What's holding me back?

NeoGenesis · 4 February 2011

Hi guys,

I've been contemplating getting into shares for a long time. I've managed to accumulated a substantial amount of money in my bank account (about $60K). It's sitting there in a high interest savings account giving me a steady income. I normally top it up every week with savings from my earnings, so money has grown steadily over the years. I'm quite young and still living at home, so don't have many expenses I'm currently studying at uni and have several part time jobs.

Primarily I started to save in order to buy a house. I will move out soon and a huge chunk of my savings will disappear

I thought about investing about $20K in shares and leave the rest in my savings account. Still a little bit worried I might loose all my money, despite reading countless articles and books saying the average trend of the market is up! And diversifying the portfolio is key.

I recently applied for a commsec account and will try it out with maybe $1000 and see how I go. I would like to make regular income through the shares, so not looking for compound growth at the moment. Maybe go for shares that pay dividends.

I have three questions that I haven't been able to find answers to:

Will I receive a monthly income, like I do with my saving account?
What is the expected return?
What are the costs involved: tax, brokerage with commsec etc?

I know these questions are difficult to answer and depends on shares I invest in and the amount of risk I'm willing to take. I'm just after a rough estimate and need to understand how my money will perform.

I saw commsec offered these "share packs" I will probably buy one of those. I still have so much to learn and any help will be appreciated.

ROE · 4 February 2011

NeoGenesis said:
I have three questions that I haven't been able to find answers to:

Will I receive a monthly income, like I do with my saving account?

What is the expected return?

What are the costs involved: tax, brokerage with commsec etc?

Dividend get paid every 6 months usually for most stocks

Expected return no one know but if you buy decent business you can assume
it average 8% a year in capital appreciation.

Brokerage is cheap if you buy say $10,000 at a time ($19.95)
buy $1000 still cost you 19.95

Tax most dividend is fully frank so tax already been paid (30%)

you pay the differences at tax time or claim back if you under 30% bracket.
Capital gain is subject to the same capital gain rules.

Common stock is as risky as you can get compared to other assets
so don't be tempted if you are not confident, nothing wrong with getting 6% from
a bank account

Julia · 4 February 2011

NeoGenesis said:
Hi guys,

I've been contemplating getting into shares for a long time. I've managed to accumulated a substantial amount of money in my bank account (about $60K). It's sitting there in a high interest savings account giving me a steady income. I normally top it up every week with savings from my earnings, so money has grown steadily over the years. I'm quite young and still living at home, so don't have many expenses I'm currently studying at uni and have several part time jobs.

Good for you for saving that much while still a student. Really well done.

Primarily I started to save in order to buy a house. I will move out soon and a huge chunk of my savings will disappear

Don't wish to invade your privacy, but why have you made the decision to move out soon? Obviously you'll be financially much better off if living at home is generally OK.

I thought about investing about $20K in shares and leave the rest in my savings account. Still a little bit worried I might loose all my money, despite reading countless articles and books saying the average trend of the market is up! And diversifying the portfolio is key.

I don't know what you've been reading but anyone who tells you the current trend is up could be right or wrong. There's not a lot of logic in how markets are trading at present imo.

You are worried you might lose all your money. If you choose stocks carefully, that's unlikely, but you could be upset by seeing your capital diminish in the short/medium term.
How will you feel if this happens? The fundamental investors on this forum don't worry about this, given they have carefully researched what they believe to be the intrinsic value of companies. I'm guessing you're not at the stage of doing such research, or probably as an alternative getting a reasonable understanding of price action via charts.

I recently applied for a commsec account and will try it out with maybe $1000 and see how I go. I would like to make regular income through the shares, so not looking for compound growth at the moment. Maybe go for shares that pay dividends.

I'll let someone else pick up this point. I never buy for dividend yield. There are companies which despite difficult conditions are still showing strong capital growth.
I'll always go for this over dividends which can always be reduced or wiped if the company runs into trouble. Do some calculations to show you how much the dividend and franking credits balance out potential loss of capital value.
There are several threads on this within the forum.

