Best starting point for a beginner to start investing?

Bryce: [00:00:28] Welcome to Get Started Investing, a podcast where we answer all of your money and investing questions. My name is Bryce, and today we're going through the starting point for beginners to kick off their investing journey. As always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:43] I'm very good. Bryce, I am excited for this episode, for another week of taking the next steps on our financial journey wherever we, whatever our financial goals are. Well, I'm excited to do this together. Do this with you. Let's go. 

Bryce: [00:00:59] Nice. Well, as always, let's hit the disclaimer. Any information on this show is for entertainment or education purposes only. Any advice is general. And before we move on, we have one big favour to ask. And that is if you can take five minutes to complete the Equity Mates Community Survey. It goes a long way to help us understand what you would like to hear more or less of, and your opportunity to give us feedback. It does really help us craft our content plan for 2024 and beyond. So please. Link is in the show notes. Anyone who completes it in full will get the chance to win 500 bucks as well, which is a great starting point to kick off your investing journey. 

Alec: [00:01:48] Nice segway, so that's why you're the pro. That's right. Now, this episode has been prompted by a question in our Facebook discussion group. If you want to join the conversation, the link will be in the show notes. The question was asked anonymously. So, we don't have to speak to the person, but I think it's a widely applicable question. We've all grappled with this question before, and it is simply, what are the starting points for a beginner to kick off their investing journey? I don't have sufficient buying power to purchase an investment property. However, I have a good amount to invest. What investing avenues can be explored? Please advise. So, Bryce. I've got some money saved. 

Bryce: [00:02:32] You know, it sounds like, Sounds like this person is actually in a pretty decent position where they do have some cash saved. And like many of us, feeling a little bit priced out of markets. But I think you right. Priced Out of the property market. But I think if you're right at the beginning of the whole thing, there are probably a few foundational things that is worth ticking off before you look to invest.

Alec: [00:02:58] Yeah. And you know, we did the disclaimer at the beginning and we said this was general advice. But it's important to stress here that, like, these are the general steps you would take and think about. Obviously if you've got specific goals or a specific time frame or, you know, specific financial needs, they might be different. But like in the most general sense, these are sort of the boxes you want to tick and the steps you want to take. 

Bryce: [00:03:22] Yeah. So if you've got a pool of cash sitting on the side, three things you want to think about. Firstly is your emergency fund. Do you have one? 

Alec: [00:03:29] What is it? 

Bryce: [00:03:30] An emergency fund is a pool of cash that you keep in cash and ideally out of sight for any emergency where you're going to need to draw on a larger chunk of money that you don't have in your usual budget. That's the way I kind of think about it, like it's not something that you budget for. It might be, I need to get my teeth replaced or I bust my car. And you want to have a lump sum of cash available to draw on so that you're not forced into going into debt or withdrawing savings or selling investments to fund that emergency. 

Alec: [00:04:10] Sweet. And so, as a general rule of thumb, they, they say three months of your expenses, for your emergency emergency fund. And then over time, you can sort of grow it to six months. But three months is a good place to start. So you look at all your expenses. Rent, food, travel, like, everything. What is that number? And then that once you've got that, it means if you know, you lose a job or whatever, you can't work. You've got three months, buffer. Now, that can be a daunting amount of money, but you can sort of build it up slowly. But it's a good place to start because as you said, it gives you that safety. You don't have to sell your investments if things go wrong. You don't have to get the credit card out and go into debt and things go wrong. 

Bryce: [00:04:54] Well, speaking of credit cards and debt, the this the second sort of foundational piece is ensuring that your your debt is under control or you've eliminated all forms of consumer and bad debt. Before you start putting money into the markets. 

Alec: [00:05:08] Yeah. And that doesn't mean you're debt free, but it means it's under control. And like the classic example here is university HECS or help debt. You don't have to have completely paid your HECS off before you start investing because it's indexed to inflation. And you know, most years it's been tough the last couple of years. But most years, that's going to rise maybe 2 or 3%. Whereas over the long term you'd expect the stock market to increase around 8%. And so you'd be better off investing that money and just slowly paying off your HECS over time. Again, generally we put that on its head. If you've got credit card debt, which charges 19% a year, you're going to be better off paying that off rather than investing for 8% a year. So getting your debt under control, yeah, I think is the second point. 

