So, I'm a total beginner

[RandomOne]

I just got my first full time job. Since I still live with my parents, I've got a bit of spare cash and I'd like to invest it, long term. I'm looking to invest about 800 or so a month. I've done a bit of reading, but I'm still quite confused so I made up a list of questions that hopefully someone can help me with.

1. It seems indexed funds are recommended quite often. I understand the basics behind them (a fund that spreads the investments across a representative part of a particular index). But how do I actually go about investing in one? Should I spread my money across several indices? Which ones? Are there Australian funds for this?

2. About buying shares. I don't really want to go into this at the moment (because I'm a total beginner) and I'm a bit afraid of making major losses. But is it a better option than funds?

3. Dividends - I know these are paid out every so often by certain companies whose shares you own. Does every company do this? How does it work with indexed funds? Does this mean every company I invest in needs to be given my bank details?

4. Managed funds - From what I've read, these are a bad option? High fees, with mediocre performance? Or are there other perspectives?

5. Superannuation - Should I be putting money in this? I think I'm eligible for some co-contribution amounts from the government if I put more in. Also, should I be looking at different super funds? I just went with what my employer offered.

Thanks for reading

[brettc4]

Hi Random, here are my :2twocents for what it is worth.

1. Yes you have the basics right. They try to match an index, the index they follow differs and so when you choose the index fund, you also need to choose the index to follow. The one you will be most farmiliar with is the ASX/200, the 200 biggest companies in OZ. But Index funds can follow any index. Take a look at Vanguard (http://www.vanguard.com.au/), they do a number of index funds. To invest in one you can use a financial planner, or set up an account with an online broker such as Comsec which will allow you to invest. If doing it through comsec, they will reimburse the entry fee, a financial planner may not.

2. I agree with you, you need to save up some starting capital before you begin investing and it can be an expensive learning environment. Besides, more funds allow you to contribute to them on a regular occurance, this is likely to work good in your situation.

3. Not all companies pay dividends, and some dividends are tax friendly (Franking credits) others are not. If you buy through a fund, the fund will receive the dividends and pay them back to you as a distribution, or you can choose to have them reinvested (a very good idea as far as I am concerned). So you only need to give your details to the fund manager.
If you buy shares and they pay dividends, yes you need to give your details to the company, they will send you a form to fill out.

4. Managed funds can be a very good option and an index fund as you are talking about is just a managed fund, albeit a managed fund that is trying to match and index but not beat it. As such the costs should be cheaper than an actively managed fund. I believe all individual grwoth strategies should include funds, especially is you want exposure to overseas markets, of want exposure to a specific sector but cannot or do not have the time to do the research yourself.

5. Super, You can't touch it until you are 60 so if you are young, and I believe you are I probably wouldn't, that being said, if you are eligible for a government co-contribution, there is nothing like free money, and depending on how much the government will add, you may be well ahead of the game, ie if you are eligible for the full amount and you put in $1,000 and the government does it's $1,500 that's a 150% immediate gain, you really can't beat that.

I would suggest you visit your local library and ready either 'Money' or 'Smart Investor' something like that, it will give you some useful information.

Brett

[black_bird2]

As another relative beginner, I found reading threads in this forum helped to no end. Googling words or phrases until I started to clear the cloudy waters and just sit back reading the forums. I started in shares with some capital (6K) and did about 2 months of paper trading with an account at www.asx.com.au to see if what I was reading was panning out on paper.

I decided that IPOs were a nice gentle introduction to the trading game for me and then I progressed to day trading with very small amounts and focussed on percentage returns rather than dollar amounts. It has been fun - not all profit - and a big learning curve.

You might get something out of it, you might not. Just thought I would post my experience so far.

[Julia]

Hello Random,

Congratulations on taking such a thoughtful approach at a presumably young age with sensible questions. Brett has given good answers to these.
I'd only add one thing and that is that if you are putting your funds into any sort of managed funds, index or otherwise, you will be paying a fee for their management. You may feel it's worth doing this until you gain some more experience, perhaps with paper trading.
An alternative could be to buy some direct blue chip shares via an online broker where your only fee will be the minimal brokerage involved.

Good luck.

[jonojpsg]

Hi Random,
I remember being in your possie about 12 years ago and I can give you some advice from that most informative thing, hindsight. The first thing to do is NOT follow a stock tip from a workmate! At least not without doing some serious research yourself (DYOR). I put $5000 into a gold stock in my first year working and sold it last year for a grand total of $250!

If I had taken the IPO (Initial Public Offering) route at the time and bought some Commonwealth Bank shares I would have about $40000 worth just from that $5000! So blue chips are a good option.

I think super is also close to No. 1 option for you, at least at your age. The super co-contribution is a huge plus, and as well the returns, even though you can't access them until you are 60, are tax free. I would put at least enough into super so that you qualify for the maximum co-cont that you are eligible for. Then open an account with Commsec, put your money into the account linked with them, and do some reading about shares over the next six months. Paper trade some stocks to give yourself an idea of what could happen, then in six months you will have built up enough to start trading, both in understanding and funds.

Hope this is worth reading:)

[Happy]

Being total beginner is big disadvantage and at this stage would be better to leave your money with professionals, despite that they make major blunders from time to time.

And as mentioned above, you cannot beat free money.

[RandomOne]

Thanks for the information.

I'm going to do a bit more reading before I decide on what to do.