Questions from a stock market beginner

There is a thread here in the Beginners Lounge forum in which those new to the site can introduce themselves to the ASF community. It has become apparent that many beginners often have a question or two that they would like to ask. Most often it is along the lines of "Where do I begin?" but it can also be something very specific.

In the past those with a couple of questions would often start a separate thread here in the Beginner's Lounge, as any questions asked in the introduction thread would often get buried fairly quickly by subsequent introductions.

I have started this thread in an attempt to keep all those questions from beginners in one place. It is my hope that, in time, this thread will become a useful resource as questions from beginners are asked and then answered by more experienced members of the ASF community.

In future, threads started in this forum to ask one or a series of beginner questions will be merged into this thread, so if a thread you started ends up in here that is the reason why.

I should point out that any information contained in this thread, like all content on ASF, is general information only and should not be considered financial advice. For information about getting advice from a licensed adviser please refer to ASIC's consumer website, which you can find here: http://www.fido.gov.au/

Queries from a newbie

Hi I'm Newbie Trader,

I'm 18 and am currently studying law. I will finish my degree when I am about 23. Over the next few years I have planned (since I was about 15) to work earning money which I can invest into the stock market (have after 3 years of reading, watching, paper trading just begun investing). Once my degree is completed and provided I have enough money I hope to buy some kind of rental property. Whilst I have some idea about trading stocks (have come up with my own trading strategy as basic as it may be), I really have no idea about property investing (something which I hope to change over the next couple of years). Hence I have two questions...

(now i do realise this is the 'Aussie STOCK forum' but I am sure some of you own or have knowledge on property)

Why do people choose to invest in property over shares?

Why do people choose to invest in shares over property?

(I would be grateful for any opinions no matter how bias) :

Hope I havn't embarassed myself by asking anything to stupid but we all have to start somewhere right?

N.T

Re: Queries from a newbie

newbie trader said:

Why do people choose to invest in property over shares?

Click to expand...

Here's a few reasons from me (ATM),

Lower risk of financial ruin, convenience, tax paid on divvies, ETO's give my portfolio a boost, I don't need to deal with RE agents/tenants/rates/breakdowns/building maintenance issues and all those other annoying things that come with IP.

Best of all I don't need to worry about interest rates, needless to say if rates do go back up to double digits and irresistible opportunities presented themselves on a platter, I may be changing my thinking a little.

G'day NT

There are always arguments about which type of investment is the best - property or shares.

The answer is there is no answer. Both can be very lucrative if you are at the right place at the right time etc etc.

The clincher for me is the liquidity and time factors involved with share trading.

If you need to liquidate your investment quickly for what ever reason then with shares you can do it within days (or a week). With property a minimum of 3 months (could be years!).

Ask yourself which is more flexible.

Cheers

dutchie

G'day Joe

I think this thread has good potential.

I would think that the most benefit would be achieved if answers to specific questions were moved so that they were grouped below each question even though they might be out of sequence.

Is this something you would consider or in the too hard basket?


Cheers

dutchie

dutchie said:

I think this thread has good potential.

I would think that the most benefit would be achieved if answers to specific questions were moved so that they were grouped below each question even though they might be out of sequence.

Is this something you would consider or in the too hard basket?

Click to expand...

Hi Dutchie,

Unfortunately, posts in a thread cannot be moved around and are ordered strictly according to the time that they were posted.

I can see your point though, and there may be a little bit of confusion if answers to different questions start overlapping.

If those replying to questions could quote the specific question(s) that they are responding to much of this confusion may be avoided.

Hopefully we won't get too many questions too quickly and by the time a new question comes up the previous question will have been answered satisfactorily.

i just have a simple question about purchasing shares.
For example:
if i bought shares on a monday and the share price went up 10 cents on a wednesday, will i be able to sell my shares?

because when i look at my portfolio (i use commsec) it says

register units available units
0 XXXX

does this mean i cannot sell the shares, since it's unregistered?

milkshake said:

i just have a simple question about purchasing shares.
For example:
if i bought shares on a monday and the share price went up 10 cents on a wednesday, will i be able to sell my shares?

because when i look at my portfolio (i use commsec) it says

register units available units
0 XXXX

does this mean i cannot sell the shares, since it's unregistered?

Click to expand...

They can be sold the moment you buy them ........

It takes 3 days for settlement i.e the paperwork of the transaction is sorted ..But you can sell them at any time after purchase

nunthewiser said:

They can be sold the moment you buy them ........

It takes 3 days for settlement i.e the paperwork of the transaction is sorted ..But you can sell them at any time after purchase

Click to expand...

ahh ok thank you very much!

For me, one key reason for a guy just starting out with not too much capital would be potentially risking a large proportion in one deal.

For example if you decide to sell that property but unable to do so for a profit after all costs you could be down maybe say 30k for example.

That's like someones entire trading account gone in one trade. Whereas with the account you could build on it and risk what you are comfortable with.

Property too expensive in W.A.

phantomcamel said:

Property too expensive in W.A.

Click to expand...

And the question is ?

Also depends on where you look . still a few jewels to be had if one is quick, cheeky and able

nunthewiser said:

And the question is ?

