Media headlines focus more on share market drops than rises, but wherever there is a weakness there is usually an opportunity lying in wait. High-quality companies are available at excellent value if you know where to look, but if you’re not sure how to take advantage of these opportunities, we’ve outlined three ways to invest into the sharemarket.
1. Managed funds
These are probably the easiest way to enter the share market with a smaller investment. Open a managed fund account with as little as $1,000 and rely on the expertise of the fund manager to buy and sell the shares to meet the fund’s investment goals and level of risk.
There could be an entry fee and the manager will charge ongoing fees which are deducted from your investment’s income. As the manager purchases and sells underlying investments when he or she considers it appropriate, you have less ability to manage your own tax situation, especially when capital gains on the underlying investments are concerned.
2. Direct share purchase
The main benefit of buying shares directly is that you own the shares and all of the income is paid directly to you. You also manage your tax position by buying and selling shares when you (with your financial advisor’s guidance) consider appropriate. Single purchases of shares provide minimal diversification, so other ASX listed alternatives have been developed which includes Exchange Traded Funds (ETFs).
There are two ways to directly purchase shares:
i. Establish an account with a stockbroker
This gives you access to research and you have the ability to move quickly when opportunities arise. You will pay brokerage every time you buy and sell so weigh up these costs before making rash decisions.
ii. Open a share trading account through an online broker
This is the DIY of share trading and you must be willing, and have the time, to do all of the research yourself. You will still pay a brokerage on every transaction but it is much less than using a stockbroker. If you don’t have the time to do sufficient research and are not prepared to lose whatever you invest using this method, it’s best to work with a qualified financial advisor.
3. Separately Managed Accounts
Separately Managed Accounts (or SMAs) offer direct share ownership with the expertise of an investment manager. An SMA is a customised share portfolio managed by the SMA provider in accordance with one or more specific investment models. These are similar to a managed fund with the difference being that because you own the underlying shares you control when and how much you invest. You also manage your own tax situation.
You can start with an investment of $5,000. Brokerage is kept to a minimum and as you are making regular investments into your account, you benefit from dollar-cost averaging (investing small amounts regularly into the market, thereby reducing the average cost price of your shares). Share investment can be confusing and time-consuming.
If you’re not sure which option is best for you, your financial advisor can help you determine an appropriate strategy for your circumstances.
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General Advice Disclaimer
This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.
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