By Dale Gillham
Where to invest is often the first obstacle that women looking to invest their money have to overcome. But don’t be deterred just yet, the choice is far more direct that a simple net search would suggest.
Where should you invest?
The most appropriate investments to achieve both income and capital growth are direct shares and property.
Of these two choices, I would advocate that direct shares are the best option for woman looking to capitalise. Why? These options are simple and easy to get into, especially for those new to investing, and unlike property it does not take much money to get started.
Direct share investment is an important part of any wealth creation plan and the great thing is that technology has made it even easier for you to learn how to run your own portfolio.
I found out long ago that women want a practical framework that will allow them to select the stocks for their portfolio that have a higher chance of ensuring they are consistently profitable. Once women have the knowledge, they have the confidence to make decisions, and ultimately they take control their financial futures.
Golden Rule 1
Irrespective of the amount of money you have to invest, you should always take the same amount of time researching your options to ensure you are protecting your capital on each and every occasion. This means that whether you are investing $2000 or $20, 000, you are making the choice to devote your money into something that hopefully will secure you with a profitable return – know that this takes time and every investment should be thoroughly thought-out, no matter what the size of your sum is.
Golden Rule 2
Once you have done your homework, you should aim to have between 8 and 12 stocks in your portfolio when investing in the share market. The trick is to not have lots of stocks with small amounts invested in each. This rule actually lessens your risk and increases your returns because:
• Smaller portfolios are easier to manage and represent lower risk. The more stocks you have in your portfolio the more work you need to do to manage your risk level.
• It is far easier and requires less analysis from a novice to simply select a smaller number of stocks that are rising in price. Consequently, selecting this rising stock gives you the opportunity to increase returns.
• You will have less transaction costs in buying and selling stocks simply because a smaller portfolio will have fewer transactions. It should be noted that every time you buy a new stock a transaction fee is incurred, so the more stocks you invest in, the great outlay in transaction fees.
Golden Rule 3
Never invest more than 20% of your total capital in any one stock, which will not occur if you follow Golden Rule 2. But more importantly, learn how to set a stop loss to protect your capital in the event a share falls in value.
A Stop Loss is crucial, particularly when you aren’t an experienced investor. It is where you nominate a figure to your broker that compels them to sell a share if its market price falls to a certain level below the current price. It protects your profits and importantly helps reduce you loss.
Here I suggest that if a share falls by more than 15% of the price you paid for it then you should sell to protect your money. This rule will help reduce your exposure to risk, while allowing you to achieve good returns simply because you are minimising the amount of capital you could lose at any one time.
Dale Gillham is the director and founder of Wealth Within, an Australian-based company specialising in share market education and independent investment advice.
Dale is the author of the book ‘How To Beat The Managed Funds By 20%’ and Australia’s first and only accredited Diploma of Share Trading and Investment. For information visit www.wealthwithin.com.au