Because the fact is, that while investors can’t directly control the returns they are going to receive from the market, they can control how much they are going to spend on managing their share market investing. In other words, it clearly makes sense for investors to focus on factors they can control, with the aim of minimising cost and freeing up funds available for reinvestment.

There are three main areas where controllable costs are incurred. The first is seeking advice on which shares to buy and sell. Then there is the cost (brokerage) of actually doing the buying and selling. And finally there is the cost of portfolio administration. This includes the tedious – but essential – reporting associated with effectively managing a share portfolio.

To reduce these costs, an increasing number of D-I-Y investors are turning to online services. They use online advisory services for investment advice, trade online to reduce brokerage costs, and make use of smart technology platforms that automate much of the administration and generate all the data needed for taxation and accounting purposes. Utilising online services in this way provides all the functionality of a proprietary ‘wrap’ platform for a far lower price. The right kind of online investment portfolio management system can also help provide a full understanding of the true returns of a portfolio, in turn enabling investors to make more informed and cost-effective decisions. Features to look out for in an online platform include:

1. Comprehensive record keeping. Look for an online portfolio management system that provides all the information you require, leaving you free to utilise the services of any broker or investment advisor you like. This is in contrast with most wrap platforms, which bundle fees for advice and administration with brokerage, giving investors limited ability to see whether they are getting value from each component. The right online portfolio management system allows investors to disaggregate these services and select those which offer the best value for money.

2. Investment performance monitoring. Investors should look for an online portfolio management system that provides a transparent view about how each individual investment is performing. This compares with a traditional wrap platform, from which it is often difficult to determine which individual stocks are better performing.

3. Automated administration. Many D-I-Y investors become distracted by the administrative tasks associated with managing their portfolio. Many direct share owners cannot afford, or choose not to, use an accountant or financial planner to carry out this administration. This can include calculating dividends and franking credits, and capital gains. Look for an online system that can automate the recording of transactions and other relevant share investment activity, producing all the information required to complete a tax return in a few clicks.

4. Compliance. If you’re an investor managing your own super fund, aim for an online share management system that can automate the flow of data to your accountant. This will not only save considerable time, but also reduce bookkeeping and accounting fees.

Of course, the total cost efficiencies generated by using an online share portfolio management system will depend on the nature and size of the portfolio, and how actively it is traded. However, choosing an option that provides control, transparency, automated reporting and has the facility to link to other relevant software is certainly a great place to start.

Users of Sharesight would agree that investing in the share market can be both financially rewarding and personally satisfying, and I know that many of us are keen to get our children involved in some way.

So, what do we need to teach young people about share market investing once we’ve helped them get a basic understanding of financial concepts?

Here are my top share market basics that any investor needs to understand before they get started.

1. Only invest what you won’t need to liquidate
I’ve said it before, but I’ll say it again. Unless you’re a professional trader, share investing is a long-term business. Over a period of many years, the share market will generally outperform other investments. But if you need to withdraw your money at short notice, you run the risk of having to sell when markets are low, which could cause you some serious losses.

2. Be prepared to ride the ups and downs
Short-term market turbulence can be disconcerting and many investors at the moment are nervous about their on-paper losses. However, numerous studies have shown that share markets do better over the long term, so sticking with it will usually be a better option. Nonetheless, if you’re not prepared to ride out the lows for the sake of longer term gains, then stock market investing probably isn’t right for you.

3. Diversify
Diversification is important for two reasons: it can potentially protect you against undue losses if investments in a particular company, sector or asset class fail, and it can actually improve the overall return of your portfolio.

To get your kids thinking about diversification, help them buy a small portfolio of 3-5 shares in different industries. The share market makes diversification easy because almost every industry is well represented. Don’t overdo the diversification though. It does not guarantee success and if it’s overdone it adds complexity and it can dilute returns if it results in investment in lower yielding assets. For more on diversification see Andrew Bird’s article here.