I have three questions that I haven't been able to find answers to:

Will I receive a monthly income, like I do with my saving account?

No. Dividends are paid twice yearly. You will receive "income' via capital growth only when you sell the share.

[*]What is the expected return?

Click to expand...

With the greatest of respect, the fact that you are asking such a question means you need to get a lot more education. If you put money into a downtrending stock on its last breath, and with no dividend payment, quite obviously your return will be negative.

If you manage to pick the stock out of all those on the ASX that is about to show massive growth, then you will make a motza.

And then there is everything in between.

How do you plan to decide what stocks to buy?

[*]What are the costs involved: tax, brokerage with commsec etc?

Click to expand...

Isn't this a question you should be directing to Comsec, rather than to anonymous respondents on a forum?

I know these questions are difficult to answer and depends on shares I invest in and the amount of risk I'm willing to take. I'm just after a rough estimate and need to understand how my money will perform.

As above, no one can give you such an estimate with any accuracy because of the obvious variables.

If you haven't already pursued this, there is a pretty good Education section at www.asx.com.au. I'd imagine Comsec will also have an education section which you can work your way through. I know Etrade does.

I may quite wrong, but it sounds to me as though you have this money saved and want to get it making money for you. Good idea. But not before you have educated yourself about how markets work and how to choose what stocks will fulfil your criteria. First you need to decide what your expectations are from the money you will invest.

howmanyru · 4 February 2011

Hi Neo,

From reading your post it seems you are afraid of losing your money and yes, this is a possibility. I was afraid of this when i started trading 6 years ago, and did lose a lot of my money. Don't worry, everyone loses money, what you have to do is make more than you lose. This comes with experience which comes with trial and error, you learn as you make and lose money, developing and refining your investing strategy and risk management as you go. If you lose some money at the start, don't be too disappointed, put it down to experience and keep going, eventually you will feel more confident and realise the stock market is not gambling, it's just business.

If you want a garunteed regular income, why not just leave your money in the bank? Divedends are a bonus of the stock market, but hardly the main reason to risk your money. I don't think they are paying much anyway these days, plus the company can cut them or lower them at will. The market is high risk, compared to other investments, so you want a decent return, more than a divedend will give you, IMO.

Hope it goes well for you

Tysonboss1 · 5 February 2011

NeoGenesis said:
Hi guys,

I've been contemplating getting into shares for a long time. I've managed to accumulated a substantial amount of money in my bank account (about $60K). It's sitting there in a high interest savings account giving me a steady income. I normally top it up every week with savings from my earnings, so money has grown steadily over the years. I'm quite young and still living at home, so don't have many expenses I'm currently studying at uni and have several part time jobs.

Primarily I started to save in order to buy a house. I will move out soon and a huge chunk of my savings will disappear

I thought about investing about $20K in shares and leave the rest in my savings account. Still a little bit worried I might loose all my money, despite reading countless articles and books saying the average trend of the market is up! And diversifying the portfolio is key.

I recently applied for a commsec account and will try it out with maybe $1000 and see how I go. I would like to make regular income through the shares, so not looking for compound growth at the moment. Maybe go for shares that pay dividends.

I have three questions that I haven't been able to find answers to:

Will I receive a monthly income, like I do with my saving account?

What is the expected return?

What are the costs involved: tax, brokerage with commsec etc?

I know these questions are difficult to answer and depends on shares I invest in and the amount of risk I'm willing to take. I'm just after a rough estimate and need to understand how my money will perform.

I saw commsec offered these "share packs" I will probably buy one of those. I still have so much to learn and any help will be appreciated.

Do yourself a favor and listen to this 24 video series, or better yet read the book.

tothemax6 · 5 February 2011

Tysonboss1 said:
Do yourself a favor and listen to this 24 video series, or better yet read the book.

Do as the man says .

