share market

The Template

This template will combine and take you through the steps we have covered in this Fundamental Series:

Find the Link below – note you will have to make a copy if you click the 2nd button. I would also strongly recommend using a real computer and not a phone (just like for all things worth doing).

All the best with your investment endeavours and reach out if you have any questions.

Future Posts

I plan to cover more areas in this area such as Cryptocurrencies, Trading Cards and Other Investments so watch this space. Below is my favourite tennis player and collector coin which is actually quite a lucrative investment!

ETFs

With so many ETFs of all shapes and sizes now available on the market, finding the right one to invest in can sometimes be a difficult choice for investors. Here are a few suggestions on what to look out for when choosing ETFs.

Align to allocation: First and foremost, finding the right ETF should depend on your own investment objectives, portfolio asset allocation plan and personal priorities.
Know your provider: Apart from market forces, how well an ETF performs can also depend on how it is managed. Investing with a reputable fund manager with experience and a good track record of delivering index performance is important.
- - BetaShares
  - Vanguard
  - Vaneck Vectors
Compare the costs: Costs are one of the more straightforward ways to compare ETFs and can be particularly important when you are selecting between sometimes similar products.

Paraphrased from Vanguard

ETF Comparison List

Ordinary Shares

There are usually 2 schools of thought with choosing shares

Fundamental analysis evaluates securities by attempting to measure their intrinsic value.
Technical analysis differs from fundamental analysis, in that traders look to statistical trends in the stock’s price and volume.

Being a bit of a cynic in this area of late, I think a lot can also be put down to common sense on macro environments. you can try using some ‘deductions’ such as ‘Lithium prices will go up in the next few years due to x, y, z’. With that in mind, find some shares in those sectors.

An example I’m hoping to bank on is corona virus on the Travel and Flight industry. Hoping they recovery in the medium term should yield some results as the share prices are currently at very low rates compared to pre-COVID19.

Penny Stocks and Micro Caps

Much of this is fortune telling, but if you’re willing to put in a lot of time and research and have a knack for geology, you could do well with the mining / exploration companies. Otherwise you can try using some ‘deductions’ such as ‘Lithium prices will go up in the next few years due to x, y, z’. With that in mind, look at some micro cap companies exploring for these precious metals. Look into the announcements and other macro factors look for things such as

Can they survive on their current cash balance?
Are their deposits likely to yeild solid results? Could compare to other explorers in the area.
Always be conscious of the price of the underlying asset e.g Gold Explorer prices will go up if the intrinsic price of gold also goes up.

List of ASX Companies by Sector

‘Professional’ Micro Cap Investors – Next Investors
You can also see their current portfolio

Crypto Currency

To be honest, it’s all guess work here.

I have heard this guy is good though.

Market Prices for Cryptocurrencies

I have created the below cheat sheet to get an idea of the risk profile of investments. These are not ALL investment types, but the ones I want to discuss.

Cash
This is essentially 0 risk. Hold your cash (emergency funds + funds not ready to be invested or holding for other opportunities)

Property
Can be a good way of earning capital growth (Capital growth is an increase in the value of an asset or investment) Through appreciation of house prices or income through rent (or both!). However the initial investment for one of these warlocks these days is so high (in Sydney anyway) that we’ll tackle this in another post. These kinds of investments could help you build and make that deposit, so read on!

Types of Shares – Ordinary Shares, ETFs & Penny Stocks
Yes, they are all the same things but slightly different. In terms of variety of risk, shares have the largest spread. They can range from low to high, it all depends on the company you chose to invest in. Before we go into this, let’s understand ETFs.

Ordinary Shares – this is a SHARE in a company. So if the company does well, so will you (in theory).
ETF – An exchange traded fund (ETF) is a basket (or bunch) of securities that trade on an exchange, just like a share, so when you own a share of an ETF, you will own a little bit of all shares in the ETF.
Penny Stocks – A penny stock typically refers to the stock of a small company that trades for less than $1 per share and hence the name penny stock. They seem very cheap and you can usually buy a lotttt of shares and then small changes in the price of the shares can make you very rich or poor.

How do you differentiate between high and low risk?
Think – Risk types. A good detailed document can be found here. But I think they are quite easy to understand with some common sense.

Volatility risk: how big the swings in price can be. I.e penny stocks and mining / exploration shares can have very high fluctuations. If good news comes in boom, if not, bust.
Timing Risk: Think COVID. Airlines are struggling right now so the share price is probably low (or is this an opportunity?).
Legislative Risk: i.e Cannabis could be announced as legal
Currency and Foreign Exchange Risk: Many companies operate world wide. If they have significant operations in Japan and an earthquake happens – potential busto.
Sector or Market Risk: Technology / mining / Travel / Gold could boom. Which market is your share in?

Generally, with higher risk comes higher (potential) return
I think that’s enough said here.

