Investing is an essential part of life. Previous instalments in the Investing Series discuss why investing is important, as well as how to tell good investments from bad ones. Next is to discuss how to make those investments.
Everything you do is an investment. Anything that you commit your time, money, or effort to is an investment into something. It may be financial gain, entertainment, or the possibility of connecting with another person. Whatever it is, your commitment is an investment.
I want to discuss not only how you make those investments but also how you determine where you make those investments. For instance, you can invest your money on various stock trading platforms, but some will have costs or benefits that others do not.
This is the third instalment in the Investing Series. From following the Investing Series up to this point, you will know why investing is important. You will also know what makes an investment good or bad, as well as knowing a few different investment types.
This article builds on these concepts by highlighting what investments require you to commit to them. We’ll also discuss how know if you’re ready to start, and how to pick an investing platform that works for what you need.
My goal today is to ensure the following:
- You understand the commitment involved in investing.
- You understand how to determine whether an investing platform meets your needs.
- You know how to determine if you have enough money to start investing.
As we’ve discussed previously, the purpose of investing is to triumph over entropy and inflation. By doing so, you can create stability and control over your life. As you invest, you will need to contend with risk versus reward, timing the exit of your investments, and determining the time horizon for how long you remain invested in something.
As with anything, investing strategy will vary from person to person. My investing goals will not be identical to yours. What I want to share today are the underlying principles behind how one would invest, rather than focus on the specific investments that that person would make.
Commitment
Investing is an ongoing commitment, whether in the form of money, effort, or time. Regardless of what you’re invested in and how you’re invested in it, you desire a positive return on your investment. Due to this, you need to select your investments carefully.
Ideally, you select investments that you plan on being invested in for as long as you want to be invested in them.
If you can’t remain committed to something long enough to receive the reward for being committed to it, then the investment is not a good choice for you. You can’t expect to get a reward from something without continuing to be invested in the end result. Almost all investments will expect you to have some continued involvement in them.
All financial investments have an ongoing commitment of money. Your money must remain tied up in the asset or security in order for it to continue to generate a return that is linked to the performance of that asset. You can’t pull your money out and spend it and then also get the rewards of being invested. And in many cases, your investments have multiple commitments, with time and money being the most common.
Let’s take an example of a stock trader. This trader has invested money into a specific stock. Their strategy involves waiting for the stock to rise to a specific $ value before they sell it. Their money must remain invested in the asset in order for the $ value to reach the desired level. They cannot spend that money anywhere else. In addition, they need to follow the news surrounding the company to ensure that they sell at the correct time to receive the desired outcome. An investment of this nature would have a high cost on effort and time.
Money, Effort, and Time
Most investments involve some combination of money, effort and time. Missing one or more of these can have disastrous outcomes.
- Money invested in random, short-term strategies often results in disaster if no effort is put into research.
- Time and effort spent researching investments can be meaningless if you don’t commit enough money to capitalise on the investment.
- Researching and purchasing an investment can lead to suboptimal rewards if it stagnates in later years and you don’t exit and invest elsewhere.
The interconnectedness of money, effort, and time across all investments is essential to learn and apply to your investments.
Beware those who suggest they can guarantee investment returns with only one of those inputs. Nobody can guarantee how any asset will perform in the future.
It would be wise to consider the information in my previous article in this investing series and use that to make an informed judgment as to whether or not what they’re saying can be trusted.
In summary, your investments demand an ongoing commitment from you in the form of money and time. So, in order to invest, you must be committed in money, effort, and time.
How To Buy An Investment
Once you’ve decided to commit to an investment, you need to figure out how to buy it.
There are many platforms that allow you to buy and sell various types of investments.
A brokerage account allows you to buy shares of companies from various Stock Exchanges. The Stock Exchange is a network of brokerages through which you can buy and sell securities with other people. The most important aspect to understand about a Stock Exchange is that you cannot simply sell your shares and get the price you desire for it; there must be a buyer, a counterparty, on the other side of every buy and sell that you engage in.
The real estate market currently relies on conveyancers to ensure legal ownership records are updated correctly. The requirements for registering ownership of property are rigid and tedious, which can make the sale of property longer.
If an investment exists, there’s always a place to sell. As an investor, it’s your responsibility to understand where to buy your asset, how to manage ownership of it, and how you sell it.
The previous article in this series advises various types of investments. I’ll write about each in the future, but a good place to start would be to research how to invest in the asset classes you learned about in that article.
