How do I start a share Portfolio?

 

I often get asked this question and this is generally what I tell people who are looking to build their own share portfolio.

 

  1. Start saving

    First requirement for investing is spare money. A saving of $5,000 which you are willing to put into a share account is a good start, because of the buying costs, the more money you have to invest, the cheaper the brokerage fees. No point opening an account if you think your going to need the cash in a few months time. It is also important to take into account your debts. If you have debts, it is recommended that you prioritize paying down significant debt while making small contributions to your savings.

    A successful portfolio is a medium to long term investment. It’s not a get rich quick plan. Just like planting a garden the fruits of your investment need to be cared for and it takes time and attention.

  2. Find a platform or broker to buy shares

    Once you have funds, find a share trading platform you can open an account with. I personally like InteractiveBrokers as they have a low fee structure and give you access to most Stock Exchanges.

    There are many trading platforms available, whichever platform you choose, just make sure that the account is in your name and not in that of a third party. Also ensure that the trading platform or broker you choose is licensed.

    Just like opening a bank account you will need proof of identity, proof of address and your tax file number. Check the fees associated with the account. This will have an impact on your bottom line. Remember that profits from your share portfolio are subject to income tax.

    Most trading platforms will have a demo platform so that you can practice buying and selling shares before you go live and start investing your money. Trading platforms can be tricky but after awhile you will get the hang of it. If you prefer not to trade yourself there are brokerage companies you can engage to place your trades and look after your portfolio. Brokers usually charge you 2% a year to open and manage your account.

  3. Select what to buy

    So you have opened and funded your account and the big question is what do I invest in? My
    recommendation would be to keep it simple by applying some fundamental, logic, observation and practicality into your investment decisions, investors should do their own research and come to their own conclusions.

    Large capital blue chip stocks are considered safe investment options as they can endure economic downturns and are not highly volatile. A sample of a blue chip portfolio may include the banks, CBA,Westpac, NAB and the like.
    Supermarket chains such as Woolworths and Wesfarmers which owns Coles. Telecom companies such as Telstra. Mining companies like BHP and RIO Tinto.

    ETFs can help diversify your investments and give you exposure to anything from the top 20 – 500 ASX companies ETFs units are bought and sold the same way you buy and sell shares.

  4. Protect your investment

    Diversify, diversify, diversify! This approach to downside protection is by maintaining a broad and appropriate degree of diversification.

    Place trailing stop-loss for all positions to not let a small loss become a large loss if at all possible. And the most important of all, use common sense. Your risk management focus of your investment should be directed to any fundamental changes within the business (shares) you own. Dividend yields and earnings growth are more important than market expectations.

What to expect from your share portfolio

 

Now you have your portfolio what should you expect return wise? Anything above bank interest rates is a fair result but upwards of 5% is a good return. Having a share portfolio can be a very enjoyable investment and can be a sound financial
investment.