There’s good news and bad news when it comes to selecting stocks for your retirement portfolio!
The bad news is there isn’t a magic bullet that would make this process a breeze for those looking to take a hands-on approach to an 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 will need to go through to create wealth for your retirement and every learning curve can be a painful thing to navigate as you will need to understand terms 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 there are plenty of free and easily accessible resources that 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 like an obvious one but it’s something just about everyone is guilty of as who doesn’t like a hot stock tip?
But you need to get away from the mindset that you can have something for 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 they are.
A few of these tips might come though but I believe the win-loss ratio would leave most investors worse off.
Even if you did 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, the time period you have, 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 rather fly by the seat of their pants when it comes to picking shares.
However, the most successful investors who can sustain good returns for many years have a framework that they follow when analysing stocks.
They go though a structured process that could include looking at debt and cash levels of the companies they invest in and reading at least three different articles on the stock and sector.
Some may even have a rule that stops them from investing in stocks that they haven’t been following for six months.
Your framework shouldn’t be a hard and fast set of rules but should be guide on the things you ought to be doing before pressing that “buy” or “sell” button.
Perhaps more importantly, this can save you making an impulse buy coming from a stock tip from your Uber driver.
- 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) that can help you select appropriate stocks for your portfolio and cut through the financial jargon.
Experience has taught me that it is better to pay for such tools and services than to go looking for free resources as the latter are either conflicted or lack sufficient depth to properly analyse stocks.
Analysing stocks is a time-consuming process and as my first tip indicates – you can’t get something for nothing.
Happy investing fellow Fools!
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.
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