4. Do some easy homework
Start off buying into well-known companies that have been around for a long time. Look for companies that do things you understand and operate in areas that are likely to grow in future. Thinking about some basic questions will quickly highlight industries with good potential. What is the future of the Australian mining industry? What are the implications of our aging population? Will tourism remain a growth industry?

5. Keep an eye on performance
Share investing may be a long-term business, but that doesn’t mean you can take your eye off the ball. There may be times where you want to sell down some of your holdings, or reallocate some of your exposure to maintain diversity. Staying abreast of the performance of your shares is important, and you can do this by reading the financial press and specialist websites, and subscribing to a service that will give you an overall picture of your portfolio’s performance, such as Sharesight. But remember that you are in there for the long haul so resist the temptation to panic and sell if prices take a short term tumble. Make your decisions on what you believe are long term trends, not short term volatility.

6. Don’t fall prey to “shoebox syndrome”
As all share market investors know, the benefits of being in the market come with responsibilities to the tax office. If you’re not prepared to keep your paperwork in good order throughout the year, or use an online share portfolio management service such as Sharesight to do it for you, you most likely will end up in a last-minute scramble to get your affairs in order.

What other tips do you have for teaching your kids (or grandkids) about the share market?

CMC clients will be spared the task of having to manually enter all their historic trades when setting up their Sharesight portfolio and any future share trades will be automatically synchronised to Sharesight. Best of all, customers with small portfolios will be able to take advantage of Sharesight’s new free plan to manage their portfolio in Sharesight at no cost. Our standard Investor and Expert plans will also be available to customers who require the additional functionality.

The CMC partnership is another significant step towards our ultimate goal which is to make life easier for investors by fully automating the administration and management of investment portfolios.

We are working hard to ensure similar functionality is available to all share market investors. We are in discussions with a number of other brokers about providing similar functionality and our ultimate goal is to provide seamless connections to all brokers in Australia and NZ. Feel free to let your favourite broker know that you would like them to implement this service as well!

How do I connect my account to CMC?

If you are a CMC client this functionality will be rolled out over the next month. CMC will host a dedicated page on their site which will provide customers with the opportunity to create a new Sharesight account or link an existing account. Transactions will then be automatically recorded in Sharesight as soon as a trade is completed in the CMC system.

Our press release and related press coverage can be found here.

Over the years I’ve helped many families with their household finances, and continue to be surprised by just how many people put finance in the “too hard” basket.

The thing is, basic financial concepts are just that – basic – and anyone can understand them. But the important thing is to start learning early so it all doesn’t seem too daunting later on.

An idea that helps kids learn about money is to extend the idea of giving them pocket-money. The idea is to increase the amount of pocket money but make your child responsible for paying for various small things that you would have otherwise purchased for them. As they get older and demonstrate that they can spend responsibly, the budget can be increased to cover larger items like clothing.

One of the most important concepts I think we need to teach young people is the difference between short-term, medium-term and long-term financial goals – and how your priority actions for each timeframe will probably differ.

Below are some tips I’ve shared with young people in the past that might help you get started talking to your kids (or grandkids) about their own financial priorities and timeframes.

Short term: set yourself up for success

Understand where your money is going. Keep track of all your incomings and outgoings over 2-3 months. Are you spending more than you’re earning? What proportion of your income goes on essentials (rent, travel, bills and groceries) and what proportion is on discretionary spending (going out, shopping, etc).

Once you understand where your money’s going, establish a savings account that allows you to make withdrawals without penalty. Set up automatic payments that directs a portion of your discretionary spending into to this account each payday so you can’t forget to contribute. Adjust your discretionary spending so that your remaining funds last you until next payday.

Your savings account is not for your retirement, it is your fund for unexpected expenses such as car repairs, and also your pot for those “must haves” such as an iPad or a holiday.

Don’t borrow. If there is not enough money in your savings account for what you want, wait until there is! That will stop you from committing a cardinal financial sin – borrowing money. A little patience will pay handsome dividends over your lifetime. For example if you have on average $1000 on your credit card over the next 20 years at a 15% interest rate you will pay over $3000 in interest. How much better off you would have been if you had waited until you had that $1000 in your savings account!

