Nowadays the rise of the internet means it's never been easier to start investing in the share market on a cost effective and self-directed basis. All you need is a little investor education and you can start to take control of your own finances and avoid paying the excessive fees of financial advisers or money managers.
Remember that time in the share market is your single biggest advantage.
As the Motley Fool UK points out: "If you invest $100 a month in the share market from age 20 to 29 and then let your capital grow you will likely have more money at 60 than someone who invests a $100 a month from 30 to 59 years old."
The golden rule of share market investing is the sooner you get started the better.
So what are you waiting for?
Below I have 5-steps to help get you started on the road to a worry-free retirement.
- Open an account with an online broker. Most Australians will have a bank account already and the large banks all offer supplementary broker accounts that can be conveniently opened online. Commsec as the brokerage arm of the Commonwealth Bank of Australia (ASX: CBA) commonly has special offers of free brokerage to anyone opening a new account.
- Take the time to educate yourself every day. Investing is not rocket science, although learning will involve as much reading as possible. Luckily though the Internet and investment advisory services such as The Motley Fool can help you learn how to invest on a free or cost effective basis.
- Think long term. This means that initially you should look to buy shares in high-quality large-cap businesses that are likely to be still growing nicely 20 or 30 years from now. Don't be scared out the share market by short-term price movements. If you don't worry about whether your house price has moved up or down on a daily basis, don't worry about whether the value of your share holdings has moved up or down on a daily basis. Remember that share prices will follow profits higher over time and if you put time on your side and choose high-quality companies the capitalist system will always reward you.
- Buy dividend payers. If a company pays a twice yearly dividend that's a classic sign that it is profitable and in good financial health. Moreover, dividends will often make up a substantial part of an investor's total returns and will provide a potentially ever-lasting income stream for you to enjoy in retirement.
- Compound your returns. If you have a time horizon greater than a couple of years you should reinvest dividends received as this will let you compound your returns. As the Motley Fool UK puts it: "Consider that when you invest money you earn interest on your capital. The next year you earn interest on both your original capital and the interest from the first year. In the third year you earn interest on your capital and the first two years' interest." Compounding can create eye-watering wealth over the long term, but it's surprising how few people are smart enough to take advantage of it.
These five simple rules of investing will serve you well if followed over the long term, but of course you need to find some ASX share to invest in. So why not read on below to find out for FREE all about some of The Motley Fool's favourite dividend paying shares to buy at current valuations.
