finance

Risk profiles, share portfolios and Fintech: Decoding 'investment' jargon.

Investing

It's a loaded word. 

Nearly all the financial advice we receive comes with a quick "investing is the key to abundance" disclaimer, but, as often happens with money talk, along with it comes the jargon.

Portfolios, Fintech, ASX share market...

You'd be forgiven for tuning out before your money wizard says 'compound interest'.

Watch: 5 money lessons your parents told you, that you should probably forget... Post continues below.


Video via Mamamia

But this week on Mamamia's money podcast, What the Finance, finance expert Melissa Browne tackled investing, and all the tricky vocab that comes with it.

From risk profiles to investment platforms, we decoded all the 'boy's club' money speak that's scaring people off investing.

And yes, that means no more excuses!

Here's what we took from the episode.

Share market

First and foremost, a share market is where you can buy and purchase... you guessed it, shares.

In Australia, the leading share market is the ASX - the Australian Securities Exchange.

Think of it like a huge department store but instead of buying shoes, you're buying a portion of ownership in one, or several companies. 

Share Portfolio

As an extension of this, a 'share portfolio' is the collection of shares that you are currently holding.

You can hold shares in many companies and across many industries. They all make up your share portfolio.

Compound Interest

Compound interest is that sweet, sweet money that attracts everyone to investing in shares.

It happens when the interest you make on your initial investment is reinvested, and subject to more interest. 

Say you buy $10,000 worth of shares and they perform particularly well, with an interest rate of 5 per cent. 

In one year, you will have $10,512 in your account. 

Listen to What the Finance. Post continues below.

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If you were to keep that same sum of money in shares that produce interest at a rate of 5 per cent for 20 years, your initial investment of $10,000 will have compounded to almost triple the initial investment. 

$27,126. 

If you were to commit to a regular contribution of just $100 a month for those 20 years, your figure would explode to $68,230, doubling your $34,000 investment.

The longer you leave your initial investment, the more the money compounds. 

So, you should take advantage of this... Yesterday.

Risk Profile

Risk profiles are what we can use to determine exactly how stressful your investing experience might be. 

Ask yourself: 'If the share market drops slightly overnight, am I going to lose sleep?'

"That would be a super conservative," Melissa says. 

"Through to the aggressive where you're chasing the hot stock that you hope will triple in value."

Once you have an idea of your risk profile, you can choose exactly what stock will give you the best return without living in a constant state of fear.

Investing Platforms

There are tons of different investing platforms you can choose from to get started in the share market, each varying in price and autonomy.

You might be interested in a FinTech platform (or app) like Raiz or Spaceship where there is no minimum investment required and the platform will take care of all of the investment decisions. 

There is often a monthly fee for these platforms, which is something to consider before diving in.

Actively managed investments mean someone will share-trade on your behalf, and is often more expensive to allow for an individual's time - or the cost of the algorithm to take care of your portfolio.

Passive investing or Exchange Traded funds are what is used by Superannuation funds. They can automatically invest in the ASX200, and will change each month. 

There is also a direct investing option in which you choose what individual shares you would like to own, and become a 'stake holder' in the company.

For more money tips, you can listen to the full episode here, or read our other What the Finance articles below:

Financial expert Melissa Browne got divorced at 33. She gave the entire settlement to charity.

Struggling to save? 'Sprint goals' could help you stash more money by the end of the month.

“What the f**k am I worth?” A financial expert shares exactly how to price yourself by profession.

“Do I need to make contributions?” All of your superannuation questions answered.

'What are your 3 non-negotiables?' What to ask yourself when you're looking to buy property.