Next steps

Investing for beginners: Part 8 of 8

If you’ve read through the whole beginner series, you should now have a solid foundation to start your investing journey by knowing the following:

  1. To prioritise paying off bad debts, using HISA for short-term goals, and making sure you have enough in your super.
  2. Understanding why the stock market is a long-term investment.
  3. Know that stock picking and trading tends to underperform over the long term.
  4. The theory and evidence behind using index funds to approximate the market portfolio
  5. What kind of ETFs can be used to approximate the market portfolio.
  6. What factors go into choosing a broker.
  7. Tips to help beginners not fall for common traps and misunderstandings.

I say in the article that index funds are the optimal starting point for the average investor. If you are the average investor, then the only risk you are taking is market risk, the risk you take for being in the stock market. Now, if you are not the average investor, depending on your ability, willingness, and need to take on risk, then you would need to add investments to increase or decrease your risk accordingly.

If you wish to have more risk in addition to market risk, you can either take on even more market risk by gearing/leveraging the market, or you can expose yourself to other “risks” other than market risk through factor investing. A byproduct of factor investing is that it also addresses some problems with index funds (for a future article). Taking on more risk is ideal if you have a high-risk tolerance and/or a very long time horizon (15+ years) to increase the likelihood that you are compensated for the additional risk.

If you wish to take on less risk because you have a short time horizon or are nearing/in retirement, you could do this by holding more defensive assets like bonds and/or cash (for a future article).

I’ve talked a lot about what is investing and how to invest, but why should we invest? We invest to achieve some form of FIRE, Financial Independence and Retire Early. There are different types of FIRE and different perspectives on FIRE, as people resonate more with the ‘financial independence’ part rather than retiring early. At its core, achieving FIRE is giving yourself more time to enjoy life and/or reduce financial stress, ranging from cutting back your hours at your current job, getting a less stressful job, or quitting your job to try something you’re passionate about. You can visit the r/fiaustralia community, where we discuss investing and other financial independence related topics.

Lastly, I would like to give my thanks to Passive Investing Australia for their website that helped me in my initial journey of investing and the comments they’ve made in r/fiaustralia to help others over the years, and my appreciation for Canadian YouTuber Ben Felix for sharing my passion for financial education grounded in academic theory and evidence.