The only exceptions to the ‘don’t borrow’ rule are if it is for something that will create lasting value that exceeds the interest you will pay. For example a loan to buy a house that will appreciate in value (and save you the cost of renting), or a student loan that will enable you to learn new skills.

Medium term: think bigger picture

Consider saving for those big commitments. What are your financial goals for the next few years? Would you like to buy a property or set up a business, perhaps? If so, you’ll most likely need to start saving for the longer term. Set up a separate account with high interest rates and don’t be tempted to dip into this pot of money early.

Longer term: the road ahead

Consider other investment options. The share market, investment property, bonds… The list of investment options for the longer term (which generally means retirement) seems endless and you will need to think carefully about what’s right for you.

Nevertheless, the most important thing when considering these types of investment options is to only invest money that you are prepared to put away for the long term. While money invested in the share market, for example, will usually outperform most other investments over a period of many years, there will be times when the investment underperforms. That means that if, for example, you need to withdraw money during a period of underperformance, you will crystallise a loss that otherwise would have been recouped when the market picked up.

In my next post I’ll be discussing how to get kids started in the stock market, if and when they’re ready.

And that is that Sharesight operates completely independently from your broker, planner or any other investment service that you may use – while still enabling one or all of them to have the level of access you would prefer. This means you can have more than one broker viewing and advising on your portfolio, either with ‘read only’ or ‘full access’.

For you as their client that’s a huge benefit, because most brokers or planners use proprietary portfolio management systems that are limited by the fact that they can’t link with, or view, any others. (And can I just point out that while these systems may offer some of the functionality that Sharesight provides, none are, in my view, as sophisticated or user-friendly).

So how can enabling multiple access can be an advantage?

Of course it all depends on your investing style, but many people find that using multiple brokers offers a range of benefits.

These can include comparing research and recommendations, the ability to access different specialist functionality provided by different brokers and the general benefit of not putting your eggs in one basket, so to speak. Not to mention that, as we all know, playing two suitors off each other can increase their level of interest!

A recent conversation with Sharesight subscriber Jonathan illustrated this perfectly.

He found that the service from his broker was dropping off, and when he gave his broker read-only access to Sharesight, the broker didn’t use it.

However, he added a second broker and hey presto! Now both of them use it. This way, both brokers can see what the other is recommending (nothing like a bit of healthy competition!). Jonathan has found this has improved service and responsiveness from both brokers considerably.

At the same time, he’s also discovering additional ‘soft information’ that he would have been unlikely to find otherwise.

For example, one broker will say “oh, that stock was recommended because his firm did the capital raising for that company”.

This sort of intelligence can add an extra dimension and real value to the decision-making process.

If you want to give multiple brokers a try, here are a few tips:

• Use the new ‘contract note importer’ — It makes it really easy to keep track of your trades and the system will make a note of which broker made each trade. (click here to find out more).




• If you do decide to give two (or more) brokers a try through Sharesight, be sure to use the custom tagging feature (this can be set up in the Performance Report to track one broker’s recommendations against another. This makes it easy to compare the performance of each broker’s picks and decide which suitor you like best!




• Lastly, if you want good service from a broker you need to be prepared to reward them for good research or advice. If you try and get good research from a full service broker and then put all your trades through an online discount broker, don’t expect the flow of information to last very long.




But don’t take our word for it. If you think you’d benefit from the insights of more than one broker, get onto it today and throw Sharesight into the mix to make sure you get the best that both can offer.

]]> http://www.sharesight.com.au/2011/12/23/two-brokers-can-be-better-than-one-%e2%80%a6/feed/ 0 http://www.sharesight.com.au/2011/12/08/maintaining-your-portfolio-just-got-a-whole-lot-easier/ http://www.sharesight.com.au/2011/12/08/maintaining-your-portfolio-just-got-a-whole-lot-easier/#comments Wed, 07 Dec 2011 23:59:16 +0000 Tony Ryburn http://www.sharesight.co.nz/?p=3741 Our aim at Sharesight is to make share market investing as easy as possible for you.

