Expert advice for online trading

Dabbling in online trading can bolster your finances, but experts recommend doing your research and diversifying your market exposure.

Dabbling in online trading can boost your languishing finances, but jumping into the market can also be quite daunting.

With the coronavirus crisis hurting many Australians’ hip pocket, we asked some bosses who work across the trading industry for their top tips.

BetaShares founder and chief executive Alex Vynokur says people should ask themselves “what sort of risk appetite do they have” and exactly what they’re getting into.

First time investors should consider investing small amounts, which could be as low as $100, and look for diversification, he says.

START SMALL AND DIVERSIFY

“We are definitely big believers in the fact that first time investors would be better off dipping their toe into the market through exchange traded funds, rather than picking single stocks because picking single stocks has proven to be extremely difficult even for the professionals.”

The number of local investors using exchange traded funds — which provides exposure to different stocks and sectors in Australia and around the word — surged 58 per cent to 720,000 last year. Almost two-thirds of new ETF investors were millennials and Generation Z, according to BetaShares Investment Trends research.

Tim Sparks, head of distribution at Bell Direct.

Popular ETFs include NDQ, which provides exposure to 100 global companies on the Nasdaq-100 index in the US, and HACK, which aims to track the performance of an index that provides exposure to major companies in the cybersecurity sector. Plus, ASIA, which aims to track the performance of an index, comprising of Asia’s 50 biggest technology and online retail stocks such as Alibaba, Baidu and JD.com.

APPROACH CRYPTO WITH CAUTION

Vynokur says there’s also “lots of buzz around crypto currency” but it needs to be approached with caution.

AUSIEX CEO Eric Blewitt recommends taking the time to understand how trading works and research where you want to put your money.

Blewitt says by starting small it will allow you to increase your understanding over time.

“Only invest in things you understand, so you know what your money is doing.

“Investing isn’t a short-term game; think of what you want to achieve longer-term – this approach will help when you have to ride the ups and downs of the market,” he says.

Blewitt also recommends people diversify their exposure to avoid putting all their eggs in one basket.

“Having money in different parts of the market in different stocks and sectors is one of the fundamentals of investing that has been around forever because it makes sense and it works,” he says.

“One way to achieve this, which we see a lot more investors taking up, is by investing in exchange traded fund, which provides this type of exposure,” he says.

“I used to think that investing is for the wealthy...but that’s not true. We are all investors through superannuation.”

Eric Blewitt, CEO of AUSIEX.

Tim Sparks, head of distribution at online trading firm Bell Direct, says focus on an investment goal, like you would when saving money in a bank account.

“Investing is just a way of saving and building wealth, but not in a bank account,” he says.

SET INVESTMENT GOALS

Sparks says it’s important to decide what you are investing for, whether it be a new car, house deposit or retirement, and to then to break down the investment targets into short, medium or long-term goals.

He says keep costs low by picking wisely. A $10,000 investment with a 0.2 percent fee that returns 8 per cent annually over 10 years would cost around $300. That same $10,000 investment with a fee of 1.2 per cent would cost about $1670.

“Another option is to invest in the stocks directly, which means you could save even more. This is because unlike managed funds and ETFs, if you select your own stocks then you do not incur ongoing or annual fees,” he says.

Sparks says many of Bell’s clients use ETFs as a “starting point in their portfolios” then use their resources to quickly educate themselves on trading.

Diversifying will also minimise risk, ensuring a “smoother ride” and ”peace of mind, he adds.

“Different asset classes perform well at different times in the market cycle, so a diversified portfolio investing in a combination of growth assets and defence assets can help to lower volatility in your portfolio returns over the long term.”