Firstly, you don't have to start by throwing in all $20k. You could buy, say, $2000 worth of a blue chip stock, so as to 'get your feet wet'. You will get a feel for the nature of stocks this way, as you see its price float up and down day to day. When you hear about 'people loosing all their money' in the stock-market, this does not apply to investing as a whole. There is a big spread in risk depending on what sort of stocks you choose to buy, and how much you invest in them. To loose lots, you pretty much have to put yourself in that position deliberately (chasing very high returns).

Would recommend you look up Roger Montgomerys stuff, such as his videos on you-tube, his blog, his book etc. He gives a good insight into the australian stock market.

danago · 5 February 2011

Hey,

When i read your post it almost sounded as if i wrote it myself. I am in a strikingly similar situation: I'm a 20 year old university student with a similarly sized bank account, have several part time jobs, looking to invest some money in the markets (and hopefully purchase a house within the next 5 years) and have just opened up a Commsec account with a few thousand dollars. I think its great to see young people trying to set themselves up for future financial comfort (I could never understand how some of my friends still live at home yet have literally no savings )

Because i am still in the learning phase, i started out by putting some money into listed investment companies like Argo. I figured that they can probably do a better job of picking stocks than i currently can, and the effective fees aren't too high. It also gives me a chance to see how they move into and out of different positions, which i guess can help in my learning process.

I am also strongly considering investing in the governments first home savings accounts scheme, whereby the government will contribute a tax free 17% of whatever deposit i make (max of ~$5500 per year, adjusted periodically for inflation). The 17% is a one-time bonus for each deposit i make, but the total deposited balance will earn the banks nominal interest rate, so overall it seems like a fairly good return. Catch is that it can only be withdrawn after certain conditions are met and only to make a deposit on a house, but for someone like me who is certain that i want to be a home owner within the next 4-5 years, the restrictions aren't so bad.

I am in no way providing financial advice, but just thought I'd share the perspective of someone in a similar position

All the best,
Dan.

c-unit · 5 February 2011

danago said:
Hey,

When i read your post it almost sounded as if i wrote it myself. I am in a strikingly similar situation: I'm a 20 year old university student with a similarly sized bank account, have several part time jobs, looking to invest some money in the markets (and hopefully purchase a house within the next 5 years) and have just opened up a Commsec account with a few thousand dollars. I think its great to see young people trying to set themselves up for future financial comfort (I could never understand how some of my friends still live at home yet have literally no savings )

Because i am still in the learning phase, i started out by putting some money into listed investment companies like Argo. I figured that they can probably do a better job of picking stocks than i currently can, and the effective fees aren't too high. It also gives me a chance to see how they move into and out of different positions, which i guess can help in my learning process.

I am also strongly considering investing in the governments first home savings accounts scheme, whereby the government will contribute a tax free 17% of whatever deposit i make (max of ~$5500 per year, adjusted periodically for inflation). The 17% is a one-time bonus for each deposit i make, but the total deposited balance will earn the banks nominal interest rate, so overall it seems like a fairly good return. Catch is that it can only be withdrawn after certain conditions are met and only to make a deposit on a house, but for someone like me who is certain that i want to be a home owner within the next 4-5 years, the restrictions aren't so bad.

I am in no way providing financial advice, but just thought I'd share the perspective of someone in a similar position

All the best,
Dan.

Yeah man the First Home Saver Account is koota. I'm 22 and signed up for one last year, putting in $5k per year (as the max the gov will contribute for you is $850, or 17% of $5000). Assuming you add the $5k per year, and a 5% interest rate the account gives an effective internal rate of return of 19%. Can't beat that, particularly for a AA rated asset (with Comm bank). The good thing about the FHS account is that it has a pretty high limit, I think the gov will continue contributing until it's at roughly $80k which is pretty solid. Everything else I add into my Commsec portfolio, which at the moment is about 70% cash 30% small-cap stocks.