With that aim in mind we have developed an exciting new feature that will automate the recording of your buy and sell trades into your Sharesight portfolio. This will save you the hassle of having to manually record new trades into your Sharesight portfolio each time you buy and sell.

How does this work?

Sharesight provides you with a unique email address and you instruct your Broker to send a copy of each of your contract notes to this address.

Each time we receive a copy of the contract note from your broker, Sharesight will automatically create a trade in your portfolio. The trade will contain a comment to indicate it was created from a contact note sent via email. Emails are typically processed in around 10 minutes. As soon as the trade has been processed you will receive a confirmation email from Sharesight containing a link to the newly created trade.

We urge you to try this new feature because the more contract notes we receive the more brokers we will be able to cover and the more comprehensive and reliable the system will become.

Processing PDF files can be a tricky business so we’ll be fine tuning things as we go along to increase accuracy and reliability. The more contract notes you send us the better the system will become. Please use our community forum to let us know if you run into any issues.
  
Here’s how to get started.
 
Step 1 – Make a note of the email address for your portfolio.
To view the email address for your portfolio, you must enable the broker email import function. To do this, first click the ‘settings’ link and then click the ‘edit settings’ button below the appropriate portfolio. Look for the section titled ‘Broker Email Import’ and click the ‘enable’ button. Once enabled, the email address for your portfolio will be displayed. This is the email address where you will send your PDF contract notes for processing.
 
Step 2 – Check that we currently support your broker.
We maintain an up-to-date list of supported brokers here. If your broker is not on the list, ask us to support your broker by submitting an ‘idea’ to the community forum. If someone else has already suggested that we add your broker, please click the +1 button to add you vote. This will allow us to prioritise support for additional brokers.
 
Step 3 – Send through your contract notes
Because this feature is new we suggest that you manually forward through your first few contract notes before setting things up with your broker. To do this simply forward your contract note email to the email address generated in Step 1, ensuring that the name of the broker (as per our list of supported brokers) is in the subject line of the email.
 
You will receive an email confirming whether or not the contract note was successfully processed. Please allow 10 minutes or so for the processing to complete. You can view the current status of your email by clicking on the ‘view contract notes’ button (under Settings >> General >> Edit Settings).
 
Once you have confirmed that your contract notes are able to be processed successfully, you can instruct you broker to send a copy of your future contract notes to the email address generated in step 1.
 
Full help documentation is available here.
 
As always, we look forward to your feedback to help us make Sharesight even better for you.

]]> http://www.sharesight.com.au/2011/12/08/maintaining-your-portfolio-just-got-a-whole-lot-easier/feed/ 0 http://www.sharesight.com.au/2011/12/05/sharesight-now-your-free-online-portfolio-manager/ http://www.sharesight.com.au/2011/12/05/sharesight-now-your-free-online-portfolio-manager/#comments Sun, 04 Dec 2011 21:42:29 +0000 Scott Ryburn http://staging-www.sharesight.co.nz/?p=3227 At Sharesight we recognise that many share market investors lose out because they cannot justify the cost of a professional portfolio management tool like Sharesight until their share portfolios grow. We also believe that all investors deserve to have access to a good record-keeping system and have accurate information about the performance of their share investments to help them make well-informed investment decisions. So at Sharesight we have decided to give all sharemarket investors a fair go and offer Sharesight for free to anyone who has 10 or fewer shareholdings.

There are no hidden catches with this offer – free means free! And what’s more, Sharesight has added functionality. Sharesight Free offers much more than our previous Starter plan which cost $5 per month and was restricted to only 5 shareholdings.

Sharesight Free includes access to a range of great functionality previously only to our premium plan customers, including:

• Performance report
• Sold securities report
• Taxable income report
• Historical cost report
• CGT report

And you also get access to our new contract notes processing service which allows you to have all your buy and sell trades automatically recorded in your Sharesight portfolio for you. To learn more about this exciting feature check out our tour page or view our full help documentation

As share portfolios grow, the administrative burden of maintaining a share portfolio – the record keeping, compiling tax returns and accounting information – becomes a serious problem and so automating these tasks in one of Sharesight’s premium plans is unbeatable value for money. For larger portfolios, calculating the true, annualised return on shares (individually and on the total portfolio) becomes an even more daunting task without Sharesight – and you need this information to make well-informed investment decisions.

