Glen James is Australia’s newest money mentor, teaching millennials about investment and making more.
Get started with share investing: the very basics
I believe you can start investing when you are consumer debt free, you have a spending plan in place, a cash reserve and possibly some short-term goals nailed. You should only invest in things you understand and it’s not worth starting anything until you learn some basics—so here we go.
Ownership overview
Without a doubt, if investing is for the long term you need to understand the ownership of your investments because if you have to sell or move these investments, it could have tax consequences. Further, ownership structures can be important for year-on-year tax efficiencies, asset protection and ease of management.
Direct ownership could be seen as the most beneficial way to own your investments as you have the most control over the long term. In some cases, it will mean you need to keep your own records (see below) and to compile statements for tax (which is easy). With direct ownership, you have control over the asset. If your broker ceases to exist, you just change brokers and your holdings will appear in your new broker login. The only risk is the underlying investment itself (investing in companies with a long-term track record can help reduce this risk).
Understanding fees and costs
It’s actually okay to pay fees. While fees matter, nothing is free and companies who advertise ‘no fees’ may well be making their money out the back in the shadows (with buy/sell fees or other up-selling activities), a fee that does not need to be disclosed (yes, this is real!) or some marketing loss leading strategy to get you into their echo system so they have a database to sell to. You actually want your investment product and product providers to make a profit. This ensures their business model is around for the long term and you can count on them when you need to (i.e. drawing down your investments).
There are no investment or superannuation products available to purchase in Australia that have built-in hidden commissions to either the fund manager or a financial adviser. Thankfully, it’s no longer the 1990s when it comes to investment product transparency in Australia. If you’re going to get screwed by fees, at least they tell you how much you’re getting screwed for.
Placing your first trade
You will need to decide if a one-stop shop or investment platform suits your circumstances, or if you’ll be using an online broker and have to place trades yourself. Placing your trade online is as easy as selecting your stock, choosing your order type, choosing the quantity or value, selecting a price type, entering an expiry date and reviewing your order. Before you click ‘go’, you’ll be able to review your order to confirm that you do want to commit to the trade. You’ll also be able to see how much cash is in your cash account, approximately how much the trade will cost and any brokerage costs.
It can take three business days for your trade to settle. Some brokers will instantly show your trades in your portfolio. However, there are others that you may not see until after the three days. Likewise, when you sell you won’t have access to the proceeds until after three days.
Record keeping
Record keeping is a big part of your investing life. Those financial years come around very fast. If you’re not using an app, you’re going to have to track the name of investment and ticker (e.g. CBA, VDGR, IVV), the date and amount invested (including number of shares in company or ETF purchased), the amount of brokerage for each trade, the share price for each share or ETF purchased, the date and amount for additional investments (including number of shares and price), the date and amount of dividend. If it’s a dividend, record the dividend reinvestment date; if you’re selling shares, record the date of sale, number of shares, share price and brokerage.
The share registry will provide records such as the dividend information and this can be accessed online via the registry online portal. There’s no good reason to keep your long-term electronic records stored locally. I think it’s appropriate to have a folder for each financial year and within that a folder for each holding. This will help with year-on-year income taxation. I would also suggest a folder that is just used as a record of share purchases.
Need help?
Check out the ‘my millennial money Facebook group’ and search for your online broker’s name to see if anyone has had the same concerns you’ve had. Just remember, don’t get financial advice from random people on the internet.
Edited extract from Sort Your Money Out & Get Invested by Glen James (Wiley, $32.95), available 1 October where all good books are sold.