Bryce: [00:06:05] And then finally you want to have a clear idea of why you're investing and what you're investing for before you just start throwing money into the market. Now, this doesn't have to be very specific, but I think it's important that you have an understanding of what you're trying to achieve. In my situation, this is just building a portfolio that allows me to, in years to come, not rely on a paycheque like that is a more than fine investment strategy and goal. Your goal might be over the next ten years. I want to invest to ensure that I have a pool of capital available to pay for my kids to go to private school over the next 20 years. I want to, you know, there's many ways, and goals to think about, but I think it's important you do somewhat have an idea before you just start deploying cash. 

Alec: [00:06:56] Yeah. And even those two goals, they sound similar. And they both have similar hallmarks. Like, you both need to grow your wealth, but you're wanting to replace your paycheque means you'll need to get to a certain amount of money, and then you'll want to earn income on that. Once you get to a certain amount of money. People who want to pay for their kids, private schools, they're probably just thinking about how I can do that. I don't care about the income that it generates. I just want to get to like a lump sum that is big enough. And private school fees grow quickly. Anyway, different. 

Bryce: [00:07:29] Public all the way, baby. 

Alec: [00:07:30] So once, once you know that you've got your emergency fund set up. So you've you've got some resilience in your financial situation. You've got your debt under control and you know what you're investing for. Then that leads, I guess, to the How. How do you invest? And there's really two key options here. There's a third one that we can touch on briefly, but the two key ones I think are micro investing apps or low cost brokers. The third one is to robo advisors. I don't like big. There's some that still exist like sharesight still exists. 

Bryce: [00:08:05] No no.

Alec: [00:08:05] No. Stockspot. Yeah. Is that right? 

Bryce: [00:08:09] Yeah, yeah. Sharesight . Side tracking.

Alec: [00:08:11] Oh yeah. Yeah. Stockspot. But probably more relevant for most people. The first two micro investing and low cost brokers. 

Bryce: [00:08:21] Yeah. Micro investing is often the way we find a lot of the get started investing community start their investing journey. It's how a lot of our housemates started investing. Remember way back in 2015 or whatever it was, through apps like Reis, Spaceship, CommSec pocket. A lot of these platforms are designed for you to get started in the market at very, very low dollar amounts. And, they create investment options for you that you just essentially put money into in small dollar amounts. And they look off to the investments. It's a great way to get started at low cost. Well, not low cost, but low dollar amounts and get to understand who you are as an investor. 

Alec: [00:09:02] Yeah. So that's the first option. And then the second option is low cost brokers. And they are essentially an investing platform where you can choose from, a menu of options or whatever is listed on the stock market. Some of them require a little bit more money to get started. You know, maybe $100 minimum, some $500 minimums. Whereas micro investing, you can start from a dollar. I guess the difference is micro investing. You're often investing in a fund, or you might have a couple of funds to choose from, whereas with low cost brokers, you have access to a much bigger menu of investment options. And we'll get to what you can invest in next. But I think just making that decision about which one do I want micro investing or a brokerage platform is the start. 

Bryce: [00:09:54] And we've said it plenty of times, but if you have just joined us, firstly, welcome. I think what a lot of people tend to get stuck on is choosing the right one to start with. There is no right one. Ren and I, through over the last ten years or so, have had multiple and still do have multiple brokers and multiple platforms spending time and energy and feeling overwhelmed with making sure that you choose the right one to get started is a waste of time and energy. You can choose a broker and change platforms or run multiple platforms. So don't make that the hurdle to get started. 

Alec: [00:10:30] I think the thing that you've always got to remind yourself is that all offering access to the same products, now, you know, micro investing will have its own tilt. So put them to the side. But every low cost broker Stake, Superhero, Sharesies, Pearler, CMC CommSec. I can keep listing them because there's about 30 in Australia at the moment. They all offer you the same investment options, and for most of them, it's what's listed in the Australian market and what's listed in the US market. And you know, they all they all give you access to the Vanguard Diversified High Growth ETF. And if you buy that ETF on Stake or on superhero it's the same ETF. And so I don't think that there's no like there's no exclusive to this broker offerings. You know, there's no like buy Commonwealth Bank shares only available on stake or get double your dividends on Johnson and Johnson Available only on Pearler . Yeah.So I think, the brokers are all different. They all pitch themselves in different ways and they'll market themselves to different people. But what you are buying is the same. And then the micro investing ups, they have their funds, but they're pretty vanilla funds that all basically track pretty generic options that you can buy through the low cost brokers as well. So I don't think the choice of what investment platform you use is going to be like a big fatal mistake, because as much as they probably don't like me saying this, they're all pretty similar. 