Please click here to view the full details of our new pricing plans.

]]> http://www.sharesight.com.au/2011/12/05/sharesight-now-your-free-online-portfolio-manager/feed/ 2 http://www.sharesight.com.au/2011/11/23/why-accurate-performance-measurement-matters/ http://www.sharesight.com.au/2011/11/23/why-accurate-performance-measurement-matters/#comments Tue, 22 Nov 2011 20:16:11 +0000 Andrew Bird http://staging-www.sharesight.co.nz/?p=3199 It’s not uncommon to see stock market performance being described inaccurately in the press. But an article in today’s (23/11/11) Financial Review in the Portfolio section entitled “Cult of Equity is losing its Followers” by John McDuling is one of the more confused I have seen. Here are the opening paragraphs:

To say that the past two decades have been kind to investors in equities is an understatement.

Between October 1991 and October 2011, Australian shares returned investors 433 percent, including dividends, or 22 per cent per annum.

That is way ahead of more defensive assets such as cash or bonds, according to analysis by Commsec’s Craig James.

He says if $100,000 had been invested in stocks 20 years ago it would have been worth $804000 at the start of this year. That same $100,000 would have appreciated to just less than $305,000 in cash.


The article basically goes on to say that returns are unlikely to be as good in the next 20 years. Well, yes, I can almost guarantee they won’t be 22% p.a. But they haven’t been 22% over the last 20 years either.

The problem is that the return presented of 433 percent return over twenty years is not 22 percent per annum using compounded growth. The author has simply divided 433%/20 years = 21.6% which is the simple growth rate (similar to the simple growth in Sharesight) but it is highly misleading in this context. Using compound growth, which allows you to compare it to the way other investments are presented, the annual return is 8.7%, a far more reasonable number and actually slightly below long term equity returns. 100K compounded at 22% over 20 years would be $5,336,000! If you are Warren Buffett this sort of return is possible but it is certainly far higher than the overall market in the last 20 years.

A long run figure of 8.7%, however is perhaps not so unreasonable over a long period. The Future Fund has a target return of inflation + 5%. With inflation RBA inflation goals of 2 to 3% this implies 7 to 8% annual growth over the long term. A bit lower than than the last 20 years but no drastically so.

Why does all this matter? Well all the current crop of articles with this theme (and I have seen many as the market has declined) result in investors potentially underestimating the growth potential of the market relative to its history and moving out of equities at precisely the wrong time. It could prove to be a very expensive decision for investors. This is why we are so passionate here at Sharesight about investors understanding their true return. We think it’s critical to successful portfolio management

It’s important to know your returns and set some realistic expectations about future growth. With high single digit growth rates the magic of compounding will see your investments grow very nicely indeed if you are prepared to give them the time to deliver.

Update: 2:25pm
In the online version of their article the Fin have corrected the calculation and have now put 8.7% as the annualised return into the story. Obviously someone else has pointed out the error but the story makes even less sense now! See here for the link.

]]> http://www.sharesight.com.au/2011/11/23/why-accurate-performance-measurement-matters/feed/ 0 http://www.sharesight.com.au/2011/11/09/portfolio-diversification-what-does-it-mean-to-you/ http://www.sharesight.com.au/2011/11/09/portfolio-diversification-what-does-it-mean-to-you/#comments Tue, 08 Nov 2011 21:49:49 +0000 Andrew Bird http://www.sharesight.co.nz/?p=3131 Most DIY investors looking to grow their investment portfolios for the long-term will consider diversification in their investment strategy. Indeed, in some countries, including Australia, many DIY investors must by law consider diversification of their portfolios (see my recent article on the topic in The Australian here and more information on the regulations for Australian SMSF trustees here).

