The first steps to starting an investment portfolio
One way to invest your money is by building a share portfolio. A share portfolio can help you accelerate wealth creation, but can seem daunting to anyone who is new to buying and selling shares. However, there are a number of advisory services and tools to get you started.
The first step is deciding whether you want to pay a broker or financial adviser who can help you to trade and manage your shares, or use an online platform to trade shares on your own. There are benefits to each and your decision will depend on a number of factors, including your investment goals and familiarity with trading shares.
Full-service broker or online trading platform?
Full-service brokers can trade and manage your portfolio and give advice on your investment strategy, however, they will charge fees for their services. In contrast, an online trading platform allows you to trade shares directly and usually offers brokerage savings compared with a full-service broker. You are generally not able to access any personal advice directly via an online trading platform.
Once you've decided whether to use a broker or online platform, narrow down your choice further by understanding what level of customer service and support you will receive for your fees. To help you choose a platform, consider how user-friendly and functional it is. Is it easy to understand and navigate? Can you access it from your tablet or smart phone?
Other extras you might look for include access to share quotes or research material. For some people, trading a wide range of shares and exchange traded funds (investment funds that invest in assets such as shares, commodities and bonds) are also must-haves.
The next step is to research shares you may like to purchase and when may be a good time to buy. It might be a good idea to start with a small investment, especially if you have never traded before. This will minimise your potential losses while you learn and develop your investment strategies.
Choosing your first share
One of the keys to successful trading is research. The shares and other investments you choose should be aligned with your investment strategy, which can include your short or long-term financial goals. Based on this strategy, a broker can recommend shares for your portfolio. If you are using an online trading platform, you would need to do your own investment research.
New investors often start trading shares in well-known companies because these are often perceived to be lower-risk investments. Many people prefer shares in companies where they understand the business and industry, how it makes money, how it's performing and whether it has a proven track record of delivering solid returns.
Many investors also opt for well-known shares that have a reputation for regularly paying high dividend rates. These are often called income shares. You may also decide to pursue growth shares. These are shares that may not pay a dividend but are bought for the potential of growth in their share price to increase faster than the rest of the market.
You can research companies by reading independent broker recommendations and market reports, as well as the companies’ own announcements and financial reports. This will help you learn about their business strategies and performance.
Once you buy a share, this research information should give you an idea as to the performance of the company and, ultimately, when to sell. Any research you do should be aimed at helping you understand the company and how it will be viewed by the market so you can make better decisions when investing online or assisting you to ask more informed questions of your broker or financial adviser.