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Dear David,

I thought you might be able to give me some advice with a few financial queries that I have. I am 19 and I've started to seriously look at ways I can improve my financial gain (other than saving into a bank account). I've been looking into term deposits but I'm not much of a patient person - I'd prefer to see my money grow a bit quicker, instead of over 10 - 15 years! Therefore I've been looking into investing in Shares. On the advice of a relative, I've been looking at "volatile" shares with a mining company who propose they are on a site which will produce copper. They could also hit many other resources which would boost the value of our shares.

At the moment the shares are at 0.13 and I was looking at investing $500 but being an unpredictable share, this could be more of a financial risk than gain. But on the other hand if we are going to hit copper, we will gain quite a large amount!!

Do you feel that shares are a good choice to invest in and are there any other means to increase profit from the money I have been saving??

Regards,
Jane

Jane,

Thanks for your e-mail. You obviously have a focus and a drive that is rare to find in a 19yo but please do not let your enthusiasm and desire to be financially well-off sooner rather than later cause you to take risks that you may regret later on!

I had some mixed feelings about what else I should say to you so I asked my Financial Planner and friend Ray Armitage for a second opinion. Also, being a financial planner, Ray is more qualified to comment on investment matters than I am.

Hi Jane,

My name is Ray Armitage, and I am a Financial Planner with 20 years experience helping clients create and keep their wealth. David has asked me to reply to your question, so I’ll do my best.

Starting to create wealth from a low base (or nothing) can seem daunting at first, especially if you are feeling impatient about it. I note your interest in using shares as a starting point so let’s briefly talk about shares.

For most investors, shares are a medium to long term growth asset, much like property. Both property and shares have volatility and risks associated with them which are reduced by extending the ownership time frame allowed, (eg. 5 years or more) and ensuring the quality of unbiased research before proceeding with the purchase. Once you shorten the investment time frame, rely on a specific event to occur (such as finding copper) which is beyond your control, or just don’t have the time or experience to seek quality independent information, you greatly increase the chance of a worse outcome than you expected.

I recommend that you gain some basic investment experience before tackling these growth asset classes. My advice to you is to continue with a savings plan into an interest bearing account for long enough to build an appropriate capital base to be able to afford to seek unbiased advice and do something about it. This amount should be no less than $5,000. The savings process will require discipline, focus and give you time to gather information on wealth creation through courses and books such as those available on David’s web site. Skills and knowledge which will serve you well as you progress to looking at how to maximize wealth creation through growth assets such as shares and property.

Regards

Ray Armitage CFP
Authorised Representative.

Cardwell Group Pty Ltd is a Corporate Authorised Representative of Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 Australian Financial Services Licensee - Licence No. 244252 Unit 7, 50 Borthwick Ave Murarrie Qld 4172

* PO Box 522, Hamilton Qld 4007
' 1300 366 936
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È0404 472 033

And here is my two bob's worth following on from Ray's response.....

Jane,

There are a number of ways to look at your situation.

You are young and have many years ahead of you and time is on your side. There is no other more powerful resource in becoming wealthy than time! Because you have plenty of it, you could look at your situation and decide that taking a risk on some volatile shares might be a good idea because if you fall flat on your face and loose the lot you have plenty of time to start again.

The flip side to that is the danger you would be exposed to if it was NOT a flop and you made a truck load of money. Having been successful at such a high risk investment (some would call it a gamble) the first time round you are sure to be overconfident when you are choosing your next investment, putting you at a much higher risk than before. You would probably throw a larger sum of money into the pot!

Ray mentions something that is rarely considered by a lot of people in your situation and that is 'unbiased advice'. So many people jump into an investment after pondering over it for a while, maybe making a few comments to their work mates like "I reckon xyz would be a great investment" to test their reaction (the key word there is "reckon"). After romancing the idea for long enough it is either too scary and it is dropped, or they jump in and hope like crazy that they were right.

Getting unbiased advice from someone who is a professional is a really good idea for someone who just has a hunch! I learnt the hard way in the early 1990's when I purchased my first 'investment property'. I should have sought unbiased advice rather than listening only to what I wanted to hear. I certainly had 'egg on face' syndrome for quite some time but also learnt a valuable lesson.

Getting educated is the other thing that Ray recommends. Books are the cheapest way to learn, but seminars certainly have their place as well. Just realise that it is unlikely that one seminar or one event will change your life (don't believe the marketing hype). They will all add to your overall wisdom and ability to make smart decisions when the time is right.

At age 19 you can read and learn a lot about the pitfalls and the do's and don'ts, but keep in mind that there is probably no substitute for experience. That is where the unbiased advice comes in!

I am really impressed that at 19 you are interested, focused and keen. A lot of 19 year olds are still busy spending all (or more) than they earn on partying and bad habits.

Of course I can't stress enough the importance of first having your day to day budget all sorted out with your saving and investing money already identified before you launch into investing. Developing that discipline and honing that focus is really important.