Bryce: [00:12:10] So that's how you go about making investments. We're going to take a quick break. And on the other side we're going to talk about what you can actually stop by. Welcome back to Get Started Investing. We're talking about the starting point for beginners to kick off their investing journey. We've covered the foundations that you need. We've looked at how you can buy investments, Now Ren, we want to move to what you should buy or could buy to kick off your investing journey. 

Alec: [00:12:40] Now, this is where it gets a little bit confusing because there's a lot of options, but there's index, sorry exchange traded funds, ETFs people might have heard of before. And you can really split them into index ETFs, which, just like they, track the overall market. They're known as passive investments. And then more active ETFs. And you also get some other types of managed funds which are actively managed funds. They might follow a theme. They might just be a stock picker picking stocks. But you can essentially put your money in with the manager and then you can buy individual stocks yourselves. So they're really the three options, passively managed funds, actively managed funds. And then you can buy individual stocks for a beginner. Obviously this is general. So like make your own decisions, decide what's right for you. But I would say if I was starting again, where I would want to start is a well diversified Passive ETF. And the ones that come to mind when I mentioned Vanguard Diversified High Growth earlier, also Betashares have a similar one, DHHF, betashares diversified high growth, Blackrock, iShares have one as well. It's just these diversified high growth funds. They'll buy a little bit of the track like the overall global share market. They might have a bit of exposure to bonds or maybe not. But it's just like a good starting point to sort of dip your toe in the water. It's instantly diversified because it owns literally over a thousand stocks, and all around the world. So for me, it's like that. If I was starting again, that's what I would do as opposed to how I did start, which was buy an individual stock and lose 99% of my money on it.

Bryce: [00:14:34] 100%, I would do the exact same. All right. So that's what we can invest in. The next sort of point is one where I think a lot of people also stop in and use it as a bit of a roadblock, and that is how much to start investing, because in this, in this example that's come through from the Facebook group, they obviously have a bit of cash sitting on the side because they were looking at, an investment property. But you need to have a strategy around deploying cash. And often there's a temptation, if you have 1000 or $2000 sitting there to deploy it all at once. And I think wavelengths, there are ways that you can take the emotion out of deploying capital, and that is through a strategy called dollar cost averaging. 

Alec: [00:15:20] Yes. Yeah. So, dollar cost averaging is where you put a consistent amount of money into the market in set intervals over a period of time. So maybe a set amount every week, a set amount every month, a set amount every year. Great strategy for a lot of us who, earning money and taking some money from our salaries and investing it, it's to a naturally dollar cost averages. It smooths out the highs and the lows. So you get, you know, over time you sort of get the average price, rather than you buying too high. It also means that when the stock price is down, you're buying more because you're putting a consistent dollar amount in, when the stock price is higher, you're buying less, with that. So great strategy. I do it personally. Nothing against it. With that said, the one caveat is academic study after academic study has suggested that if you have a lump sum, investing that lump sum on day one will likely lead to higher returns. So there is an argument that if you've got a chunk of cash to invest, you should just put it in the market. But that, I think, is balanced by like the psychological side of like, I don't want to feel like I'm risking it all on day one, and I want to build confidence and understand how it works and all of that stuff. I think dollar cost averaging is a great strategy. 

Bryce: [00:16:44] Yeah, I think time after time there are academic studies that show how irrational human behaviour is. So despite it being known that, yes, deploying capital all at once, he's likely to get a better return. The emotional yeah, struggle of doing that is the challenge. So finding a way to deploy it, consistently over time is where you should overcome that. 

