YOUNG PEOPLE GETTING STARTED IN INVESTING

In episode 627, Alex (Tony’s daugh­ter and an impor­tant mem­ber of the QAV team) asked a ques­tion from one of her 20-some­thing friends. 

Alex:

I have a friend who wants to try invest­ing. He’s get­ting a tax return back soon, and he’s decid­ed to use some of that mon­ey to invest. And his plan at the moment is to put the major­i­ty into ETFs, some into a few sin­gle stocks, and then he wants to use a $100 to play around with cryp­to. Which I laughed at, it seems like a very young male thing to do, I dis­cour­aged that. So that’s kind of the sce­nario. What would you do if you were in a sim­i­lar posi­tion as a young per­son start­ing out with a tax return?

Tony:

That’s a good ques­tion. Prob­a­bly some­thing sim­i­lar. I would­n’t do the cryp­to obvi­ous­ly, but if it’s only a hun­dred bucks, fine. I don’t know cryp­to, so that might be a par­cel which is too small to even trade at. But I’d stay clear of cryp­to. As we’ve said before, as Munger has said, it’s “rat poi­son squared,” and there’s no use for it unless you’re a drug run­ner or some­thing on the dark web that’s crim­i­nal­ly ori­ent­ed. So, yeah, the prob­lem if you can’t val­ue it or know what it’s used for, you don’t know when to buy or sell. That’s the issue with cryp­to. 

ETFs cov­er such a wide span of dif­fer­ent things now, I’d be inter­est­ed to know more about what kind of ETF your friend was con­sid­er­ing. If it was an index fund, I’d say, “sure, go for it,” or an index type ETF, so you’re exposed to the mar­ket. And as we’ve seen before, with peo­ple like Steve Sam­marti­no, who’s been on the show, it’s a set and for­get way of invest­ing and build­ing wealth. So, that’s good. But there are ETFs for all sorts of things now, so be care­ful about which ones your friend is want­i­ng to buy and make sure that it’s a very sim­ple ETF that’s invest­ing in an index. I’d stick to Aus­tralia, but if you want­ed to buy a World Index or a US index, I think that’s fine too, as long as there aren’t any cur­ren­cy or tax risks with that. So, in oth­er words, some of the local ETFs will do that for you and do it all in Aus­tralian dol­lars and take all the cur­ren­cy and tax risks them­selves, which is good. 

We start­ed off the series talk­ing about the invest­ment lad­der. And cer­tain­ly, buy­ing an index fund is on the first rung of that lad­der. You get your feet wet, get onto the lad­der, under­stand what buy­ing ETFs involves and how to treat your div­i­dends, and how to deal with a bro­ker and set­ting up accounts, how it affects your tax, and just learn to under­stand that by doing it. Now, that might lead on to oth­er things like con­struct­ing a port­fo­lio your­self once you under­stand more about the stock mar­ket. And like­wise, sim­i­lar advice for the indi­vid­ual stocks that they’re buy­ing up, I’d be inter­est­ed to know what they are and why your friend wants to buy them. Again, if it’s some­thing that is a fad, like a boom stock, rather than being a sol­id invest­ment, I’d be care­ful with it. But if your friend wants to buy, you know, a large blue-chip com­pa­ny that is going to be around for a long time, then I would­n’t have a prob­lem with that to get to expe­ri­ence it and start to think about when to buy and when to sell, which are impor­tant things.

Alex:

Thanks. Yeah. Thanks for cast­ing asper­sions on my friend and why he wants cryp­to, too. 

Tony:

Yeah, I’m not a fan of cryp­to. I think it’s a pump and dump.

Alex:

Yeah, no, I def­i­nite­ly laughed at him a bit when he said that. So, I think his plan is in six months, once he’s had a run with the return to start putting a bit of sav­ings into what­ev­er has worked. And then, so part two to my ques­tion would be if a young per­son, like one of my friends, was inter­est­ed in QAV, what kind of sit­u­a­tion could they do? Because I mean, we don’t have a lot of expend­able cash, but if they had enough to start invest­ing and were inter­est­ed, would you say just start on the invest­ment lad­der and work your way up to QAV? Or is there kind of a way that we could go about it now?

Tony:

No, you can go about it. There are plat­forms out there which do cheap stock mar­ket trad­ing and are usu­al­ly about $10 or a stock. You know, the rec­om­mend­ed port­fo­lio would be fif­teen to twen­ty stocks, so, you know, you’d prob­a­bly want to have a port­fo­lio of at least $10,000 to start off, to make sure you’re not being eat­en up by all the fees involved in own­ing the shares. I think that’s a great thing to do.