Want to invest well? Stop fussing over fees and fancy apps

The No.1 mistake I see people make when investing is majoring on the minor, particularly when starting out. There’s more to your investing strategy than just the broker or platform you invest through.

Brokers and investing platforms all do the same thing. They are in the same ballpark in terms of costs and the only difference between them might be the way the app looks or functions, or some other superficial feature.

In reality, brokers and investing platforms all do the same thing. There are far more important things to put your mind to.Credit: Unsplash

That’s not to say that the broker or platform you use shouldn’t make sense to you and be easy to use – that’s not my point.

However, what matters more than the choice of broker or platform is the ownership structure you choose, how long your money will be invested and what the tax and estate planning considerations for the investment are.

You also need to understand your risk tolerance and have a solid understanding of what you’re investing in. It’s important to be informed when making these decisions.

You need to know, for example, that a large portfolio might result in too much ongoing tax; or that you could have an adverse tax event when selling down shares if the ownership structure you’ve put in place is not the most appropriate for your goals.

With some simple planning, you can make your investing future-proof.

To me, these things must come before choosing which investing platform has the prettiest app or the cheapest fees.

Too often I see comments asking questions like, “My Spaceship portfolio has fallen 30 per cent; should I sell or hold?” That’s a real-life, real-time lesson in highly concentrated tech stocks (as Spaceship invests heavily in the technology sector).

If you’re asking whether to sell because there have been price fluctuations, then you have no strategy, or you weren’t aware of what you were investing in – or both. Either way, it means you need to step back and design an investment strategy to help guide your decisions.

The implications of not having an investing strategy sorted might not make a huge difference if you’re only investing $5 a month, but if you had a couple of hundred dollars per week you wanted to invest you’d really need to get your strategy right.

With some simple planning, you can make your investing future-proof, easy and, most importantly, right for you.

I believe the five key factors that need to be considered when it comes to your strategy are (in order):

1. Goals and your “why”.
2. Risk profiles and time horizons.
3. Ownership structures for taxation and estate planning.
4. Selecting the right product (i.e. brokerage account or platform).
5. The underlying investment.

If you nail these five things, you will be worlds ahead of many other investors.

Technically, there is a sixth key factor to consider, which is: Do you have the money to achieve your goal and is the goal realistic? If not, you may need to reset your goal and expectations, save/earn more money or make other life/lifestyle compromises to achieve your goal.

You need to know that while you may have the best strategy in place and the most awesome trust structure, you also need enough money (the actual amount will vary from person to person).

If your financial arrangements are set up in a way that is too complex and expensive for your needs, you’ll never achieve your goal.

What structure is most appropriate for you?

You’ve no doubt picked up that you will see many complexities enter a chat when you pull the thread of ownership structures. This need not be the case when you put strategy first. Strategy will always come back to your “why”. Why are you investing this pot of money in particular?

If you are clear that you want to invest for your niece or nephew, or if you want to potentially save for kids’ education expenses with an investment account, you can rule out superannuation right away.

When it comes to your investing and ownership structures, sometimes you need to make an on-balance call and take action. While you can’t fully know or control the future, you can make an informed decision by looking at the advantages and disadvantages of an ownership structure before you invest.

It’s worth noting that the legislation for asset ownership rarely changes. You can also book a chat with your accountant or financial adviser to discuss your situation personally and make the right decision for your circumstances.

This is an edited extract from The Quick Start Guide to Investing: Learn How to Invest – Simpler, Smarter & Sooner by Glen James and Nick Bradley (Wiley $32.95), available at all leading retailers.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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