Welcome to The Sassy Investor
Welcome to The Sassy Investor. Each month Sassy is going to give HT readers some practical, easy to understand tips on all things finance.
This month Sassy looks at the Sharemarket …
The share market - a place where men in suits gather and invest other people’s money right?
Wrong - on two counts.
More than 6.6 million Aussies traded their own money on the Australian Stock Exchange (ASX) last year.
And, 45 per cent of them were women.
To put that in perspective, only 31 per cent of retail (do-it-yourself) investors were women a decade ago.
The COVID pandemic has created a DIY investment boom in Australia, and girl power is driving it.
Government stimulus payments and early access to superannuation put money in people’s pockets.
Record low interest rates lined wallets with even more cash - and ambitious women are getting in on the action.
About half of the 2 million new investors to join the ASX in the past two years were female, and the biggest growth market was women aged 18-24.
Myth debunked - but the real questions are - did this new breed Wall St women make money?
And, should you follow them onto the stockmarket?
The answer to the first question is ‘yes’ - many of the investors who have joined the ASX since the pandemic have cashed in.
The deluge of new investors, coupled with Australia’s better than expected economic performance through much of the pandemic, created what’s known as a ‘Bull market’.
Basically this means the market roared upwards.
Last financial year the ASX gained a whopping 24 per cent – its best year since 1987.
If you’d invested $1000 - and your shares performed at the market average - they’d have been worth $1240 a year later.
Pretty good right?
But there are a couple of things to point out.
Real Estate in Australia has put on similar gains - for the same COVID-driven reasons.
Last year’s economic conditions weren’t normal - so don’t be fooled into thinking it’ll be free money forever.
Both real estate and the share markets are showing signs of slowing, as Australia begins to navigate a more rocky path out of the pandemic.
And what about the second question - should I invest in stocks?
That’s a question you, and only you, can answer.
But if you’re interested but terrified of dabbling in shares, this column will help you understand the basic in weeks to come, and give some ideas and advice.
The share market must be respected, but don’t fear it.
Over the past decade, the ASX has gained an average of 9.3 per cent per year. That’s better than real estate, and way better than sitting your money in a bank.
The key to investing is to have a strategy, hve a goal, and be patient. Get rich quick plans rarely work.
Think about why you want to invest and this will guide your strategy.
We’ll talk more about strategy next month but for now, here are a few dummy’s share market basics.
WHAT IS A SHARE
A share is a single unit of ownership of a publicly listed company. There are about 2000 companies listed on the ASX. In effect, you can a percentage in any of and of these companies. Some are household names, like Woolworths, or Telstra. Others you will never have of. To be listed all of them must meet certain criteria, including employing at least 50 people.
HOW DO I MAKE MONEY ON SHARES
If the value of a share goes up and you own it, you can sell it for a profit and hold for bigger gains. If the price per share for ‘company X’ goes from $1 to $1.10 cents, and you own five shares, the value of those shares would go up from $5 to $5.50
The other way you can make money on shares is through dividends. Some listed companies pay will pay out a percentage of their profits to share holders - this is called dividend. These are normally paid out twice a year. Companies don’t have to pay dividends. Mature companies less likely to see growth in share price are more likely to pay dividends.
HOW DO I BUY SHARES
You must buy shares through a third party, known as a broker. All major banks offer brokerage services, meaning you can simply contact your bank and ask them to help you set up a trading account. Setting up an account through your bank to trade on the ASX will be pretty simple as they will already have the identification, financial records they need.
Once you’re set up, you’ll receive log in details to your broker’s trading platform and you can begin buying and selling shares. Buying a share is a little bit like purchasing at an auction. During share trading hours – the ASX is open from 9:30am to 5pm Monday to Friday - there is a live market on all publicly list shares. The share prices are constantly moving as people trade.
To buy a share in a company you must put in a bid - the price your willing to pay - and specify how many shares you want to purchase. At the same time others will be selling shares in that company. If their ‘ask’ (sell price) meets your bid, their shares will be sold to you via the broker – and ‘bang’ you’re a share trader. Selling shares is the same process but in reverse.
WHAT MAKES A COMPANY’S SHARE PRICE GO UP
Wouldn’t we all love the definitive answer to this one!
In literal terms, share prices react to supply and demand. If the market believes a company is under-valued compared to its current price, traders will place upward pressure on the share price by posting bigger ‘bid’ and ‘ask’ prices.
The factors that can cause the market to believe a share is undervalued are wide and varied. It could be the company’s potential; it’s recent financial performance; major milestones and announcements; political announcements; economic news; and, factors specific to the sector in which the company operates.
We’ll look at some of these factors in future columns.
Until then, stay sassy.
*Sassy isn’t a financial advisor so please make sure to seek independent, legal and financial advice from a professional too.*