How to dip into the stock market without buyer’s remorse

As the housing market gets more depressing, Aussies are falling in love with stocks. Learn to lose your stock market virginity — and not regret it.

Barefoot Investor Scott Pape. Picture: Graeme Taylor

Australians have officially fallen in love with the stock market.

And, according to the Australian Securities Exchange (ASX), guess which age group is leading the charge?

The Millennials.

Now there are two reasons why I think so many young people are interested in stocks right now.

The state of the housing market is just so freaking depressing, and stocks (and crypto) have been going up a lot … so it’s a chance to get ahead financially.

According to the ASX, there are 900,000 investing virgins who plan on getting in on the game next year.

So, if that’s you, here’s how to lose your virginity (and not regret it).

1. GO MARIE KONDO

Last year – as lockdown hit – you probably watched Marie Kondo on Netflix, then immediately started rifling through your junk.

Here’s the thing: most people get swept up in something new for a brief moment … then forget about it.

(Seriously, go look at your sock drawer today.)

My advice?

Embrace your new-found interest in investing while it lasts. And my very best tip is to scratch your itch by sorting out your super. Seriously, it’ll take you a few hours to hunt down a low-cost, high-growth index fund, yet it is one of the most lucrative things you’ll ever do. While you’re at it, gather up any super funds you may have and consolidate them into the one low-cost fund.

Ask yourself: “Does my super fund spark joy?”

2. DON’T BET THE HOUSE

Here’s you: “I’ll boost my deposit savings by investing in the market.”

Here’s me: “Don’t do it.”

If you’re planning to buy a house in less than five years, don’t invest a cent of that money in the market.

I know you want to.

But take it from me: the returns we are seeing right now are not normal, and they will not last.

Case in point: strategists with Bank of America have estimated that, if things continue at the same rate for the remainder of this year, share funds will take in more money in 2021 than in the previous 20 years combined. Heck, Aussie shares just posted their biggest rise in 30 years.

Again, not normal. So repeat after me: “I won’t bet the house.”

3. BE CHOOSY

If you’ve sorted your super, squirrelled away your house deposit, and are ready to invest … go for it!

Just don’t buy Dogecoin, or you’ll end up with financial fleas.

And don’t play games with financial apps that sweet-talk you with “super-easy” $5 and $10 trades. Trust me, whatever you save on brokerage fees you could lose making dumb trades.

Instead, stick with boring, automated, set-and-forget investments.z Pearler is a new app that’s doing good things, and the world’s second biggest fund manager, Vanguard, has just dropped its already low fees.

Barefoot says: “You only lose your virginity once. Make sure it’s with someone who’ll care about you in the morning.”

Tread Your Own Path!

The only gamble you’re taking with home insurance is not having enough.

Are You Feeling Lucky, Punk?

Hey Scott,

When it comes to insurance, I am struggling to find the line between “necessary” (like life insurance) and “unnecessary” (like do I want to gamble my hard-earned money on whether my house will burn down?). If one of us were to die, I don’t think the life insurance money would console the surviving partner. Yet they may face financial hardship without it. So do I gamble, or bite the bullet and just accept it for what it is?

Fred

Hi Fred,

Playtime is over.

It’s time for you to put down your twinkies so we can do some adult-ing.

You need insurance.

Listen, I’m no shill for the insurance industry but, as someone who’s lost their home and contents to a fire (and two cars to rats!), I can tell you the only gamble you’re taking is not having enough.

Here’s my rule of thumb: only insure against things that will financially knock you out.

Example 1: You’re worried that your $30 Kogan hand wand blender could start smoking while you’re whipping up your famous fried twinkies. Should you pay $9 for the extended warranty insurance?

Answer: No.

Example 2: An electrical fault occurs and your $450,000 home, along with $60,000 in household contents (including your hand wand), burns to ashes. Should you pay $100 a month for house and contents insurance?

Answer: Hell, yes.

Final example: The average Aussie will earn $2.07m over their working life ($2.9m if they have a degree). What will life look like for your partner if you lose that income?

Answer: Bad.

So let me give the last word to infamous insurance salesman Dirty Harry: “You’ve got to ask yourself one question: Do I feel lucky? Well, do you, punk?”

Any moneyyou invest in a funeral bond can only be used for your funeral. You can’t take it out earlier.

The Bitcoin-Plated Coffin

Hey Scott,

We are starting up investment bonds for our child’s future (and plan to have more kids too).
I noticed the provider also has a funeral bond option. Is it worth it for a guy in his thirties? Or should I put, say, $10,000 of cold, hard cash per person in my fireproof safe to cover such
an event? As we know, Mr Death is awaiting his timeslot.

John

Hi John,

All this future planning has got you fired up, hasn’t it, mate?!

Well, you do not need to invest in a funeral bond. Here’s why: any money you put in can only be used for your funeral. You can’t take it out earlier.

So, if you sink $10,000 into a funeral bond today, and let compound interest do its thing, your funeral in 50 or 60 years’ time will be absolutely epic! With the eventual bereavement bounty you will have, you could afford to be carried out in a bitcoin-plated coffin as the Rolling Stones play a live acoustic set. (Oh wait.)

According to MoneySmart, funerals cost anywhere from $4000 for something basic to around $15,000 for something fancier. Somewhere in the middle seems about right, right?

My advice: put your energy and efforts into ensuring that you and your wife have adequate life and disability insurance instead.

Our Kids Have No Idea How Rich We Are

Hi Scott,

My husband and I worked really hard, started a successful business, and are now in a very fortunate position. Every single dollar we have, we have earned ourselves. My question is this: how can we ensure we instil good money values in our three children? At this stage they have no idea of our financial situation. What can we do to ensure they know that money is earnt?

Thanks, Alison

Hi Alison,

Great question!

I’ve thought about this deeply, because my kids are in the same sort of boat.

(The other day my wife was in a shopping mall when our three-year-old said “Look, there’s Daddy!” My wife corrected her – “No, Daddy’s on the farm” – before looking up and seeing my smiling mug on a billboard.)

Here are three things I’ve thought about.

First, and most importantly: our kids won’t be inheriting our investments.

Instead, each of our kids will receive a “Barefoot Ladder” – meaning we’ll match, dollar for dollar, whatever they can save towards a (safe) car or a house deposit.

Other than that, they’re on their own.

Second, never talk about your wealth in dollar figures (kids have no context or frame of reference).

Instead, spend time talking about, and showing them, how much you enjoy working hard, and the meaning and purpose you get from the work you do. (That’s why my kids tag along to my book signings.)

Finally, when you boil the parenting thing down, all you really want is for your kids to be hardworking and kind. If they have “get up and go” and are caring human beings, you’ve done your job!

The best way to achieve that isn’t by lecturing them.

It’s partly by modelling these behaviours yourself, and partly by providing them with a weekly opportunity to roll up their sleeves and experience working hard, spending wisely, and giving generously.

You Got This!

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

Got a money question to share? Go to barefootinvestor.com and #askbarefoot

Originally published as How to dip into the stock market without buyer’s remorse