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- Scott, how much do you need to get started in investing?
Is there a set amount?
- I'd say this is the $64,000 question
but then it sounds like that's the answer as well,
so let's avoid that.
The good thing with investing is you don't
need a lot of money to get started.
The only thing you wanna be careful amount
is the cost associated don't destroy your investment.
If you're paying 20 bucks in brokerage
you don't wanna buy $30 of shares, right.
The brokerage is simply too expensive as a proportion.
The good news is, plenty of low cost brokerage out there.
You can now trade with CommSec for example
for £10 for each trade under a 1000 bucks worth of shares.
So they're starting to come down
a little bit, which is nice.
Generally speaking, we want people to start saving
small amounts, building up to large amounts
and then investing that new cash.
So the question of how much do you need to get started,
it's a different answer to how much do you need
to buy a share is one question.
To get started, start with a dollar.
Start with 50 cents if you need to.
Put money in a jar.
Start to build a savings account
that you can then use to start buying shares.
We talk about investing, we think it's just
the buying shares bit.
Investing is everything from saving the first dollar
right through to buying that first share
and those are two different things.
So start with a cent, start with 50 cents,
start with a buck.
When you're buying those shares once you've starting
amassing that money try to keep your brokerage
to below 1%, maybe 2% if you want of the amount
of money you're investing, so that means
if you're paying 10 bucks for brokerage
you wanna be buying probably 500 bucks
to 1000 bucks worth of shares.
Now, the higher your brokerage the higher proportion
that is, the more it hurts your returns
so if you're gonna pay 2% to buy
and you'll earn 10% as a return
you're giving up effectively a fifth of that return
in brokerage costs.
You wanna be very careful with that,
but over the longterm, if you're gonna hold shares
for 10, 20, 30 years the brokerage is much, much
less important than it otherwise might seem.
So don't pay more than you need on brokerage
but start with as little as you can get away with
because just getting started, the old journey
of a thousand miles starts with a single step,
the momentum of getting started is far, far
more important than trying to be too clever
and too absolute about it.
- There's generally a, I mean I really love your point
about, you know, the investing process along the way,
you know, the 50 cents, the dollar just in the jar.
Is there a set amount of money though that you actually
need to spend to actually buy that first share?
- Yeah, generally speaking most brokers
have a minimum parcel of 500 bucks.
So that's probably the minimum amount.
You can now start to put aside some money,
again we're not sponsored by CommSec at all by the way,
but they have a new app called Pocket
which lets you buy exchange traded funds.
that's a whole other conversation,
for about two bucks a trade, I think it is.
So you can start really, really small
with 10s and 20s and $30 at a time.
So there are great ways to get your foot in the door
and then as you graduate to larger and larger amounts,
either because you save more or that compounds
to a larger amount.
You then make different decisions.
So, if you're buying direct shares in the market
500 bucks is the minimum.
If you're buying something like a CommSec Pocket
or other things, you can do it with much, much
lower amounts of money and that's the best place
for some people to start, 'cause it simply
gets you on that ladder, if you wanna call
that an investment ladder.
It get's you stared, and that's where the power lies.
- And I think it's a really interesting point
as well about the keeping the brokerage percentage
to a minimum of your overall investment.
I think another good point is that it costs
that initial amount to get in but you also
need to consider getting out as well,
so if it's $500, you know, you put the 2% in for the initial
brokerage and if you wanna get it back out it's another 2%.
It creates a fairly high barrier to cross.
- Yeah, it's also why we recommend
people invest for the longterm.
So, yes if you're gonna buy it today and sell it tomorrow.
You've gotta take those two lots of brokerage into account.
If you can invest for the longterm,
say you invest for five years, on average your shares
will go up maybe 70, 80% over that period of time.
That will well and truly pay for both lots of brokerage.
So, yes keep the amount as small as you can,
but a bit like tax, we don't, you shouldn't
be investing for the tax deduction,
you should be trying to maximise your after tax return,
so it's the profit you should be focused on
not minimising the tax, or in this case
minimising the cost.
So yes, don't pay more brokerage than you should,
but don't miss the forest for the trees.
- Very good point.
Thanks, Scott.
- Thanks, Ryan.
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