Paul's Insights: Three reasons we don't invest
Over 11 million Australians hold investments of some sort outside their super. But this could be higher. There is still a significant minority of people who do not invest.
A study by Deloitte Access Economics looked at the main reasons why some Australians don’t own investments. The overwhelming reason, cited by more than one in two non-investors, is that they believe they don’t have enough money to get started.
When asked how much was needed to start investing, around 15% of respondents said between $2,000 and $5,000. Another 15% said between $5,000 and $10,000, and one in four expected to need more than $10,000 to begin investing. This is a myth worth busting. It’s possible to start investing directly in shares with just $500. Add in the cost of brokerage – let’s say $20 for your first trade, and you can potentially kickstart a share portfolio for under $600.
What else holds us back? Over one-third of non-investors say they don’t know enough about investing to be confident they are making the right decisions. That’s fair enough. But there is a wealth of high quality, freely available information online. The MoneySmart website is a useful starting point.
The main point is that you don’t need expert skills to become an investor. If you’re interested in shares, it does help to spend some time researching different companies to understand how they make money, and what sort of competition they face. But this can easily be done online. Jump onto the company’s website or google the company for news reports that can shed a light on how the business is faring.
Around 15% of non-investors are put off because they feel they need professional advice around what to invest in, but can’t afford the cost. If that sounds like you, an easy and low-cost way to invest is through exchange traded funds (ETFs) listed on the Australians Securities Exchange.
One of the big advantages of ETFs is that you don’t need to select individual shares. Your money is pooled with other investors’ funds, and spread across a range of different companies, industries, and even countries. So, for a very small outlay you can gain instant diversification across a variety of underlying assets, which helps to reduce risk. Even better, the fees on ETFs are very low. This means more of your money goes to building your wealth, and not the fund manager’s.
I realise that for many Australians cash is tight right now. However, if you can afford to set aside just a small sum into investments this financial year, then steadily add to your portfolio over time, you could be on your way to becoming financially independent, and that’s a goal worth working towards.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
InvestSMART uses ETFs in our Diversified Capped Fee Portfolios. Click here to find out more.