But, going back to basics, what is diversification, why does it matter – and how can you put the theory into practice?

For many of us, the old saying “don’t put all your eggs in one basket” springs to mind when we think of diversification. But this is only part of the picture.

In fact, I’d suggest that there are two main reasons why portfolio diversification is important.

The first and – most obvious – aspect is that by broadening your asset exposure (investing, for example, in shares, property and fixed income), you should be able to limit investment risk should any one of those investments underperform. Yes: the “eggs in a basket” bit.

But the other aspect, while perhaps more subtle, is very important. This is the concept pioneered by Nobel prize-winning economist Harry Markowitz in the1950s and 1960s that calls diversification the only ‘free lunch in investing.’

What this means is that by diversifying across uncorrelated asset classes – traditionally bonds and stocks – portfolio returns can be improved while at the same time lowering risk. This is because the two asset classes often move in different directions and can thus reduce the overall volatility of the portfolio.

So diversification isn’t simply a matter of protecting your portfolio in tough markets; rather, it can also be a means of generating greater returns over the long term.

It seems to me like some investors tend to overlook this second principle of diversification.

In practical terms most DIY investors articulate diversification by providing a target asset allocation for each of a number of asset classes and then the ranges within which they will accept variation. This is a simple way to monitor that the portfolio is staying within the overall guidelines of their investment strategy.

Sharesight members will know that the diversity report provides an easy way to analyse the diversification of their own share portfolios across investment type, industry sectors and markets.

What does diversification mean to you? And what tips and tools do you use for ensuring diversification of your own portfolio?

]]> http://www.sharesight.com.au/2011/11/09/portfolio-diversification-what-does-it-mean-to-you/feed/ 1 http://www.sharesight.com.au/2011/10/17/how-does-sharesight-operate-in-the-cloud/ http://www.sharesight.com.au/2011/10/17/how-does-sharesight-operate-in-the-cloud/#comments Mon, 17 Oct 2011 04:57:10 +0000 Tony Ryburn http://www.sharesight.co.nz/?p=2972 Hi folks

In my last blog I promised to tell you a bit more about how Sharesight’s portfolio management service operates in the Cloud. I explained that because we are in the Cloud our servers do all the work and you do not have to worry about viruses, downloading share portfolio software onto your computer, keeping it up-to-date, backing up data so you don’t lose it or running out of space on your computer.

So, without getting too complicated about it, what actually happens behind the scenes to give you all these advantages?

Well firstly, when I say ‘our servers do all the work’ I don’t mean that we have a big computer sitting in our office storing all your data and doing all the calculations. That would be far too risky! What would happen if we had a burglary or a fire, or our computer broke down, or we had an earthquake that wrecked the place or maybe a major power cut?

Our servers are located in highly specialised, professionally operated data centres. They have state-of-the-art systems to make sure all our data, including yours, is stored in a way that deals with the risks I have just mentioned. They have many ways of doing this but in particular they ensure that they have high levels of physical security and all the data is stored on multiple servers in multiple locations.

The other major risk is that someone might hack into your data. To guard against this your important information – your password and credit card details – are encrypted so that this information is not intelligible to a hacker. You will have seen the letters HTTP before. HTTP is short for ‘Hyper Text Transfer Protocol’ and it is basically a protocol, or set of rules, for sending individual messages securely across the internet. You will also have seen the letters SSL or ‘Secure Socket Layer’ which is designed to ensure a secure connection between you and our Servers. Together these two protocols are known as HTTPS.

Sharesight uses HTTPS to provide you with the highest level of security. However HTTPS can slow down the time it takes to load each page and for this reason Sharesight, by default, uses HTTPS only on your payment and login pages. However customers on our Investor and Expert plans can choose to enable HTTPS on all Sharesight pages.

So does all this jargon mean that we at Sharesight absolutely guarantee the security of all your information 100%?

Your data is very secure but no one can ever guarantee 100% security. What we can say is that unless you happen to live in Fort Knox, your data is a lot more secure with us than it would be on your home computer.


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