Alec: [00:17:10] So I think that's probably the general starting point. So there's a few tips that we want to cover off in the end. But I think just one piece of information we didn't have in the question was. So the context we got was I don't have sufficient buying power to purchase an investment property. However, I do have a good amount of money to invest, and so we assumed that maybe that's a few thousand dollars, maybe $10,000. There is a world where this person has like half $1 million because they want to buy an investment property in Sydney, and they don't. I mean, you probably could do that, but you know what I'm saying? It could be a lot of money. If you have a heap of cash. All the general advice we've given there around choosing the platform, starting with a really well-diversified, low cost passive fund like all of that still applies. But if you've got like, half $1 million that you're planning to deploy, you probably that that's where, you know, like professional advice can guide you because you'd want to have a portfolio, I think, and, you know, there might be other financial goals that you can take off to. To be honest, if you have half $1 million, you could buy an investment property outside of Sydney as well. 

Bryce: [00:18:21] So you could say yeah, you could buy a property that's full stop cash in some places. But anyway, if you want us to connect you with our network of trusted advisors, head to equitymates.Com/advice. And, we'll put you in touch with one of our advisors. If you are in a fortunate situation to have a large chunk of cash and would like some professional help or somewhere to deploy that. Oh, yeah.

Alec: [00:18:44] Or generally, if you just want some help.

Bryce: [00:18:46] You would like some professional help. Full stop. Hit us up. Equitymates.com/advice. And we'll put you in touch with, with our network of advisors. 

Alec: [00:18:53] Yeah. So I think a few general points to close it off. When you're starting the investment platform, it is the first choice everyone makes. And people feel like it's a really difficult decision. But ultimately, whichever platform you choose is better than not getting started. Point number one. Point number two, choose a low cost diversified passive fund to get started. Yeah. Just the most boring, most vanilla product you can get because it's a good place to start. You'll still get good returns. There is still some risk. So, you know, it's a good way to start understanding how the market works. 

Bryce: [00:19:36] And if you actually don't know what Ren's talking about with all those buzzwords, they're passive, low cost, diversified, literally type that into Google low cost passive diversified fund and you'll have a list come up.

Alec: [00:19:47] So I was the first one on the list, VDHG.

Bryce: [00:19:50] It's Vanguard. Yeah yeah.

Alec: [00:19:51] Vanguard diversified high growth. Not an ad, just a popular product that I own and I imagine you own. And I imagine most of the Australian investing community owns. Not an ad. 

Bryce: [00:20:05] Not an ad So diversify. Third point is start small if you're unsure and figure out who you are as an investor and then go from there. There's no better way to learn than starting small and getting active in the markets. Don't feel like you need to deploy it all at once. And then fourth point is keep learning. I think it's the being in the markets, you will naturally continue to learn, but don't feel like you need to know it all to get started. Once you're in, you'll find that you're actively seeking information and will continue. But, as we know from some of the best investors in the world, it is a lifelong journey of learning, something that you'll never feel like you've mastered but that's half the fun of the whole thing. 

Alec: [00:20:49] Now, I think that really wraps up how we would approach this question. What investing avenues would you explore if you can't afford an investment property? There are other people and there are other podcasts that may have different suggestions. There is a Facebook group I'm a part of who whenever anyone asks what they should do with a lump sum they've got, they say buy Bitcoin. That wouldn't be our suggestion. I think there are riskier options, and you might look at it and say, oh, there's more upside there. You know, crypto or you know, some like unlisted assets or, you know, like there's oh, you can invest in anything those days. You can invest in Sneakers and people make good money on sneakers. Last week we spoke to Sam who invested in Lego. And you make good money. He makes good money there. I think the challenge with a lot of those things, and even the challenge with this, to be honest, is the risk. And, you know, if you're investing in Bitcoin, you might make money, but you might lose your house deposit. That's the same here. You really, if you're thinking about the stock market, you want to be thinking of 5 to 7 year time horizon or even longer if you just want to park your cash until you can buy a property and you're thinking like five years or less. You really just want to be thinking about a high interest savings account. And there's plenty that will pay like 5% interest these days. So that's probably the last point that we didn't really touch on, which was time Horizon. But hopefully that'll help.

Bryce: [00:22:17] Nice. Well, thank you so much for the question. Keep them coming in, equitymates.com/contact. And, there's a form there that you can leave all the questions that you have, and we'll make sure that we answer them on the show. You can leave us a voice note as well. Or leave us your phone number. And we'd love to bring you on the show to chat through your questions, but, thank you very much, for the continued support. And Ren we'll pick it up next week.

Alec: [00:22:39] Sounds good.