How much should I invest in different companies?

[Lollly]

I am new to the shares/stockmarket. I have completed the share course on the ASX website so I have a basic understanding of what it is all about. The tax part is still a bit confusing but I am working on improving my understanding of this. If find it difficult not to switch off whenever I start reading about this lol.

I have what I consider a large amount of money to invest every year. Maybe others would not think it is large but for me it is a lot of money. This money is sitting in a bank account doing very little and I know I need to pull my finger out and do something with it. I have worked out that I can have approx. $100K every year that I can do something with if I choose to.

I understand about a not putting my eggs I one basket. i.e Property, Cash, Shares etc.

My question is this (sorry if is sound dumb). With the shares I purchase should I spread this out amongst the different types of companies to minimise risk e.g. Technology, Mining, Retail, Banks? I am thinking this is the right thing to do from what I have read. Should I put say $10K on one mining company or should I spread that allocation out and put say $2K on 5 different mining companies that look good.

Next year should I buy more shares in the same companies if they are performing well or should I put my money in other companies that I have not currently investing in.

I am tossing up about whether I should get a financial adviser or not. I am thinking about investing in the top 100 companies until I get a better understanding. My plan is not to trade them often but more sit on them and wait.

This is all part of my retirement planning.

 

[burglar]

... This is all part of my retirement planning.

Any answer to your post will resemble financial advice. (Which is not allowed on ASF)

I would suggest that you read Benjamin Graham's "The Intelligent Investor"
In my opinion, this reading will align with your expressed interest.

Or watch it on youtube:
Benjamin Graham's "The Intelligent Investor"

 

[Smurf1976]

Advice - there's an actual law that prevents anyone without the appropriate qualifications and license giving "financial advice" via, for example, a forum such as ASF (or any other financial forum).

But we can certainly give you an "opinion", there's nothing to prevent that.

Personally, I have some "rules" as to how much I'm prepared to invest in any one company. Whilst some companies might seem "bullet proof" and unlikely to go broke, nobody can really be certain of the future so from a risk management perspective it's unwise to have all your eggs in the one basket.

Some people work to a 2% rule so far as losses are concerned. Eg don't do anything which could lead to a greater than 2% loss of your capital resulting from a single event. That doesn't mean you need to buy 50 different stocks, but it can be applied in various ways when setting stop losses etc.

Risk management (in any field, not just investing) really comes down to two points:

1. How likely is the event to occur?

2. What are the consequences if it does happen?

That goes for everything from human safety to investment to the natural environment. If the consequences are minor then you can accept a much higher probability of it occurring than if the consequences are more serious.

In the case of losing a large chunk of your capital, that is indeed a serious consequence and as such you'd be wise to reduce the risk of that occurring as far as practical. Putting all the money in one or two stocks represents an unacceptably high risk in my opinion - you can never be 100% certain that something bad won't happen to any particular company which sends the share price into a sharp plunge. Unlikely with some companies perhaps, but the risk is not zero.

So you need at least some level of diversification and also a definite plan as to when you'd sell any particular stock in the event of it dropping in value. There's a lot of ways of going about this, so there's no single answer to the question, but this is the sort of approach you ought to take in my opinion.

The last thing you want to do is invest all the money in one stock then still be holding it after the price has gone from $10 to $1. Invest in multiple stocks, and don't just sit there if things aren't going to plan and you're losing money.

Given that you have a significant amount of money, I strongly suggest starting small rather than trying to invest the whole lot into stocks all at once. Cash in the bank doesn't pay much interest these days, but you want to make sure you've got it right before putting too much into shares since you will make mistakes. So start small in my opinion then gradually move more from cash to shares as you gain experience and confidence.

 

[So_Cynical]

one MILLION dollars! mua ha ha.