If terms like bear market, bull market and dividends leave you feeling a bit confused, you’re not alone.
Investing can seem daunting, but you don’t need a finance degree or a never-ending pot of money to get started.
We’ve been asking the experts for their advice for first-time investors.
Do you need to be a high earner to start investing?
You may think you need to be a high earner to start investing, but that’s not the case.
David Quinn, Managing Director of Investwise Financial Planning said you can invest very small amounts using online brokerage and bank accounts.
“I often encourage parents to give teenagers some access to funds so they can learn how the markets work, and the basic theories of investing,” he said.
“They don’t learn this material in school,” he pointed out.
He said the earlier you start, the quicker you can learn the key lessons that will really matter when the sums invested become larger.
Paul Merriman, Financial adviser and founder of AskPaul.ie agrees.
He believes investing is for everyone, regardless of salary.
“It’s about starting small with what you can afford, even if it’s €100 a month,” he said.
“Over time, consistent contributions build up through compounding.
“The important thing is to get started early – don’t wait until you feel you’re earning enough,” he added.
Do you need to understand the stock market before buying shares?
You don’t need to be an expert, but you should have a basic understanding of the stock market.
“Even the professionals find it hard to actively manage an individual stock portfolio,” Mr Quinn of Investwise said.
“Our advice is to buy low cost index funds, which tend to hold all the stocks in a particular region, or even go further than that and just buy a global stock market index fund,” he added.
Mr Quinn said only a small percentage of professional fund managers outperform this simple strategy.
“So doing it on an individual basis without much understanding is almost impossible and requires quite a bit of luck,” he added.
How do you decide what companies/funds to invest in?
Before making any decisions, Mr Merriman of AskPaul said it’s important to understand your financial goals and your risk tolerance.
For example, are you investing for something long-term like retirement, or for a short-term goal like buying a home.
If you’re considering buying individual shares, you should research companies thoroughly.
“Pay attention to their financial health, business model, and growth potential,” Mr Merriman said.
Cost is also an important factor when it comes to investing.
You need to determine if you can get access to the market at a reasonable rate.
“Some investment options charge up to 2% per annum, which doesn’t sound like a lot, but has a huge impact on long term outcomes,” Mr Quinn of Investwise explained.
“Index funds tend to cost less than 0.20%, but accessing them from Ireland takes some research and effort,” he added.
If you’re going through an advisor, make sure they explain in detail how they get paid and the impact on your returns.
Meanwhile, it’s important to make sure your portfolio is diverse.
“Don’t have all your eggs in one basket,” Mr Quinn said.
“This is particularly true at the moment for tech employees, some of whom might be lucky enough to have built up large holdings in their employer stock,” he said.
“A well diversified portfolio would have at least 50 stocks, across different industries and regions. This is hard to manage, and hence our recommendation just to buy an index fund,” he added.
How much of your income do you recommend investing?
With the cost of living as high as it is now, investing won’t be top of the list for many.
Nonetheless, Mr Quinn recommends you put a financial plan together to see where you stand.
“Set out your goals for housing, education, living expenses and retirement.
“Once these goals are quantified, this should allow a calculation for the required savings rate and what investment return is required,” he explained.
The earlier this plan is completed the better.
“We see plenty of clients stretching themselves too far with housing costs and lifestyle early on, through making decisions that weren’t fully thought through,” he said.
Mr Merriman of AskPaul, said a general rule of thumb is to aim to invest 10-20% of your income.
But don’t be discouraged if you can’t start at that level.
“Begin with what you can afford and increase the amount over time as your financial situation improves,” he recommends.
“Before investing, it’s wise to have an emergency fund of three to six months of expenses in place. This ensures you’re covered in case of unexpected events,” he added.
How much tax do you have to pay on any gains made?
Unfortunately, if you’re making money, you’re paying taxes.
With investment funds in Ireland, you pay 41% of the income and gains on exit – in other words when you sell units.
If you don’t sell your units, there is an automatic tax calculation on the eighth anniversary.
“This is a higher tax on gains, but potentially a lower tax on income (dividends), and there is the benefit of eight years of compounding growth,” Mr Quinn explained.
“There is a hope within the investment industry that this rate will be reformed in the next couple of budgets,” he added.
If you invest directly into stocks, the gains are taxed at 33% and this is only charged when you sell. The eight year rule doesn’t apply. Dividends are taxed at your marginal rate every year.
If the investment is with an insurance company, they calculate and pay all taxes due.
If you invest yourself through a Stockbroker, Revolut, DeGiro etc, you have to work out your tax yourself and submit to Revenue.
Should you get advice from an expert before investing?
Mr Quinn of Investwise has been in the industry for 29 years, and says he has made every mistake in the book.
“I still see clients making the same mistakes now,” he said.
Having an advisor gives you an impartial and unemotional voice – which can shield you from some of the mistakes.
“They can sense check your ideas, but also offer suggestions,” he said.
He said successful investing doesn’t just rely on analysis, stock/ fund selection and execution, it also relies on our own behaviour.
“Behavioural psychology is the most interesting area of investment theory in my view and I would strongly recommend anyone who is serious about investing to read the likes of Daniel Kahneman, Dan Ariely and Morgan Housel,” he said.
“Even armed with all this knowledge, after completing a Masters in the area, I still find myself falling into some of the common traps,” he added.
How do you spot investment scams?
If an investment seems too good to be true, it probably is.
Investment scams are on the rise, and becoming more and more sophisticated.
Fraudsters are using the details of legitimate investment firms to coax people into parting with their money.
Recent figures from the Central Bank show a rise in the number of unauthorised firms ‘cloning’ the details of authorised businesses.
The Competition and Consumer Protection Commission (CCPC) is warning consumers to be cautious when taking out an investment.
“Being forced to do something in a hurry is a real red flag,” said Kevin O’Brien of the CCPC.
“If somebody is saying you’ve to make a decision quickly or keep it a secret, it’s likely a scam or a bad investment,” he added.
The CCPC said these false promises of easy-to-win, risk-free returns gain the victim’s trust and can be extremely tempting.
Even if your investment is legitimate, Mr O’Brien said you needs to accept that you could lose a lot or even all of the your money.
“I’m not saying that will happen, and with a good investment it shouldn’t – but it’s always a possibility,” he warned.
What checks should you do on a company?
Mr O’Brien of the CCPC said you should always check that the financial services firm you’re dealing with is regulated by the Central Bank of Ireland.
You can do this easily on the Central Bank register.
“Even if the company is on the register, you need to make sure that you’re really interacting with the firm and not a scammer pretending to be them,” he said.
You should also check if a warning has been issued about the firm you are dealing with.
The Central Bank of Ireland regularly issues warning notices which publish the names of firms not authorised to provide investment advice.
“You should also do your own research on the company, read up about the business from different sources – not just their website,” Mr O’Brien said.
What to do if an investment decision goes wrong?
If you end up in financial trouble due to a bad investment decision, the Money Advice and Budgeting Service, known as MABS, can help.
“Investors should always satisfy themselves that they are investing in a reputable and licensed firm and the Central Bank can offer assurances in this respect,” said Karl Cronin Karl Cronin, Regional Manager at MABS for North Connacht and Ulster.
If you need to speak with a MABS adviser, you can call or email your local office here.
The MABS Helpline 0818 07 2000 is open Monday to Friday from 9am to 8pm.
