Victoria Devine is a financial advisor and the founder and host of the personal finance podcast, She’s on the Money. Passionate about empowering women to make smart money decisions, Devine compiled her expert advice into a physical, accessible guide through the release of her debut book earlier this year.
In this extract — pulled from the chapter ‘Investing 101’ — Devine looks into the many different ways people can approach investing, noting that the best way to succeed is to find a strategy that you feel comfortable with.
She’s on the Money by Victoria Devine. Source: supplied.
When you strip back all the financial jargon, an investment is essentially something that you purchase with money and that you expect to produce an income or profit for you. Ideally, you’ll achieve both an income and growth in an investment, because this is what’s going to take care of both Current You and Future You. In order to set yourself up for the best possible result, you need to be in a position where you can consistently invest money for more than seven years. I’m talking 20, 30 or 40 years. I know that sounds like forrrrreeeeevvvvverrrrrr (any The Sandlot fans here?!), but it’s time and consistency that’s going to make your money grow, and it’s diversification that will minimise risk.
On average, money doubles every 10 years. Australia has had an 8.9% return over the last 30 years, so if we look at that, your money will potentially double in seven to 10 years. In a nutshell, the longer you leave the interest earned on top of the principal of the deposit or investment, the more exponential the growth becomes. For example: let’s say you purchase $10,000 worth of shares with a return of 9% per annum. The interest earned after one year would be $900. This is called a dividend. If you withdraw that money, then the next year you will also only earn $900. But let’s say you consistently reinvest those dividends. Suddenly, your investment changes because you’re recalculating the interest on a balance that’s accumulating interest.
Time is also going to help mitigate risk. Unfortunately, risk is in the nature of investment. You can win and you can lose. If you’re only thinking in the short term, it’s easy to get caught up in the volatility of the market and pull out before you give it time to recover, which makes you much more prone to loss. Sorry for the cliché, but investing is a marathon, not a sprint.
The other thing that is going to mitigate risk is diversification. We’ve all heard the saying that you shouldn’t put all your eggs in one basket and this is especially true of investing. When choosing which companies, property markets and banks to invest in, you need to find ways to lower your overall risk, because regardless of what the economy does, you want to ensure that you still have assets that will benefit and neutralise any potential losses.
There are many different ways to approach investing, and it’s important to find a strategy that you feel comfortable with.
Investing in bonds basically means you’re lending money to a company or government, and receive interest in return. Investing in bonds through the Australian Securities Exchange (ASX) can be done through a broker or online trading platform. With a minimum investment of usually around just $100, this can be a great way to get started.
The share market is how people buy and sell shares that represent ownership of a company. This is often referred to as the stock market. If you think of a company as a pie with a million pieces, a share is a piece of the pie and you as the owner are entitled to a share of the income that the company produces and the growth that the business achieves. Investing in shares can yield high returns, but also comes with high risk. Depending on your goals and values, there are two ways to approach investing in the share market: trading and long-term investing.
Micro-investing is when you intermittently or consistently invest small amounts of money. Examples include rounding up on your transactions or committing to small weekly investments. Micro-investing is often one of the first steps that members of the She’s on the Money community take to dip their toes in the investing waters. Micro-investing can be a great option for beginner investors and, well, anyone who wants to do something with their money but lacks the resources to start investing in a more traditional way.
We’ve seen the She’s on the Money community really embrace micro-investing, as it suits those who don’t have a lot of capital to start with or invest over the long term, but ensures you’re getting exposure to the share market and making use of dollar-cost averaging. Micro-investing works in a number of different ways — micro-investing platforms generally utilise ETFs and managed funds, but some build their own investment products from scratch. There are a lot of great companies out there like Spaceship Voyager, CommSec Pocket and Raiz.
A lot of people ask me how much money they should have saved up to invest. This is going to vary from person to person, but if you’re going the traditional route, I feel that the bare minimum is $500. Once you factor in the brokerage fees on the share, it’s just not cost effective to invest any less than that. For example, let’s say you buy a $1 share, but the brokerage fee is $12. That share has cost you $13. It would have to perform to be more than $13 for it to be worth it.
Try looking at bulk-buying shares, because a $12 fee on $1000 worth of shares feels quite reasonable. In terms of frequency, some people buy shares once a year while others may purchase shares five times a month. Depending on your own personal financial situation, you can factor an investment fund into your budget and then work out a sustainable frequency.
When it comes to the actual act of purchasing shares, there are a lot of different ways to go about it. The most common way to purchase is online through banks or companies like Vanguard, BlackRock, CommSec and IG.
The ASX website has a fantastic share-market game that lets you play with fake money. It’s essentially like Monopoly, and means you get to understand how it all works before actually putting your money on the line. Think of it as an investment in your financial education, which will pay off over the long term. That said, if you want to be managing investments yourself, this by no means teaches you what is a ‘good’ portfolio or helps you to research the stocks. It simply allows you to play with performance and see how the share market works.
Deciding where and how you’d like to invest your money ultimately comes down to your values and personal financial situation. I always, always, always recommend speaking to a financial adviser because they’re going to give you a customised strategy that puts you in the best position to achieve your personal goals. You also need to make sure that you have the correct lifestyle mindset to invest. This means maintaining good cash flow and saving habits so that you are able to contribute to your investment plan on a consistent basis.
This is an edited extract from She’s on the Money by Victoria Devine. Published by Penguin Random House, RRP $32.99, and available now at Booktopia.
