. Their passive nature also means they tend to have lower portfolio turnover, resulting in potentially lower capital gains taxes for investors. Overall, using index funds via ETFs simplifies the investment process while providing investors with an efficient and cost-effective way to capture market returns and build wealth over the long term.
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When I first began investing, I made several mistakes, one of which was purchasing shares that overlapped with investments I already had. For instance, I admired Berkshire Hathaway's and Disney's approaches and bought their shares separately. However, I later realised that I already held these shares through the Vanguard Global Shares (VGS) ETF.
How I Invest
Given my limited time and a history of underperforming when picking individual stocks, I prioritise simplicity in my investment strategy. My goal is long-term growth and stability rather than chasing short-term gains.
I follow the principles of a low-cost core portfolio with a 80/20 split. With 80% of the portfolio geared towards growth, and 20% towards defensive assets.
The 110% portfolio.
Using 4 ETFs and cash.
30% VAS ETF
50% VGS ETF
10% GOLD ETF
10% HBRD ETF
10% Cash
For high growth, the Vanguard Australian Shares (VAS) ETF and the Vanguard Global Shares (VGS) ETF provide great diversification and simplicity. The VAS ETF is an index fund that invests in the top 300 companies listed on the Australian Stock Exchange or ASX. While the VGS ETF invests in around 1,500 companies from developed countries, excluding Australia.
The Physical Gold (GOLD) ETF and the Active Australian Hybrids Fund (HBRD) ETF are both solid options for defensive investments. Gold is somewhat contentious, with some people considering it an essential hedge (such as market volatility) while others dismiss it. However, it has a long history of maintaining value and stability during market turmoil. The HBRD ETF follows the traditional approach of using bonds for defence, which historically has been effective during market volatility. It's important to note that while bank hybrids offer higher potential returns compared to government bonds, they also come with slightly elevated risks.
I keep a separate savings account with a high-interest rate, holding about 10% of our total investment portfolio value in cash. Why? While I usually automate our investments, there are occasions when I might need to act quickly, like during a significant market drop or when a good opportunity arises to buy an undervalued asset.
Outside of the above, I hold about 2-3 other thematic shares, however, the above strategy is our core portfolio.
Fees
Paying low (not necessarily the lowest) fees is important, as at Feb 2025 here are the ETF fees.
VAS ETF - 0.07%
VGS ETF - 0.18%
GOLD ETF - 0.40%
HBRD - 0.55%
So, as an example, for $10,000 of holdings in VAS, annually the fee is $7. These fees are deducted from the fund's overall returns. You might be thinking, OK but the GOLD ETF and HBRD ETF look high. Yes, they are higher, however, there are more costs involved in the management, as the GOLD ETF reserved gold bars (bullion) in a vault in London so you own shares in gold.
Initially, I used traditional share trading platforms to buy and sell shares. However, in May 2022, I came across Pearler, which turned out to be a real game-changer for me. Here's how it works after you open an account:
Choose your 'Autoinvest' allocation strategy.
Set up a recurring direct debit from your bank account.
Decide the amount of cash in Pearler to auto-invest.
That's it! Pearler will withdraw money from your account and, when it reaches a certain value, automatically purchase shares according to your allocation strategy. This approach allows for a 'set and almost forget' strategy.
Here's how I've set up our automation strategy.
Every week, a direct debit is made from my account. When the value reaches $3,211.00 (it does not have to be this amount it can be much less but I ‘nerded’ up with an optimised values calculation), Pearler will buy shares based on my strategy at the lowest price available. In the example below, the next shares to be purchased will be the VAS ETF, as it has the lowest allocation in my portfolio. If this is something that might work for you, here is a personalised invite to Pearler.