Investment tips for newcomers as markets throw up opportunities

Sliding stockmarkets may fall further, but some analysts say there are bargains emerging. Here’s how to begin investing.

The world’s wealthiest investor, US billionaire Warren Buffett, famously told other investors to be fearful when others are greedy, and greedy when others are fearful.

Amid turmoil in financial markets, interest rates and economies, there is plenty of fear right now – so according to Buffett’s wisdom it’s time to strike.

Heavy falls on Australian and overseas stockmarkets this year mean newcomers who overcome their fear can potentially bag a big bargain, because the most profitable investments are often made when share prices are low.

For many would-be investors, the most important step is to overcome procrastination and just do something. Even a small monthly deposit into an investment portfolio can be enough to begin on the path to financial success.

Here are seven key steps for starters.

1. TAKE CONTROL

Australian Shareholders Association director and financial wellbeing advocate Lelde Smits says take control of your finances first.

“Know how much money you have – how much money is coming in, how much money is going out, and how much left over at the end of the day,” she says.

“If you have visibility of your finances, you have the confidence to selectively choose what you will invest in with the extra dollars, without jeopardising essential dollars for living.”

2. HAVE A PLAN

Smits suggests preparing a written plan that highlights what you want to achieve and how you will get there.

“Your investing road map should include how much money you have now and how much you need to live, matched with your investment timeline – long or short – and how much risk you are prepared to take on – higher-risk or lower-risk investments.”

Australian Shareholders' Association director Lelde Smits says train your mind to think long term.

3. POWER OF KNOWLEDGE

“Embrace education, understand your investments and research market moves to ensure every decision you make is the most informed it can be,” Smits says.

Producing a plan is easier if you understand what to expect from investments or seek expert help.

MBA Financial Strategists director Darren James says seeking advice from a professional can be valuable.

“Learn as much as you can – the best advice is to educate yourself,” James says.

“Warren Buffett only invests in things he understands.”

4. SMALL BITES

Rather than one big dive into the stockmarket that could come unstuck if share prices slump further, it’s often a wise move to use dollar-cost averaging – where you regularly buy investments, perhaps monthly or quarterly to smooth out the bumps of market cycles.

“It gives you the best of both worlds – the benefit of picking up investments if the markets are going down, and it’s also a savings tool,” James says.

“It’s a lot easier to set yourself a monthly investment budget as opposed to trying to do a lump sum.

“Avoid having to go back and withdraw the money in the short term.”

5. AVOID TIMING TROUBLES

“Don’t try and time the market,” James says. “It’s a risky play.”

Shares and property should only be used as long-term investments because there can be large short-term rises and falls, such as the current volatility, so an investor who requires their money back in a year or two would most likely be limited to term deposits.

Even traditionally-conservative fixed interest investments such have bonds have gone backwards in value this year because of interest rate impacts.

MBA Financial Strategists director Darren James says trying to time markets is risky.

6. ACCURATE TRACKING

Smits says people should track their investments the same way they track their money.

“Make time to check in with yourself, your goals and your progress,” she says.

“If something is not working, re-evaluate your strategy and rebalance your portfolio. Measure your progress, manage your outcomes.”

Avoid checking share prices or superannuation balances daily, because it’s guaranteed that growth-focused assets will be volatile, sometimes by a frighteningly large amount.

7. MIND CONTROL

“Train your mind to focus on your long-term objectives and not get distracted by market noise,” Smits says.

“We cannot control markets that go up and down, but we have more control over the money we make and the investment road map we create.

“A mind focused on long-term goals will be calmer when faced with short term bumps in the road.”