The share market can seem like a scary place for many people starting out in the share market. In a lot of ways, we are at the mercy of our primitive reactions like ‘fight or flight’.
Shares can be very volatile. Our tendency to avoid danger can mean missing out on the long-term success of shares. Volatility is not the same as risk.
People say “property always goes up” as a way to justify getting into an enormous amount of debt. I think it’s important to remember that shares always go up over the long-term.
Shares are the best over the long-term
Just look at this historical price data from Vanguard. When you look at shares over a 30-year period it’s easy to see that businesses are worth substantially more. The key thing to remember when investing in shares is: Invest for the long-term, no matter what the overall share market does in any given year. You could simply own Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), never sell and do very well.
Keep your costs low
The second thing to know is that there are substantial fees hidden in investing if you don’t look properly. Unless you are investing in individual businesses yourself there can be substantial fees hidden in an investment product or charged by a fund manager. Management fees and performance fees can be a serious anchor on your long-term wealth.
That’s why index funds offered by Vanguard are so popular. Several of the ones offered have administration fees of less than 0.20% per annum like Vanguard MSCI Index International Shares ETF (ASX: VGS) which has a cost of just 0.18%. This is really cheap.
It’s also important to keep your brokerage costs low too. Commsec has low fees for people investing in parcels smaller than $1,000 per trade, whilst CMC has low costs for trades larger than $1,000.
Don’t make it complicated
There are some investors out there that undertake a whole array of complicated financial analysis of a business. It’s not wrong that they do this – the more you know a business the better you can value it today and its future potential.
However, you don’t need to be a maths whiz to recognise the long-term potential of businesses that are, for example, aligned to Australia’s ageing population. All you need to do is make a decent investment and then be patient. Many investors don’t have the patience needed and many more (mostly managers) don’t have the client base that allows them to act patiently.
For example, Challenger Ltd (ASX: CGF) is very likely going to be a much bigger business in a decade, you just need to wait to see it unfold.
The best way to learn about investing is just to get stuck into it and start. It doesn’t matter if your first investment isn’t a winner – it’s better to learn and make mistakes with a $500 investment compared to a $10,000 investment.
Some of the best shares to start your investing journey could be these top businesses which all have good long-term potential.
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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.