7 tips for successful ASX shares investing: expert

AMP chief economist Shane Oliver shares what he has learned over 40 years in the game.

Emotional euphoric young woman giving high five to male partner, celebrating family achievement, getting bank loan approval, or financial or investing success.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

AMP Ltd (ASX: AMP) chief economist, Dr Shane Oliver, has been in the investment game for 40 years.

So, we think he probably has some good advice for all of us regarding our ASX share investing.

In a recent blog, Dr Oliver shared a bunch of insights gleaned over four decades of investing. Many of them relate to ASX shares investing and how we should go about building our wealth via this channel.

Here are seven of Dr Oliver's tips for successful investing.

7 tips for successful ASX shares investing

1. Make the most of the power of compound interest

Dr Oliver says compound interest is one of the best ways to build wealth through investing, whether it be via ASX shares, real estate investment or other asset classes. But he says we must have the right asset mix.

Dr Oliver comments:

Based on market indices and the reinvestment of any income flows and excluding the impact of fees and taxes, one dollar invested in Australian cash in 1900 would today be worth around $259 and if it had been invested in bonds it would be worth $924, but if it was allocated to shares it would be worth around $879,921.

His key message is we need to have decent exposure to growth assets like ASX shares and property.

A popular compounding strategy in ASX shares investing is dividend reinvestment, which is made easy by dividend reinvestment plans (DRPs).

Many ASX shares have DRPs, including Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP), along with many ETFs, such as the Vanguard Australian Shares Index ETF (ASX: VAS).

2. Don't get thrown off by the cycle

Dr Oliver notes the three to five-year business cycle, longer secular swings over 10 to 20 years in shares, and cycles that centre around some sort of crisis, which tend to pop up roughly every three years.

Dr Oliver points out that shares often lead economic cycles, so economic data lags behind market trends.

3. Invest for the long term

It's simply too difficult for most average investors to predict financial markets' ups and downs. So, it's best to play a long game with ASX shares investing and other investment assets.

Dr Oliver recommends creating an investment strategy that suits your level of wealth, age and ability to tolerate the volatility inherent in shares investing.

4. Diversify your ASX shares and other investments

Investors need to find a balance between not putting all their eggs in one basket and over-diversifying, as this will complicate your investments "for no benefit", Dr Oliver says.

Here at The Fool, we advocate diversification and note the increasing popularity of exchange-traded funds (ETFs) today. ETFs allow investors to buy a basket of ASX shares or overseas stocks in a single trade.

5. Turn down the noise

Dr Oliver notes the world is getting noisier with the rise of social media.

He says:

After having worked out a strategy that's right for you, it's important to turn down the noise on the information flow and prognosticating babble now surrounding investment markets and stay focussed. In the digital world we now live in this is getting harder.

6. Buy low, sell high

The cheaper you buy an asset, the higher its prospective return will likely be and vice versa, says Dr Oliver.

He says:

Guides to this are price-to-earnings (P/E) ratios for shares (the lower the better) and yields, ie, the ratio of dividends, rents or interest to the value of the asset (the higher the better).

Flowing from this it follows that yesterday's winners are often tomorrow's losers – as they get overvalued and over loved.

7. Beware the crowd at extremes

Beware the herd mentality, as Dr Oliver explains:

We often feel safest when investing in an asset when neighbours and friends are doing the same and media commentary is reinforcing the message that it's the right thing to do. This "safety in numbers" approach is often doomed to failure.

Whether it's investors piling into Japanese shares at the end of the 1980s, Asian shares in the mid-1990s, IT stocks in 1999, US housing and credit in the mid-2000s.

The problem is that when everyone is bullish and has bought into an asset there is no one left to buy but lots of people who can sell on bad news.

Motley Fool contributor Bronwyn Allen has positions in BHP Group, Commonwealth Bank Of Australia, and Vanguard Australian Shares Index ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

Happy couple enjoying ice cream in retirement.
How to invest

I'd buy Woodside shares today to generate $1,000 of monthly passive income

At the current share price, I think Woodside can continue to deliver market-beating, long-term passive income.

Read more »

A couple lying down and laughing, symbolising passive income.
How to invest

No savings? I'd use the Warren Buffett method to earn lifelong passive income with ASX shares

Learn how to invest from Warren Buffett.

Read more »

Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office
How to invest

Investing in ASX shares? Why CEO pay DOES matter when misaligned

Wonder who topped the highest-paid CEO table?

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
How to invest

Could investing $10,000 in ASX shares make you a millionaire?

Is this the key to becoming wealthy? Let's find out more.

Read more »

A man in his late 60s, retirement age, emerges from the Australian surf carrying a surfboard under his arm and wearing a wetsuit.
How to invest

Looking to boost your retirement with extra passive income? Try this!

Securing a passive income stream could offer a big lift to your retirement lifestyle. Here’s how I’d go about it.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
How to invest

These ASX 200 stocks turned $20,000 into $100,000+ in 10 years

Big returns were made by investors buying these shares back in 2014.

Read more »

Woman and man calculating a dividend yield.
How to invest

This Warren Buffett metric is at a never-before-seen high! What does it mean?

Warren Buffett's valuation indicator could be sending a warning.

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
How to invest

$3,000 in savings? Here's how I'd use that to start investing today

How much could your investment portfolio be worth over time?

Read more »