If you have decided that investing in shares is going to be part of your overall investment strategy, the next obvious question is where you start. Depending on your experience, there are two options, use a traditional or online broker or a managed account.
With an online broker, you are more or less on your own. You make the call what shares to buy, when to buy them and when to sell them. A traditional broker costs more, but they will also offer guidance for your investment choices and help you build a diverse share portfolio.
A managed account is where a professional investor takes control of your funds and chooses the shares and strategy based upon your fund level and preferences for risk exposure. However, while this means someone else is making the choices, it is useful to be able to follow what is being done with your account, so understanding the selection process for shares is just as useful.
A key part of any share investment is choosing the shares themselves, and there are various shares available. Large established companies, often known as ‘blue chips’, companies such as major global banks, industry giants such as Microsoft and so on, tend to offer lower annual growth than smaller, younger companies. However, they are also a lower risk option as they are much less likely to fail. These kinds of companies tend to also offer a dividend for each share owned, usually a relatively small sum per share but a nice bonus each year.
Younger and/or smaller companies have greater potential for growth, meaning a much larger share price rise than the dominant organizations. However, they also have a higher risk of failure as well, so a sensible portfolio of shares will balance higher risk, higher return options with lower risk, lower return stability.
Choosing specific shares means careful analysis of a business. For instance, if you find a small company that is developing a revolutionary new product, then investing in their shares may make sense. If the product is successful, the share price would rise significantly. The risk of failure is also clear too.
Knowing when to sell shares is as important as when to buy them. For longer-term investments, dividend shares from larger established businesses offer smaller annual growth plus an annual payment and relatively lower risk, and they are often called buy and hold shares. These are a sensible choice for long term retirement provision, where over 20+ years not only can the share value rise considerably, but the annual dividend provides additional income throughout ownership.
For investments in shares where an increase in share price is the only goal, understanding when to take profits by selling the shares is where experience and skill as an investor come in. This is not easy to master and why a managed account, or use of a traditional broker who will offer advice, can be so useful
For the full breakdown of investing in shares check out our article: Investing in Shares
We welcome you to give our team a call to discuss your investment goals and objectives.
You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.