Bryce and Alec are the hosts of the Equity Mates Investing podcast, Australia’s favourite investing podcast for millennials. Here, they’re sharing their tips for buying into the Australian stock market.
No doubt you’ve been hearing a lot about investing lately, between GameStop, Bitcoin, NFTs and record house prices. However, with unattainable property prices and the stock market looking more confusing than ever, for a lot of Australians, investing feels out of reach. We get it.
Over the past four years, we’ve hosted Australia’s number one investing podcast and interviewed over 150 expert investors, all in an effort to help listeners (and ourselves) better understand the ins and outs of the market. We’ve learnt a lot about investing and have discovered it to be a critical life skill for every Australian — especially those who might like to retire early.
Of course, it can be difficult to get started. When Alec first started investing, he didn’t know what he was doing and managed to lose 99% of his money when the company he invested in went bankrupt. But we know better now, and we want to help you avoid those mistakes and feel empowered by the impacts your investments today will have on your future finances
Here are five things we’ve learnt that can help you get started.
1. Change your mindset: Investing is for everyone
Finance is often seen as out-of-reach for many. It’s full of jargon, charts and data, and it can be a confusing world to get your head around. Thus, finance and money quite often end up in the ‘too hard’ basket. And even if you could understand it, you’d expect to need
thousands of dollars to get started. Forget that.
Technology has reduced the cost of investing. You can now get started with a few cents (literally). Micro-investing apps offer everyday people the opportunity to take their spare change and put it to work in the share market. These apps pool your spare change with thousands of other investors and put it into new ventures. So, whether you’re studying, saving for your next holiday or holding out to buy a house, don’t let not having a bank of savings be a reason to not get started.
2. Understand why the stock market has been such a great wealth generator
When you’re investing in a stock, you’re becoming a part owner in that company. As a result of your investment, the company is then set up to make more money for you as an owner. The CEO only gets their bonus and workers only get promoted if they are successful in making more money for you. So these companies hire the smartest people, work hard at coming up with new products and spend a lot of money selling these products, all to make more money for you as a part-owner.
That is the power of the share market. You’re not buying a house and hoping someone will pay more for it in the future. You’re backing some of the hardest-working people in the world to build incredible businesses, all so they can make more money for you as a part-owner.
3. Look for great leaders working on big problems
As an investor, you have the opportunity to back some of the smartest people in history by buying shares in their companies. Thomas Edison at General Electric, Steve Jobs at Apple, Elon Musk at Tesla, Bill Gates at Microsoft… These are some of the biggest innovators in history, and they all had companies everyday people could invest in. They all created billions of dollars of wealth for their shareholders by building their brands.
Think about the online retail giant, Amazon. When Jeff Bezos first listed his company on the share market in 1997, it was an online bookseller with 256 employees and $15 million in annual sales. Today it is one of the biggest companies in the world with over 1 million employees and $280 billion in annual sales. Thus, plenty of Amazon shareholders have become very wealthy by doing nothing other than owning Amazon shares as Jeff Bezos and his team worked year after year to build the giant company. The Amazon ship may have sailed, but there are a number of emerging thought leaders creating new innovations today. Get in on the ground floor, and you could be backing the next Amazon.
4. There’s plenty you can buy, but you don’t have to choose
A common mistake new investors often make is trying to find an individual stock to buy on day one. There is an easier way – you can buy a little bit of everything. We can buy ‘index funds’ that own a little bit of all of the biggest companies in a country. By doing this, you’re not backing one company to do well; you’re backing the overall economy to get more productive, for businesses to keep on innovating and for the whole stock market to do better over time.
Since 1900, the Australian market has returned an average of 13.2% a year. So betting on the whole stock market has historically been a good move. And 13.2% is a lot better than you’ll get as interest in your bank savings account.
5. Don’t wait for the perfect time
When the stock market crashes it can be scary, and we know this because we’ve lived through a few big ones in the past 20 years. In 2001, a lot of high flying technology companies went bankrupt. In 2008-09, the US housing market almost brought down the global economy. In 2020, COVID shut down the global economy and the stock market fell
quicker than ever before.
However, the stock market always recovers. Companies adapt, economies reopen and the stock market continues grinding upwards. So don’t be put off investing because it may not be the perfect time. The right time is now.
Our favourite example of this is from the 2008 Global Financial Crisis. American investment bank Lehman Brothers collapsed on a Monday, sparking the worst of the GFC. If you had invested in the American stock market on the Friday before, you would’ve lost about 40% of your investment in six months (that’s scary).
However, if you just shut your eyes and held on, today you would have made more than four times your money (up more than 400%). Even if you buy at the worst time, that’s okay. The stock market recovers.
So don’t miss out on the awesome wealth-creating power of the stock market. Get started today. Your future self will thank you.
The Equity Mates Investing podcast breaks down the barriers to investing, making the markets accessible to everyone. Listen now on Acast.