Paul's Insights: How to buy shares tops online enquires
Sharemarkets have dished up a wild ride recently. But when prices fall it's a sure thing that bargain hunters will step in.
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Recent data from Google Trends shows that ‘how to buy shares’ is a hot topic. This isn’t isolated to Australia. Investors in the US are also jumping online to find out how to get into equities.1
Why is this happening?
When share prices hit a low point, the market offers plenty of buying opportunities. It’s like stocking up on purchases at sale time.
We saw significant losses on the Aussie sharemarket in March. But there were also periods of big gains – as much as 12% over some days towards the end of the month. This potential for sharp rises plus the value we’re seeing in the market right now, is likely to be driving the uptick in investor interest.
I can’t guarantee the market won’t fall further. No one can. We are dealing with an unprecedented situation, and asset markets remain volatile.
That’s why diversification is so important right now. Not every industry is feeling the pinch of Covid-19 in the same way. We’ve seen how demand for staples like groceries has skyrocketed. With more of us working from home, we are relying more on the internet – and that’s good for the telcos. On the flipside, travel bans and social distancing have taken a heavy toll on the tourism, travel and hospitality sectors.
This is where exchange traded funds (ETFs) are such a handy option for investors. They offer an easy and low cost way to spread your money across sectors, industries and geographic regions.
There are even ETFs that focus on defensive assets like government bonds. So you can pull together a diverse portfolio for a lot less money than if you invested on a share-by-share basis.
As ETFs aim to replicate particular market indices, the costs are very low. That way, more of any returns go straight to an investor’s pocket.
An actively managed approach, where either you or a fund manager try to second-guess the market by picking the shares you believe will do well, creates higher costs. It demands more research and often a higher level of brokerage. Despite the extra cost, there are no guarantees of success. Consistently outperforming the market is extremely difficult.
In my books, ETFs offers an affordable way to get into the market at a time when investors can get plenty of bang for their buck. Along with diversity, they also let you keep investment fees to a bare minimum.
1 https://www.ccn.com/google-trends-data-rings-a-warning-the-stock-market-crash-isnt-over/
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