Barriers to Entry & Effort
Barriers to Entry here is essentially how much money you need to get started in this space. At least with CBA the minimum is $500 to purchase a parcel of shares. Whereas a house is roughly going to set you back 10% of the purchase price. (Kel’s friends recently purchased a $2m house, so that’s at least $200,000 just to get started!). It may also be hard to set up trading accounts, although it’s very simple see my – Shares Part 1 – Setting Up A Share Trading Account.
Effort: How much time do you want to spend monitoring and investigating your investments? With MOST ETFs, you can generally just sit back and trust that someone smart is doing the hard work for you (that’s why they take the management fee). Otherwise you might find it fun to research penny stocks and play ‘Where’s the Gold’ and get some Lucky 88!

Crypto Currency
Who even knows with this stuff – it’s literally gambling so if you want to spice it up a bit – I suggest Compound – for no reason other than I saw it somewhere in my crappy newsfeed.

Next in the series we’ll look into:

Resources on how to find and chose Shares – blog to come soon
How to buy and sell through your bank or broker – Shares Part 1 – Setting Up A Share Trading Account.
Tracking your investments – blog to come soon

Possibly the most difficult question to answer in getting started in some serious investing. This is not a perfect guide as each person is different, this is MY APPROACH which you can feel free to follow or take parts of to apply them to your circumstances.

Questions to ask yourself

How much cash do you need to last an ‘Emergency Period’ of X Months?
X month is different for each person. I would interpret it as how long it could take until I start earning decent money again? For me this might be 2 months, for others it could be 6 months to a year, it depends on jobs, specialisation, business type, market, etc.

To determine this we’ll have to set up a simple
Personal Income Statement:

The main parts to this are:
– Income: for most people this will be on your payslip / salary
– Expenses: from your cash / credit card / debit spends

How much money do we need to live (on current spending patterns)?
It’s a good idea to log into your bank and some have features which will tell you how much you spend. Example Macquarie Bank

It’s best to find a base for your spending, either monthly or yearly. Then you can understand for yourself more easily. Just note that sometimes the spend can be skewed by a holiday or other expenses, so you can normalise these for a more accurate number. I.e I might only go on 1 holiday per year, so $14K would be much too high.

So… what’s my minimum? $2,900 per month. Yearly…. $35,100

Final Result: $2,900 per month. For 6 months I’ll Need $17,600
This money will be kept in cash (in a bank account) and (hope to) never touch unless you really need to.

How much cash do I have available to invest?
Take some time to form a to look at your cash balances and other assets. This will help determine how much money we have left over to potentially invest (As we need a buffer of $17,600 minimum).

Cool – maximum investment amount $62K, but

What would be a reasonable amount considering my circumstances?
Considering this further, we may want to bulk up our emergency fund to consider the following:

Age / Closeness to retirement: The older you are the more you want to bulk up your fund with protected cash
Dependents / Inheritance: You may have children on the way or want to pass on a lot of your wealth to kids / grandkids.
Future Earnings Ability: you might have a successful job and be earning significant cash each year so your current balance feels particularly low
Other Expenses
- Funding your retirement – ensure your super balance is adequate to fund your desired retirement lifestyle
- Upcoming significant expenses – holidays, purchasing a house, wedding etc

Examples

The below examples are simple examples not financial advice. Apply your own circumstances and knowledge to your situation before investing.

Simply put these examples will give you an idea of the maximum amount of money you could invest. The weighting is your personal subjective opinion on each of the 4 categories. You can find the template HERE to manipulate your own google sheet and set yourself up to invest! The additional steps below will add to your starting emergency funds to provide additional safety to your equity.

Example A: Young Person in a solid Financial Position

Age / Closeness to retirement: 30 Years old, 20+ years to retirement. Long way off, would be wanting to build adequate retirement funds
Dependents / Inheritance: No children expected in the next few years and no dependants.
Future Earnings Ability: Currently earning in excess of $100K yearly with regular pay rises and promotions expected over the medium-long term.
Other Expenses
- Funding your retirement – Want to enjoy a comfortable retirement, nothing too flash
- Upcoming significant expenses – Wedding planned in the next year, expected to be $20K

Example B: Closing in on retirement

Age / Closeness to retirement: 55 Years old, <5 years to retirement. Very close to retirement, should be protecting assets built up over the years to spend during non-working times.
Dependents / Inheritance: 10 kids & grandchildren, they are self sufficient but want to ensure they are provided for comfortably before and in the Will.
Future Earnings Ability: Currently semi-retired and spending the majority of this money for life expenses and enjoyment. Earnings will only deteriorate from here.
Other Expenses
- Funding your retirement – Want to enjoy a comfortable retirement, nothing too flash
- Upcoming significant expenses – None to note.

Example C: Young and supported by family – e.g Uni Student

Age / Closeness to retirement: 20 Years old, +35 years to retirement. Very far from retirement. Longest time to build asset value.
Dependents / Inheritance: Nothing planned for now or in the future.
Future Earnings Ability: Might make some cash mowing lawns or very part-time job, but earnings can only go up from here. Parents will be supporting most expenses.
Other Expenses
- Funding your retirement – Want to enjoy a comfortable retirement, nothing too flash
- Upcoming significant expenses – Holiday for a gap year or something. Important for life experiences.

Summary

Each person is in a different circumstance. Looking at your life factors will help determine how much you can afford to invest.

You want to have a good balance between using your assets effectively to further your income and protecting the equity you’ve earned over your lifetime. Every year or so you should consider if your life circumstances have changed and adjust accordingly.