Earlier today I wrote an article about some Australian share market Investing Don'ts for 2017/2018.
Here are some of my finance and Investing Do's for the year ahead.
Consider how each of these ideas applies to you and whether your investing process would improve with their use.
Remember, magic won't help you make money in the share market. It's your persisting purpose and strategy that will help you build lifelong wealth.
- Build a blummin' budget. I think of a household budget like the heart of your finances that beats every time money comes in and goes out. When you're investing, it's best to contribute regularly to your brokerage account. $500 is the minimum investment on the ASX. Even if you cannot save $500 a month, however, you should get in the habit of transferring the money into the account anyway, until you have enough to invest.
- Have an investing insurance policy. You should have three months of living expenses put aside before you invest in shares. Why? On average, the share market will crash every few years. Typically, it happens around the time most Aussies will experience job loss. You may be able to avoid selling your shares at rock bottom prices if you have, say, three or six months' worth of living expenses.
- A cut-up credit card provides a superb investment return. If you can earn, say, 10% per year from the sharemarket but you also have a credit card charging 23% interest, is that a good use of your money? You might be happy that you are finally investing. But you could make an extra 13% return if you pay off your credit card before you invest!
A bit harder:
- An investment in yourself will pay the best dividends. I can all but guarantee that with more knowledge and purpose (which when added together equal something like motivation) you will compound your investing returns. I think successful investing in the share market requires three key ingredients: analytical ability, emotional constraint and quality information. You can harness each of those traits if you are motivated to develop yourself by learning as much as you can.
- Develop an investing strategy. Some people call themselves "value investors", some identify as "growth", while others are more 21st century and have a non-strategy specific mandate.
I don't subscribe to the idea that, "I'm nothing if not consistent". But, you must know what does and does not work in the share market — and stick to it. You should also be flexible in your thinking because the market does not reward you for being stubborn. Warren Buffett's four-part checklist is super-simple, while the "Magic Formula" by Joel Greenblatt has produced impressive results on the ASX. Both are simple. But neither is easy to execute.
- Buy quality. The ASX has 2,000-plus companies in which you could buy shares. However, at a guess, I'd say 1,900 of them are not worth your time. Your time is finite, so you should focus your attention on buying shares of companies that have great 'economics' and bright futures. Some names you could put on your watchlist include Xero Limited (ASX: XRO), Gentrack Group Ltd (ASX: GTK), Altium Limited (ASX: ALU), Flight Centre Travel Group Ltd (ASX: FLT), Pro Medicus Limited (ASX: PME) and ARB Corporation Limited (ASX: ARB). I'm not saying these shares are a buy. I am saying these companies have features which I find very appealing.
First, avoid losing money. Then, focus on the potential. If you can do that, you'll be able to sleep easier knowing that you have done the best you can to put the odds of investing success firmly in your favour.