Investment Platform Basics
When selecting an investing platform, there are a few things to consider:
1. Fees
Fees are very important and vary greatly across different investing platforms. Some investments may also come with their own fees that are paid as an ongoing cost after the purchase of the asset. This usually is called an “expense ratio”, and is taken in the form of a percentage reduction in price of the value of the investment. These will be paid on top of any fees that you would pay to purchase the asset from the stock exchange.
Avoiding high fees is essential to ensure the value of your money goes further.
2. Ownership
Different investing platforms, especially stock brokerages, offer different means of holding assets. In Australia, we benefit from the CHESS system, which stands for Clearing House Electronic Sub-Register System. This system ensures that if you purchase a share in Australia and your brokerage supports CHESS settlement, then you will be the named holder of that share.
Being the named holder is very important if the broker you are investing through closes down or becomes insolvent. If your shares are CHESS registered, you can take your CHESS account with you to any other brokerage. Your Holder Identification Number will allow you to immediately transfer any of your assets to your new account. If your brokerage does not support CHESS holdings, then those assets will be held in your broker’s name with you as the beneficial holder. When a company winds down, this type of holding may result in you losing some or all of your assets.
I consider true ownership of my assets to be a non-negotiable condition of investing. Your risk tolerance may differ.
3. Asset Availability
Not every investment is available on every platform. For example, stocks are only bought on Stock Exchanges via a brokerage. Some brokerages, like CommSec Pocket, only offer a small number of investments. However, in exchange for this lower number of available investments, there may be other benefits. CommSec Pocket offers several ETFs for a minimum $2 brokerage fee, which is lower than many other platforms. ETFs offer you a high level of portfolio diversification.
It is wise to consider which platform will allow you to invest in the manner you wish to invest most optimally.
4. User Experience
Some platforms may offer low fees and may have the investments you are looking for. However, it may be the case that certain aspects of using the platform are risky, difficult, or frustrating. Depending on your tolerance for such issues, this may be a determining factor in whether you use a platform or not.
Discover platforms that meet your needs, then compare them via an internet search. This will allow you to see how fees, user experience, and available assets differ between them.
I cannot tell you what the best stock brokerage platform is or the best cryptocurrency exchange. Here’s why. I wish to simply give you the information to make those decisions for yourself.
How Much Money Do I Need To Start?
You don’t need much money at all to get started with investing. Realistically, you can start with no money at all. You should always invest your time into learning about which investments you want to make before you invest your money. Perhaps in that regard, time is a much more important asset to have than money when considering whether or not to invest.
Investing will always require a degree of effort and time spent researching. This helps you determine what investments you want to make, how you’ll make them, and how to manage your portfolio in the future.
Certain investments will mandate a minimum investment. Other investments are simply unattainable without a large investment. An excellent example of this is real estate. While most real estate is purchased with a mortgage, you still need to pay between 10 and 20% of the value upfront. For many people, investing in this manner is impossible.
Other investments, such as shares and ETFs, have a lower barrier to entry than real estate due their lower cost and ease of access. However, brokerage fees on the various platforms may take a sizable chunk of your investable money. A brokerage fee of $10 for investing $1000 costs much less than investing $100 ten times and paying $2 brokerage each time.
You may find platforms with no investment fees. It’s worth investigating what the risks associated with investing in a platform with no fees may be.
How Did I Invest?
There are a number of different investing platforms that I’ve used over the years for various purposes. My first investment was in peer-to-peer lending through a company called Plenti. Plenti offers personal loans for its customers, and investors crowdfund those loans. For their efforts, the crowdfunders would receive a return on their investment, and a portion of the money paid from the borrower would be paid into a provisional fund that would support investors in the case of delinquency or default.
I have also invested in several different stock brokerage platforms. I’ve used CommSec Pocket to invest in ETFs, and SelfWealth to invest in specific Australian and international stocks. I’ve also used CommSec and Pearler to test features, although I haven’t invested any money on those platforms.
Each of these platforms served a different purpose on my investing journey. Investigate which platforms work best for your risk appetite and support the reason you’re investing.
Closing
While writing this, I realized that there was not as much overlap between finance and philosophy as I originally anticipated. Despite this, the article provides the basics of how to select an investing platform that suits your needs.
As mentioned earlier, investing is an ongoing commitment, whether in financial markets or otherwise. Being committed to a positive outcome is essential in order to become a successful investor of your time, money, and effort.
As always, thank you for reading. If you would like to read more, you can read more posts, and you can follow me on X @ScottOnFire.