David French | 18/02/2009 4:02:50 PM

This article was originally published in The Morning Bulletin in January 2005

Welcome to the fourth year of French on Friday. With the sharemarket making all-time highs, many people are asking how to go about buying and selling shares. In fact it’s a process that can be as simple or complicated as you want to make it. You can purchase investments through a stockbroker, a financial planner or on-line.

Stockbrokers have provided the traditional entry into the stockmarket. A good broker can provide you with detailed advice, and research about many of the investments traded on the stock exchange. Brokerage rates for private clients vary from around 1 per cent to as much as 2.5 per cent, and most broking houses set a minimum brokerage for small trades. Good clients of stockbrokers will be offered access to floats and other “restricted” investment opportunities. Stockbrokers provide an efficient method of buying and selling shares, but they are likely to pay less attention to the tax, Centrelink issues and other structural issues associated with investment.

A financial planner’s role is to assess people’s overall financial needs. To that end, actually making the investments is likely to be the end of a process that includes determining whether the money should be invested in super, in a person’s own name or maybe through a trust or a company. Selecting investments is then a matter of choosing investments that match the investor’s risk profile and objectives. The financial planning process generally takes time. It’s more about building a quality portfolio to achieve some future aim, than to make a quick buck.

On-line stockbroking is for those people who know something about the stockmarket, and who are comfortable with executing trades themselves. While on-line stockbrokers often provide research, it can be of the watered down kind, and it may be difficult to put the advice in context without an experienced person to bounce ideas off. On-line stockbroking can be very cheap, but it is important to clearly define the requirement of a trade. Simply entering an “at-market” trade may not be a good idea, unless you have had a prior look at the list of buyers and sellers in the screen.

While the buoyant market is cause for good cheer, it is also worth remembering that markets can fall as well as rise. Even the best brains in the business have difficulty in predicting the timing of turns in the market’s fortunes, so the best advice is to remember Scouts Motto – “Be Prepared”. The best way to do this is to understand why you are investing – is it for income, capital gain or for some other reason? Most importantly, decide how much risk you are prepared to take. Plenty of people think they are risk takers, only to be the first ones on the phone when the market falls a little. Decide whether you are building a long-term portfolio, or if you are simply having a punt? Then find someone to help you choose the investments most suitable for your objectives.

The Investment Collective (AFSL 471728) is a non-aligned financial planning and investment firm specialising in providing tailored financial and investment advice for individuals and small business. Capricorn Investment Partners Limited's services include financial planning, share trading, portfolio management, insurance broking and self managed super fund administration. Additional information on services provided by The Investment Collective Limited can be found by following this link. Readers are reminded that this document has been prepared for general information purposes only, and any advice contained herein has been prepared without taking into account your financial objectives, situation or needs. Readers are advised to see their financial advisor prior to acting on any general advice.

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