To the first poster, if I were you I would put in maybe $5k to start with, get a good feel for whatever company it is you are investing in and understand what drives its performance. Don't be afraid to lose a little bit. You learn a lot from losing, and it's only $5k which isn't much in the scheme of things.

Wysiwyg · 5 February 2011

danago said:
When i read your post it almost sounded as if i wrote it myself. I am in a strikingly similar situation: I'm a 20 year old university student with a similarly sized bank account,
All the best,
Dan.

Mate if you have accumulated near 60k in two or three years working part time while studying at University then you must be a) the General Managers boy Friday , b) have rich parents supplementing your part time wage with a salary or c) an internet forum exaggerator.
At 20 I was working 'full time', paying off a car, share renting a house, paying electricity/phone/gas bills, buying my own food and going out once a week and holidays once a year.
This left very little to save.

danago · 5 February 2011

Wysiwyg said:
Mate if you have accumulated near 60k in two or three years working part time while studying at University then you must be a) the General Managers boy Friday , b) have rich parents supplementing your part time wage with a salary or c) an internet forum exaggerator.
At 20 I was working 'full time', paying off a car, share renting a house, paying electricity/phone/gas bills, buying my own food and going out once a week and holidays once a year.
This left very little to save.

I have been somewhat fortunate to have had a well payed job for my level of qualification. Working as a tutor (of high school TEE subjects) i was seeing about 12-14 students per week, and the hourly rate working as a tutor is a little more (about three times more) than i was getting when i used to work at a supermarket. I am about to start my fourth year of university and so wont be taking on that many students this year, but it definitely did help with the bank account over the past few years.

I must admit though that i have been lucky with the housing situation -- my parents don't charge me board, they pay for food and they did help me out a little bit when i bought my car. It helps, and i appreciate it.

Tyler Durden · 5 February 2011

If you are afraid of losing money then you shouldn't be in the market.

Tysonboss1 · 5 February 2011

Wysiwyg said:
This left very little to save.

Some of us started early, I owned a house and had a 30K share portfolio.

I started investing at 14,

NeoGenesis · 5 February 2011

Wow thanks for all your comments and helpful advice.

Don't wish to invade your privacy, but why have you made the decision to move out soon? Obviously you'll be financially much better off if living at home is generally OK.

Girlfriend and I are thinking about getting married. I'm just about to finish my studies and get a "real" job.

Do yourself a favor and listen to this 24 video series, or better yet read the book.

Would recommend you look up Roger Montgomerys stuff, such as his videos on you-tube, his blog, his book etc. He gives a good insight into the australian stock market

I will definitely do that. Thanks for the resources.

When i read your post it almost sounded as if i wrote it myself

Glad to see some other students believe in saving as well. It took me about 3 years to save that money. I don't go out drinking or partying every week I've been lucky enough to get a scholarship at uni, got a teaching position there as well. And part time project work on the side... so it's pretty sweet. Best thing is my support from parents. I literally have no living expenses, but I have started to help out around the house with groceries etc (felt bad).

So my next step is to do some more reading and research. Then I will invest a bit of money to get my feet wet. I'll keep you guys posted.

If you are afraid of losing money then you shouldn't be in the market.

I am scared... but want to overcome that fear. Must take a risk once in a while.

Tyler Durden · 5 February 2011

NeoGenesis said:
I am scared... but want to overcome that fear. Must take a risk once in a while.

Well think about it this way: if you lose x amount (x being the amount you want to invest), how will you feel?

LiL_JaSoN · 5 February 2011

Neo, I am in the exact same position as you...

Im 21, I have saved up a chunk of money which i wont disclosed how much which i first saved to buy a house.

I am still living at home and a uni student.

Was thinking of buying a few blue chips to get my feet wet.

This thread has been helpful

Julia · 5 February 2011

NeoGenesis said:
I am scared... but want to overcome that fear. Must take a risk once in a while.

