There's good news and bad news when it comes to selecting stocks for your retirement portfolio!
The bad news is we don't have a magic bullet to make this process a breeze for those looking to take a hands-on approach to early retirement.
But the good news is that the process of analysing and filtering ASX shares isn't as difficult as some might imagine.
This isn't to say there isn't a learning curve that every beginner investor will need to go through to create wealth for retirement and every learning curve can be a painful thing to navigate as you will need to understand financial definitions and concepts that are likely to be foreign to most who do not work in finance or accounting.
However, you don't need more than primary school maths to read company accounts, and plenty of free and easily accessible resources can help you get on top of the fundamentals and market news.
What's more, I have four tips that could help make the passage to becoming an experienced investor a little less daunting.
No free lunch
This may sound obvious, but it's something just about everyone is guilty of. After all, who doesn't like a hot stock tip?
But you must avoid the mindset that you can have something with zero effort.
Don't get me wrong, there's nothing wrong with keeping your ear to the ground but experience has taught me not to act solely on a tip given by family, friends or strangers – no matter how well intended.
A few of these tips might come through, but I believe the win-loss ratio would leave most investors worse off.
Even if you do believe the gossip, you will still need to do your homework – there's just no getting around that.
Define your goals
This is another thing that everyone acknowledges as good practice but few do. It also isn't enough to define your investment goals as "to make money"!
You need to know what you are making money for, your time period, and the average yearly returns you need to generate to reach your goal.
Some investors are looking to save for a house or even a car, while others are looking to secure their finances when they retire.
Clearly defining your end-game will help you work out how realistic your goals are and help define the type of investments you make.
Without a plan, you are travelling blind.
Create a structure
This is where things can get a little tedious and no one likes hard work. That's why many would rather fly by the seat of their pants when picking shares.
However, the most successful investors who can sustain good returns for many years follow a framework when analysing stocks.
They go through a structured process that could include looking at the debt and cash levels of the companies they invest in and reading up on the stock and its sector.
Some may even have a rule that stops them from investing in stocks they haven't followed for six months.
Your framework shouldn't be a hard and fast set of rules but should be a guide on the things you ought to be doing before pressing that "buy" or "sell" button.
Perhaps more importantly, this can save you from making an impulse buy from a stock tip your Uber driver gave you.
Use selective shortcuts
Shortcuts aren't necessarily a bad thing and they are not the same as a free lunch. Unless you are investing full-time, it's unlikely that you will have the time to fully research stocks from scratch.
This is where having some tools can help and you are spoilt for choice as there are plenty of services (including those from the Motley Fool Australia) that can help you select appropriate stocks for your portfolio and cut through the financial jargon.
Experience has taught me that paying for such tools and services is better than looking for free resources as the latter are either conflicted or lack sufficient depth to analyse stocks properly.
Analysing stocks is a time-consuming process and as my first tip indicates – you can't get something for nothing.
Happy investing fellow Fools!
