The Bulls and Bears are close to the finishing line. Now’s the time to make your move!

Everyone will have a different experience from playing the Moneywise Sharemarket Challenge. It may be that from playing the Challenge you have decided the Sharemarket isn’t for you. If not, you may choose to find a financial advisor or a full service broker who manages your account or perhaps decide to move in a different direction when it comes to investing.

On the other hand, you may have decided that you can’t wait get started in the “real market”. It is important to remember, that going from the Challenge to trading live will be very different, if only for the reason that once you have your own money on the line, your emotions will kick in to a greater extent. This is why we say it is vital to have a plan that you test and then use consistently.

As far as possible the Challenge is designed to replicate the live market. However there are a few areas where it is different, for example, corporate actions that cannot be replicated, the length of time you can invest, the number of shares you can invest in, as well as the matching of orders.

One of the biggest differences with the Challenge and the live market is how the matching of orders takes place. In the Challenge we allocate your orders against trades in the real market and allow you to easily jump to the top of the order queue to get your order executed.

Here is an example:

• In the Challenge you want to buy 10,000 shares in XYZ Company and another player wants to buy 10,000 shares in the same company at the same price – 20,000 shares in total to be purchased at the same price.
• A trade goes through the live market for 10,000 shares in XYZ at your nominated price.
• In the Challenge, both your order and the other player’s order will be executed.
• In the real world the order that was entered first at the best price would get the 10,000 shares and the other order would miss out.
• So in the Challenge we have ignored the extra order volume and allowed both orders to be executed.
• To get to the top of the queue in the real market you have to enter your order first or put in a better price – either a higher bid or lower offer.

What this is meant to explain is that when you trade live, there would be far more uncertainty about being able to close out a trade quickly either to take a profit or perhaps more importantly to cut your losses, especially when investing in low volume stocks or more risky stocks.

It may also be that in the Challenge, because it wasn’t your own money and you only had a certain period of time, you used a much riskier strategy. Again, be aware that once you have your own money involved, this may not be the best strategy to use.

It’s easy to take a greater risk when you know it’s not going to have an impact on your finances, it is a very different thing, when you have your own money involved.

So if you are new to the sharemarket and still finding your feet, we encourage you to continue the learning process before you rush out and buy shares. You are far better off to take more time, be sure you fully understand the sharemarket and have a proven strategy before stepping in live.

Things you can do to keep learning:

• Watch the latest Investment videos
• Sign up to the Investor update newsletter
• If you haven’t already – do the Online shares course
• Invest in your education – there are many books on share trading to keep you learning

Putting Risk and Reward in Perspective

To get a return on an investment you must accept some level of risk. The higher the potential return, the higher the risk to your funds.

Your challenge as an investor is to know what risk your investments have and what level prepared to accept.

What would it mean to you if a company you owned shares in went out of business and those shares became worthless?

Diversification The old saying “don’t put all your eggs in one basket” applies particularly well to investing in the share market.

Some investors fall into the trap of putting all their money into one asset class or sector – usually at its peak, and then watch on as another asset class or sector takes off. An asset class is an investment type like shares or property and a sector is a particular investment area like shares in banks or mining companies.

As a rule it’s better to diversify and spread your risk. The share market is one asset class and there are different sectors within the share market you can use to diversify your portfolio.

A sound investment portfolio usually includes investments with a combination of different features. Such as investments that can be easily converted into cash and others that you are happy to hold for a period of time.

Take a Long Term View Successful investors tend to be those that take a longer-term view of their investments. Their focus is on buying shares in profitable companies, with proven business models and strategies for earnings growth – not gambling on the next flash-in-the-pan share.

The Market moves in cycles – so taking a longer-term view of your investments gives you a more balanced perspective by leveling out short-term highs and lows, whilst also allowing you to profit from the benefits of compounding returns.

Keep a cool head

As hard as it may sound, try taking the emotion out of your investing and remain objective – regardless of whether your shares falling or rising in value.

Many investors are guilty of selling out the minute they see their share price start to dip – only to see the market make a correction and the price rebound even higher than before. Don’t get caught up in the heat of the moment. If you’ve committed to a sound long-term strategy, minor price movements shouldn’t distract you.

Borrowing money to make money?

A margin loan is an investment product that allows you to borrow money to invest in shares. Essentially a margin loan increases to the amount of capital you have invested in the share market and that multiplies any gains or losses that your portfolio experiences.

But remember…if your shares fall in value your lender may make a ‘margin call’. This means they’ll ask you to contribute more funds to your loan account – so that the balance between the amount of the loan and the value of the shares remains in line with their lending policies.

Using borrowed money to invest in shares is a high-risk play and should probably be left to experienced investors who are prepared to accept the potential downsides as just another part of their overall strategy.

Keep learning after the Challenge with free ASX education resources, seminars, videos and our monthly newsletter:

http://www.asx.com.au/education/shares-education.htm

What’s a Financial Plan? Do You Need One?

A sound financial plan is absolutely essential if you’re to Lead your Best Life.

It’s about a lot more than just helping you manage your money – it’s actually about identifying your life goals. And ultimately helping you achieve them. Sure you may have a few goals that are top of mind, but when you put together a financial plan you get to stop and look at the big picture – identify goals that you may not have considered and take the time to focus on your real priorities.

Secondly an effective financial pan is truly comprehensive. It takes a holistic view that every financial consideration is interrelated and they all need to work seamlessly together.  From money flowing in and out, investments and retirement planning to insurance, taxes and estate planning – every piece of your plan must work as one for you.

And thirdly a sound financial plan needs to be easily put into action. It maps out the steps you need to take to achieve your goals and what adjustments will have to be made if your goals change.

The important elements of a comprehensive financial plan?

A personal net worth statement. This is a clear overview of all your assets (what you own) and all your liabilities (what you owe). The difference between the two is your ‘net worth’ and this becomes the benchmark for measuring how you’re progressing when it comes to improving your financial position.

A cash flow analysis. This helps you appreciate how your money comes in and goes out every month. It’s an important first step in establishing your budget, because it clearly identifies your fixed and discretionary spending and also helps you to identify your debt and what impact it’s having on your ability to save.

A retirement plan. Once you’ve set your goals and how much you need for retirement, this plan sets out how much you’ll need to save each year.

An education funding plan. Looks at setting up an investment plan based on your education goals for your children and takes into account your resources and risk profile.

An insurance coverage review. From Life and Total Permanent Disability Insurance to Income Protection and Trauma Insurance, this review ensures you have the right types and amounts of insurance to protect you and your family.

An income tax profile review. Time spent reviewing and planning your tax affairs will ensure that you’re benefiting from the most effective tax minimisation strategies, whilst ensuring you’re meeting your overall tax obligations.

Estate Planning. This involves far more than just drawing up a Will. It’s essential an essential foundation for protecting your assets – especially if you have children.

Creating a truly comprehensive financial plan takes insight and expertise. A professional and experienced financial planner will take the time to help you collate all your information, evaluate your financial position and put in place specific recommendations – all with your life goals firmly top of mind.

Take the first steps creating a financial plan that will help you Live your Best Life.

Call Moneywise Global on 1300 728 249 to make with one of our expert financial advisers.