It's quite reasonable to feel scared if you intend risking hard saved funds into something with which you are unfamiliar, and if you have not educated yourself about how markets function.
Maybe a simple question: if you are determined that you must 'overcome your fear', how will you determine what stock(s) to buy?

tothemax6 · 6 February 2011

Tyler Durden said:
Well think about it this way: if you lose x amount (x being the amount you want to invest), how will you feel?

I dunno, if for instance he invested it all in BHP, and it went to 0, in this kind of situation we'd probably all be doomed anyway. Shares strike me as being completely different to say, forex trading - i.e. own money vs huge margin debt.

tech/a · 6 February 2011

(1) Learn about managing risk
(2) $1000 trading account will see you disillusioned in no time Brokerage will kill you.
(3) Paper trade using the full $60k until you understand (1) and also understand
(4) Trade management
(5) Portfolio management
(6) "Universal Principals of Successful Trading --Brent Penfold
(7) Then develop a method and Prove it woks by doing (3)

I call this painless education.

Then

(8) Open an IB account ($6) Brokerage
(9) Take advantage of their 2;1 margin (you have $120K to now trade with )
Understand and USE the power of Compounding AND Leverage with the Knowledge that you know HOW to trade----see (1) to (7)

Now your cooking!
Takes around 10,000hr ---but by now youre well versed in study!

NeoGenesis · 6 February 2011

Well think about it this way: if you lose x amount (x being the amount you want to invest), how will you feel?

If I lose $1000 I wouldn't mind, if I lost all my savings I'd be devastated!

how will you determine what stock(s) to buy?

Commsec has these things called "share packs" - I thought I might buy one of those after a bit of research.

I dunno, if for instance he invested it all in BHP, and it went to 0, in this kind of situation we'd probably all be doomed anyway

I will never invest all my money in a single company.

(1) Learn about managing risk
(2) $1000 trading account will see you disillusioned in no time Brokerage will kill you.
(3) Paper trade using the full $60k until you understand (1) and also understand
(4) Trade management
(5) Portfolio management
(6) "Universal Principals of Successful Trading --Brent Penfold
(7) Then develop a method and Prove it woks by doing (3)

Thanks for that Tech/a
You are correct about the $1000... brokerage will eat that up if I traded aggressively.
What if I buy for capital growth and let my investment sit there for 20 years? I'm not seeing the benefit in investing for dividends anymore.

I don't think I will put all of my savings into stocks, will leave some in a savings account for a rainy day.

Paper trading - is there a website that might offer something like this? Seems like a bit of work to do it manually. The ASX has the share market game, it starts at the end of this month I think. Maybe I will give that a go and see how I fare...

The current plan is to invest in blue chip companies for capital growth. Will start with a small amount of money and slowly build up my portfolio, perhaps investing once a month.

inq · 6 February 2011

Wysiwyg said:
Mate if you have accumulated near 60k in two or three years working part time while studying at University then you must be a) the General Managers boy Friday , b) have rich parents supplementing your part time wage with a salary or c) an internet forum exaggerator.
At 20 I was working 'full time', paying off a car, share renting a house, paying electricity/phone/gas bills, buying my own food and going out once a week and holidays once a year.
This left very little to save.

Fail. I'm 20, built my own house a year ago, full time university student with a share portfolio floating around 45k. Its possible, there are some niche jobs out there where you can make a motza.

To the OP and all those of similar age with the fear, just put your feet in. I had the same problem, but my partner encouraged me and I started off with some blue chips to get a better understand, learning researching skills and Mr Market. Now I have small cap exposure and making some very good returns (30%+).

Get in the water, its mighty fine.

What's holding me back?

NeoGenesis

ROE

Julia

In Memoriam

howmanyru

Tysonboss1

tothemax6

danago

c-unit

Wysiwyg

Everyone wants money

danago

Tyler Durden

Tysonboss1

NeoGenesis

Tyler Durden

LiL_JaSoN

Julia

In Memoriam

tothemax6

tech/a

No Ordinary Duck

NeoGenesis

inq

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