Why More People Should Trade Shares

Since having a go at trading shares, I've found myself wondering why more people don't give it a go. Personally, I find share trading quite a good alternative to leaving your money in a bank where you earn a tiny 4-5% interest. Wouldn't it be nice to earn 10-20% interest? What about doubling your money? Heck – if you invested $10,000 in Xero 4 years ago you would have made $100,000 by now!

Here are the top 3 excuses I keep hearing and why you should disregard them:

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“Share trading is risky” – Yes it is. But with a simple plan you can avoid significant losses and realise some healthy gains.

Buy some popular investment books and it won't take long to understand the basics of trading. By implementing ‘stop losses' and ‘take profit' prices, you'll avoid significant loss and take the profits at the right time. I like to give people the following example: imagine every stock had a 50/50 chance of going up or down (in reality, our odds are a little better and we can use research to pick the winners). If you buy a number of 50/50 stocks and only accept a 10% loss but take 15-20% gains, then your portfolio should grow in value. I failed to follow this simple advice in the early days and it can hurt. If a stock goes below your stop loss, SELL! The most important thing to remember is to stick to your plan. If you don't you could be waiting a while for your lower performing stocks to regain their value. This is a big opportunity cost that could have otherwise been used to make a gain.

“I'm not an expert, I don't understand business” – Perhaps. But you are a consumer. You know what you like, you know what's popular. And with a bit of research, you'll find yourself knowing more than you thought you did.

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I avoid stocks I have little knowledge about or interest in. For example, utility companies, telcos or airlines. I prefer to buy stocks which I will enjoy researching and if possible, where I am the consumer. There are many great New Zealand companies that you've probably purchased from and wouldn't mind a few shares in, e.g. Moa Brewery, Burger Fuel or Trade Me. These kinds of companies are easy to research because you can relate to the product and already have an idea of the companies values.

“I don't have enough money to buy shares” – Everyone's situation is different. All I'll say is that it doesn't take a lot to get started.

You can start with as little as a few hundred to a thousand dollars. I managed to trade while working a part-time job and studying at university. Get saving and it won't take long to build a small investment fund to play with. Just remember, only ever invest what you're willing to lose.

You can setup a free trading account with ASB and you only pay a brokerage fee of $30 per trade (a buy or sell). Be sure to factor these costs into your final return on investment (ROI) and determine a break-even price on each stock.

Share trading doesn't have to be perceived as a scary or daunting task to be left to the experts (even they get it wrong sometimes). With a little bit of research you can be making money and having a lot of fun in the process. It sucks when you make a loss (particularly when you didn't follow you plan) but incredibly rewarding when you make a nice profit. It doesn't take much to get started – just a few good books and a few hundred dollars (borrow it if you have to) and you'll be wondering why you didn't start sooner.