We sometimes assume that retiring in Australia means sharpening your pencil and trying to live on the Aged Pension. Apparently not so, according to some fairly recent research.
According to this research, one in four retirees in Australia rely entirely on their savings to fund their retirement - and a further one in three rely mostly or partly on their savings to fund their retirement (source: Commission of Audit 2014, http://www.aist.asn.au).
With increasing compulsory superannuation and higher hurdles to jump to get the Aged Pension, more than 60% of retirees will be relying fully or partly on their life savings to fund their retirement by 2020.
However, turning a savings nest egg into a regular income for retirement can be a tricky business. Most of us can expect to live for more than twenty years in retirement. To make sure the nest egg lasts the distance, you will need either a very big nest egg, or a smaller nest egg that just keeps giving. Most of us will have to settle for the latter. We need to put that nest egg to work, and the vehicle of choice is usually the stock market.
>Mum and Dad= investors, or DIY investors make up a big proportion of investors on the Australian Stock Exchange. Australians, particularly older Australians, are amongst the highest stock exchange investors in the world, and we are quite tech savvy when it comes to investing in shares.
The Australian Share Ownership Study conducted by the ASX in 2014 (source: http://www.asx.com.au) found that 36% of Australians own Australian shares and 13% own international shares. We read a lot about small property investors - families with an investment property – but, by comparison, they make up only 6% of the population. The share market is an ideal spot to put the retirement nest egg to work.
The same survey also found that nearly 60% of investors use an online share trading website, with most owning shares directly rather than through an investment fund, and the largest group of share investors (not surprisingly) are those aged over 55 years.
To generate a reliable and reasonable income from your retirement savings, you could just hand the money over to an investment advisor, cross your fingers and hope for the best. Easier, but no challenge, and it can be a bit unnerving to leave someone else in control of your life savings.
Many older investors are up to the challenge and even relish the task of choosing their own investments, putting their money on the table and watching the investments grow and the dividends flow.
Investing in the stock market can look daunting, but it is not rocket science. It is a bit like prospecting for gold. With a bit of research, time, effort and a willingness to learn, a DIY investor can find a rich vein or two, and generate a nice income for the years ahead.
So let’s wade through the web of stock market investing. Where does the >do it yourself= investor begin?
Firstly a word about some myths, and the need for caution. All forms of investing involves taking risks. With guidance and caution most of the risks can be well managed, and the DIY investor can be reasonably assured of getting an adequate and reliable return on their investments.
There are plenty of myths around the world of investing. Like the gold mining years there are wild rag to riches stories, hair brain ideas to "defeat the market" and guaranteed ways to become a "millionaire by lunch time". Some other common myths include the "buy and hold" story (just buy stocks and hold forever), the “big stocks" story (just buy Telstra, the four big banks and BHP) and the "one day" stock (buy a small speculative stock that will sky rocket in price "one day"). These myths are bit like gold mullock heaps – well picked over and very little gold.
However like the gold miners of old, the vast majority of DIY investors that do well get there by hard work, a willingness to learn, persistence and a readiness to move on and look for another mine when the gold runs out. Like gold mining, the higher the promised returns the higher the risk. Most of the easy money in the stock market has already been spotted, and to find the good prospects now you will need to dig. There are still plenty of little nuggets in the stock market if you know where to look and where to dig.
Finding good shares, like finding gold, takes time. Patience is the investors friend. Start slowly and carefully, dipping your toe in the share market a little at a time. Don’t be too deterred if you have a few set backs. Some you win, some you lose. The trick is to cut your losses early, and let the winners run. When you find a good investment, harvest it for as long as it is productive. You need to learn when to keep digging, and when to pick up your gear and move on.
Unlike the goldminers of old, the modern DIY investor has some great search resources at their fingertips, particularly if they are reasonably tech savvy. For investors, the internet is a gold mine of information, but like most mines there is usually a bit of sludge to wade through first.
To learn how to invest in the sharemarket there are a couple of great websites to begin the journey. The websites of the Australian Stock Exchange (or ASX), and the Australian Shareholders Association (ASA) both provide easy to follow, well structured, step by step online learning programs to teach new investors the key skills to become a competent and successful investor.
The ASX website (http://www.asx.com.au/education/online‑courses.htm) has eleven basic education share investment modules, each taking only ten to fifteen minutes to complete online, and at your leisure.
The Australian Shareholders Association (ASA) is a not-for-profit organisation that provides a range of education and advocacy programs for small (>mum and dad=) investors, and has been a major player in the investment arena in Australia for over 50 years.
The ASA education program can be found at https://www.australianshareholders.com.au/education
These two sites are your gold digging friends. They will teach you where to start looking, what to look for before you dig, how to spot a good prospect, and how to harvest a good vein for profit
And if you would like some help to learn about investing in the stock market, the ASA has a local discussion group that meet once a month in Batemans Bay. The group is a great mixture of investors - some with little or no investment experience and wanting to learn, some with some experience and keen to sharpen their skills, and some with a wealth of share market investment experience who are quite willing to share their knowledge and experience with others. If this looks like a free plug for the local group - it is. For more details, please contact me on 0419 612 401.
I am not a licenced financial advisor. However I have spent many years investing in the Australian stock market (and have a few scars to prove it), and now successfully manage our family Self Managed Superannuation Fund (SMSF) with a range of investments in the Australian stock market.
In the next article I will focus on the >picks and shovels= of DIY investing. These are the tools and resources we need to make better investment decisions. With the advent of the internet most of the research resources, previously reserved for the big investment houses, are now available to the DIY investor - and at the touch of a few buttons. Next article will be "The DIY investors tool box".
Bill Radley is not a licensed financial advisor. He is the Convenor of the recently formed Australian Shareholder Association (ASA) South Coast discussion group. The Australian Shareholders Association is not a licenced financial advisor. These articles in The Beagle are for interest purposes only. Before you make any investment decisions you should seek your own independent professional advice from a licensed advisor who is aware of your particular circumstances.
About Bill, I am a self-taught investor, not an expert. My skills and experience is confined to the Australian share market. This column will journey through a range of investment topics including - stock market terms (and what they mean), where and how to get advice on possible share market investments, the work of the Australian Shareholders Association and other organisations in providing investment education for small investors, using the Internet and media to gather investment information, setting up an investment portfolio, how a Self Managed Superannuation Fund works (and why so many Australians have or want one), and other topics which I hope will be of interest to ordinary Mum and Dad investors looking for a way to fund their retirement.
In the meantime can I encourage you to join the local share market investors discussion group. The group has been set up by the Australian Shareholders Association, a not for profit organisation that provides education and advocacy services for small shareholders. This group meets once a month and shares information to help members learn about the share market. For more information please email me at email@example.com, or phone me on 0419 612 401.
I hope you enjoy the investment journey in The Beagle. Bill Radley