How much do I need to start an investment portfolio?
While investing might seem daunting, you don’t need a huge amount of money to start an investment portfolio.
Investing into traditional property requires a significant deposit, and a commitment to a long investment horizon. However, investing in shares, ETF’s, managed accounts or managed funds are different. They can be accessed with a much smaller outlay along with the benefit of shorter term access to their value.
It’s all about knowing where to start, which is quite often the hardest step. Everyone has the potential to be successful investors! All it takes to get started is being armed with the right knowledge.
Taking the first steps
While some prefer to take the first few steps alone, others seek professional advice before investing.
Either way, it’s important to select an investment type after you have done your research. Determine your personal goals and weigh up how you feel about risk.
You will need to consider
- your investment timeframe
- current market conditions
- expectations of future market conditions
- your tolerance to capital loss
- volatility (both positive and negative movement in returns)
These all need to be taken into account when choosing the right type of investment. This step alone is critical in assessing your propensity to take certain levels of risk to achieve an expected return.
As mentioned above, it doesn’t take a lot to start an investment portfolio. You can begin investing directly in shares, or a managed investment (offering a diversified range of investment assets including shares). Some people start with a lump sum of as little as $1000, or less when setting up a regular plan.
Contributing regularly to grow your investments and build a diversified portfolio.
Paying yourself first
If your budget isn’t working and you’re struggling to set aside funds for initial capital, there is an alternate strategy.
It’s called ‘pay yourself first.’ Instead of aiming to save whatever is left over after regular bills and expenses, set aside a fixed percentage of your regular wage or salary as soon as you get paid.
Better still, set up an online funds transfer with your bank timed with each pay day. This amount goes directly into your savings account – you may be surprised how quickly you can accumulate funds to start investing.
Doing the groundwork
Research helps you to understand the market and assets in which you’ll be investing.
You should also research the products you’ll use to invest in that market, such as a managed fund (always read the Product Disclosure Statement for the fund itself).
For shares in a listed company, look at companies’ annual reports, analyst research reports or on a stock exchange’s website.
There’s a wealth of information you can use to decide which investments to consider. This information should also provide insights into the risks and to some extent the tax implications of the investment you are considering.
Another critical piece of research for choosing the types of investments to use is cost. Things such as brokerage when purchasing shares, management fees and buy/sell costs when purchasing managed funds are key when investing as when investing small amounts, fees can play a major part in impacting your initial outlay.
Source: BT, 2019