Yahoo Finance 
5 investing secrets the pros don't want you to know
You’ve got $5,000. You just want to start saving so, 10 years from now, you can think of buying a home. Or maybe, one day, 50 years from now, you might be able to retire.
You might also just be sick of being lower-middle class. The idea of going on regular overseas holidays and going to the occasional music concert now really appeals to you.
Also read: Are Aussie property prices about to bounce back?
The problem with all this is that it takes a lot of money to fund. Indeed, you’ll not only need a lot of money, but you’ll also need a regular “passive income” stream later in life.
This dilemma is what keeps a lot of men and women in crisp white shirts, and nice suits, employed from Monday to Friday. You see the accepted practice is to pay these guys some money so they can manage or plan this for you.
What if you could do it all yourself?
Here’s what the pros don’t want you to know.
Also read: 11 ways to save ‘thousands’ in 2018
Finance isn’t rocket science
OK, fair enough, finance can be a little tricky and confusing sometimes. I’ll admit it. At a very basic level though, it can be broken down into two categories: debt and equity.
DIY investing can involve securitising (pieces of paper saying you own something) either forms of finance. If you invest in debt, you’re buying a bond. If you invest in equity, you’re buying shares.
Not all, but most of what you’ll hear about in the world of investing and finance stems from these two broad areas. Think about the latest big news: the US stock market correction. The concern was that higher wages, and inflation, would push interest rates up – that has big implications for the bond market (debt). Then, attention turned to the stock market (equity) because higher interest rates have the capacity to cut economic growth and stock valuations.
If you ever get lost in some bit of investment advice or economic news, just ask yourself: is this related to debt or equity…? and go from there.
Investing is straight forward
Before I go any further I just want to nail down what investing is all about. You’re effectively injecting your own money into an entity that would not be able to grow without your (and everybody else’s) support.
It’s a bit like magic. Everyone throws their money in, and the business grows. You throw a bit more in and the business grows a bit more. In fact you can keep putting your money into the business (stock) and it will soon take on a life of its own, growing bigger and bolder than you ever dreamed.
Because you’ve supported its development, you effectively own part of it, and are entitled to reap the rewards of its success.
Equally, to use a gardening analogy, if you keep watering a plant that ultimately dies, you’ve got zero chance of getting your money back. The plant is dead. Your money has gone.
That’s why it’s important to make wise investment decisions.
Also read: 3 explosive growth shares on my shopping list
Proven strategies
So you’ve made a decision to invest. You don’t just want to ‘pick’ stocks because you haven’t a clue which stocks to pick, and be damned if you’re going to buy a whole bunch of shares only to have the market crash the next day.
Here’s what a professional would say to you:
How much risk can you handle? Answer: “a ‘normal’ amount. But no, I don’t spend my weekends sky diving.” In this case, standard blue-chip companies (think BHP and CBA) are probably what you’re looking to buy.
What’s your investment time horizon? Answer: “I’m patient… so maybe 20 years??”
How much money do have available each quarter to invest? OK here’s where reality bites a bit. Unfortunately, to really build wealth, you’ll probably need around $4,000 to $5000 a quarter to put into your investment. That would make you very comfortable in retirement.
If, realistically, you only have a few hundred dollars every three months, you’re probably better off investing in a term deposit. That’s just like saving on steroids (as much as I hate to use that expression). That way you will still build up thousands of dollars over the years (unfortunately not tens of thousands) – which of course is still great for building up a home deposit. It will also be a nice addition to your retirement income (or indeed for a rainy day!). However, it won’t be your retirement income.
And while we’re talking income, you should know it’s income that we’re trying to achieve here. Sure, you can build up a whole pile of stocks, watch them grow, and then sell them. It’s much smarter, however, to build up a portfolio of “blue chip” shares, and perhaps some bonds, to the point where the dividends you receive from the stocks, and the interest payments you receive from the bonds, give you a sizable “passive income stream”. That income of course will be in addition to your superannuation.
Stocks also sometimes have dividend reinvestment plans you can use. In this case, rather than taking the dividend now, you can use the money to buy more stock, and receive a bigger dividend later in life.
The importance of time
Get rich quick schemes are ridiculous and trading the stock market can be stressful to say the least. You need to make a decision. If you have quite a bit of extra money – money you’re not spending on the theatre, or on that extra holiday, or on that lovely piece of furniture – and you’re prepared to play the long game, a comfortable later life is achievable with some smart DIY investment strategies.
Being smart
There are some harsh truths about investing: you need money to make money; and you can only very rarely get rich overnight.
Investing any amount of money (with appropriate stop losses in place) is better than investing no money at all. And there will come a time when you start seeing a little more cash available to you (often not until you reach your late twenties or thirties). That’s a great time to think seriously about investing.
Don’t feel like the financial adviser on the other end of the phone though has some magic financial markets wand – he or she will simply be looking at the best stock and bond investments that fit into your risk profile, which, over time, are likely to give you a nice income stream later in life.
It can get tricky, but, when it comes to investing, I prefer to keep it neat and ‘simple’.
@DavidTaylorABC
