# Tips and guidance for a young investor



## jigjigwhip (13 May 2014)

g'day guys, first time poster here!

Been reading around the forums for a while now and slowing coming to the opinion that its time to invest!

ive concluded im after a medium to long term investment (say 5-8 years), hopefully enough to get an apartment deposit organised (50k approx). 

as a 19 y/o, im currently studying a full time commerce degree, working part time, and pissing up what i manage to save on the weekends! ive managed to pool together 5k to invest and will consider monthly re-investments of income (approx 350 p/w). 

So essentially im asking for advice on where to start! whether i just dive in and grab a few bluechips, or jump on board a managed account (heavy fees??). I am open to higher levels of risk, as i understand now is the time to risk, youth is on my side!

i know this question has been asked a million times, but i feel its just time to do something with my money rather than another trip to bali haha

cheers all!

jig


----------



## jigjigwhip (13 May 2014)

*Re: tips & guidance for a young investor*

Essentially!! what all you big shot investors would do again/not again if you had the chance to start fresh!


----------



## DeepState (13 May 2014)

*Re: tips & guidance for a young investor*



jigjigwhip said:


> g'day guys, first time poster here!
> 
> Been reading around the forums for a while now and slowing coming to the opinion that its time to invest!
> 
> ...




Roughly speaking, if you are saving for a five year horizon, you are going to need about 28% pa after tax and expenses.  If for eight years, it falls to 8% per annum.  The five to eight year horizon is regarded as medium term.  Twenty eight percent per annum is possible but unlikely.  Whereas 8% per annum is achievable with a mix of equity, credit, bonds and cash.  The more equity, the higher your expected outcome, but the increased chance of toasting your savings.

One thing to consider is that, as you approach your deposit threshold, your actual value at risk is constantly rising as you put more money into the market.  A fall in the market in year one is nothing like the same fall in the market as you move into the $50k region.  This is called sequencing risk.  It led to a bunch of retirees not actually retiring as the GFC took hold.  The idea is to de-risk as you are moving in to your target assets or time horizon.

Growing to $50k from $5k is not a lot of assets.  You are working already whilst studying and going to get a job at some stage - and busting a gut as a rookie trying to get started.  It's not really worth your time trying to squeeze out a few extra percent - unless you just like doing it.  

ETFs have now displaced actively managed retail funds with high loads.  You might want to look at those and, given you have a commerce background and would probably have been exposed to finance, take a look at the mix and risk potential and figure out what makes sense to you. Stuff from Markowitz/CAPM theory will do for the purpose of risk assessment over this kind of timeframe. You can calculate risk for yourself from historical returns that you can dump from some place.  Don't optimise for an outcome.  That's just going to give you junk.  Just check out a few scenarios and see what fits for your preferences in terms of a rough trade off between risk and reward. 

If you are working, you probably have your super contributions directed to some industry fund.  Check the website out for expected returns in the Investment Policies or Annual Reports.  In particular, take a look at the various pre-mixed options for their expected returns and standard risk measures (number of expected negative years in 20).  This will serve as a cross-check for your calculations and provide you with an idea of an asset class mix that might be right for you.  Recall, though, this is happening at superannuation tax rates (although the risk statements are made on a before tax basis for some reason). 

Remember to allow for tax and expenses in your simulations.

All the best with it.


----------



## VSntchr (13 May 2014)

*Re: tips & guidance for a young investor*

If your studying commerce then there's a good chance that you will have a strong interest in this area?

If so, my advice is to focus on education in addition to your degree. This forum is a great place to increase your knowledge so stick around and read some relevant threads and ask questions as you go...

There's a bunch of these types of threads lying around the place that you can dig up which will provide some of the initial answers you seek...


----------



## CanOz (13 May 2014)

*Re: tips & guidance for a young investor*

I'd save up for a property deposit with a view to purchasing a place near a CBD with a good yield. After i finished the commerce degree walk into Propex and ask to be trained to trade. I know one guy that's my wife's age (35+), traded bonds for years and has accumulated several million already. I really wish i had someone steer me in that direction, I'd be retired by now...


----------



## Wysiwyg (13 May 2014)

*Re: tips & guidance for a young investor*

Read Zurich Axioms - The rules of risk and reward used by generations of Swiss bankers.

Thing is you won't because your mind isn't ready yet. You have to know loss, risk, to get out when the ship starts to sink, the nature of greed and much more. You don't so you won't and you're destiny could be very much like the 90%er's.


----------



## jigjigwhip (13 May 2014)

*Re: tips & guidance for a young investor*

yea great advise retiredyoung, not worth risking my entire savings for an increased growth of 3/4% on a measly 5k!!

and yea hopefully in the next 5 years sees me working in the CBD rocking the suit and tie!

any suggestions on an intermediate risk investment where i should start looking?


----------



## JimboW (13 May 2014)

*Re: tips & guidance for a young investor*

Stop wasting time posting on forums. just go buy something and see what happens and how you react, that will tell you if you can stomach investing faster than reading a book.


----------



## Wysiwyg (13 May 2014)

*Re: tips & guidance for a young investor*

Thank you to Retired Young who has contributed some of the best quality posts on this forum.


----------



## luutzu (13 May 2014)

*Re: tips & guidance for a young investor*



jigjigwhip said:


> g'day guys, first time poster here!
> 
> Been reading around the forums for a while now and slowing coming to the opinion that its time to invest!
> 
> ...





When you buy into a business you do not control or influence, whose prices (market value) are determined daily by hundreds or thousands other shareholders, and whose operations you are not that familiar with, in economic and political environment you and I and most people cannot hope to know the forces and influence on your business... that is probably enough risk to take.

If you were to just risk and happen to lose $2.5K, the other $2.5K will need to double and a bit to just break even.
So do not take risk, but try to reduce it. And worst, you wouldn't have learnt why you just lost half your savings and probably blame it on bad luck or the market isn't for you etc.

You cannot reduce risk by wide and blind diversification... and with $5K capital, you're not going to get far with that anyway.

What I think you ought to do is focus, not diversify. 

Pick an area you'll want to focus on, read up on it, and put some money down so it focuses your attention and refined what you've read and learnt, want to read further and ignore.


----------