Also depends on where you look . still a few jewels to be had if one is quick, cheeky and able

Click to expand...

I guess you are right. Out of my league I think. Had a look at Onslow to see what the prices up there are - $600K, nearly fell of my chair!

phantomcamel said:

I guess you are right. Out of my league I think. !

Click to expand...

Only out of your league if thats the way you want to view it ...........

Anyways this thread for stock market questions and we should not clutter it with property stuff ......

Welcome to ASF .

Nun,

I asked the initial question about property/shares that joe decided to make into this thread or w/e it is...so they are just answering my question I guess.

N.T

Sorry my mistake i didnt scroll back far enough.

Re: Queries from a newbie

newbie trader said:

Why do people choose to invest in property over shares?

Why do people choose to invest in shares over property?

Click to expand...

Two very different asset classes, Both with different pros and cons. Once your portfolio is of a decent size it does make sense to include both.

The strengths of one asset class will cover the weaknesses in the other.

Property Pros - Regular weekly cash flow, Stable prices, You control it, Banks will lend against it on favourable terms, great inflation hedge.

Property Weakness - Slow growth, low return on capital employed, Large capital outlay, low liquity you have to manage tenants,

Share strength - Higher possible return on capital so high capital gains, smaller capital outlay, higher liquity, greater diversification,

share weakness - cashflow is less regular (6 monthly), Prices can flutuate by more than 5% in a day, you don't control the company, Banks charge higher interest when lent against on more unfavourable terms,

Re: Queries from a newbie

newbie trader said:

(now i do realise this is the 'Aussie STOCK forum' but I am sure some of you own or have knowledge on property)

Why do people choose to invest in property over shares?

Why do people choose to invest in shares over property?

(I would be grateful for any opinions no matter how bias) :

Hope I havn't embarassed myself by asking anything to stupid but we all have to start somewhere right?

N.T

Click to expand...

I think most of the replys have been very bias towards shares, since it is a stock forum.

I invest in both shares and rental property(more so property), and have had great success with both, with shares u dont have to invest as much, thus you can diversify your portfolio, you can also make alot more money, however with the gains there are also high risk with shares even with big blue chip companies, for example during the recent financial crises, shares such as MQG plummeted losing about 80% of its value(other companies may not have lost as much, however i was devastated after this event), where as house prices only came down slightly, so you get stability with property. also with rental properties your rent always increases and as time goes by the rent will be greater than your interest repayments thus you can just sit on it and it pays off itself, there are also alot of tax benifit from negative gearing (in terms of shares, can only be done if you are a professional trader) and you can avoid paying tax with houses, for example.

since it will be your first home, if u buy under $650, 000, you can claim First home buyers grant, live in it for 12months and claim as primary place of residence before you rent it out, rent it out for only UPTO 6 yrs and then sell it, since you lived in it first and sold within 6 years you dont pay any CPT(captial gains tax) thus if the house went up from $600, 000 to $900, 000 or even 1M+ its all TAX FREE PROFIT! where as in shares $300, 000 would be taxable and goes towards your income tax (45%).

However shares can give massive returns especially small mining shares, for example i bought some DLS shares at 6.6c and sold them for 8c after only a month! so when mining goes up they go up alot more than property can ever return.

another down side to shares is that banks do not value the equity in shares as much as houses, thus you can not borrow as much against your equity to maximise your investment opportunity and rates are generally lower for mortgages.

However with shares you can buy more when the share price goes down to lower your overall buying price, where as property this is impractical.

Please note that i dont invest as much in shares as i do in property so i may not know as much about shares please correct me if i made any mistakes. Also on a final note, i believe rental income is usally more stable than shares if you know what you are doing such as not over increase rent( even if the tennent moves out, if your rent is reasonable you SHOULD be able to get another tenant in with limited lost of rent).

Hopefully this helps, sorry about articulating it so poorly, as i'm just writing what i know and comes to my head.

Re: Queries from a newbie

Greedy_Kev said:

there are also alot of tax benifit from negative gearing (in terms of shares, can only be done if you are a professional trader) and you can avoid paying tax with houses.

Click to expand...

Wrong Kev...anyone can claim interest expenses on money borrowed to buy shares as an investment, interest on margin loans also tax deductible.

Greedy_Kev said:

where as in shares $300, 000 would be taxable and goes towards your income tax (45%).

Click to expand...

Also wrong...hold shares for more than 1 year and get a 50% CGT discount, and who the hell is really worried about all this stuff if your in a 45% tax bracket....you already have too much money, wake up and go sit on a beach somewhere. and if you are in a 45% tax bracket you really should be very interested in accumulating franking credits.

I'm quite new to the share market and have heard many people I know rave about such things as the Eureka report and Rivkin report. They basically contend that they do the work for you and all you need to do is read the respective reports and pick a stock to buy. I took a look at them both and am really not sure whether it would be a waste of money subscribing to one as i'm confident that I can do the research myself, however, would they be useful to corroborate my findings? Do they infact relieve you of having to do your own research (i've never personally been a fan of letting others do important thing for me as i find you get better outcomes by doing things yourself)?

If anyone has subscribed to these types of reports or if you have some knowledge of them then your input would be greatly appreciated.

N.T