Getting a share of the action
Published in the Herald Sun, April 2010 by Karina Barrymore
As the share market recovery boosts our superannuation and other investments, even very small investors can get to play the game, as Karina Barrymore reports.
MANY of Australia's biggest and most iconic companies are increasingly out of reach for ordinary mum and dad investors, as their soaring share prices make them too expensive to buy.
At $99.90 a share for Australia's most expensive stock, Coal & Allied, the minimum stock exchange transaction o f $500 will get you only five shares.
It's little better for Rio Tinto at about $76.45 a share, and even Commonwealth Bank shares at around $58.20 will still mean less than 10 shares from the minimum marketable parcel.
So how do you get a piece of the action of some of Australia's highest flying shares when you're buying in small parcels?
There are two basic methods: invest in an index fund or an exchange-traded fund.
However, Wealth Within founder Dale Gillham first questions just how high is "too high" when it comes toassessing a share price. Buying a few high-priced shares might still be thebest way to go.
"Often investors say to me that they cannot buy Rio, BHP, CSL or Cochlear because they are too expensive," Mr Gillham said.
Normally they are simply comparing $50 to $10 and implying the $50 share is expensive, in the same way you would compare a $10 pair of sunglasses to a $50 pair.
"A share that is $50 may intrinsically be worth double that amount, at the same time that the $10 share is intrinsically worth only $5 - and in this case the more expensive share is cheap and the $10 share is expensive. It is the quality of the share, the risk you are taking and its ability to increase in value that investors should look at, not how many shares they own.
"Regarding some resource shares being too high, this should only be compared to what the share is actually worth.
"There are many examples of shares like BHP and Rio that have big upside potential even though their share price is around $42 and $77.
"There are also many resources type stocks that have just come out of lows, which means it is a good time to invest in them.
"However, I would advise investors to steer clear of smaller resource stocks if they don't know what they are doing."
EXCHANGE-traded funds, including exchange-traded commodities, however, can give you exposure to many of these higher-priced shares, he said.
Other methods such as contracts for difference, warrants and futures also can work but involve leveraging, which Mr Gillham said is only suitable to experienced traders.
Wise-Owl analyst Tim Morris suggests index funds to get a broad exposure to many of the high-priced shares on the stock exchange or sector funds to narrow the investment even further.
These funds are typically set up and offered by large fund managers who duplicate the various ASX indices or sectors by buying the same shares in the same weighting as the official index.
Exchange-traded funds are basically the same as managed index funds except they are traded on the stock exchange and can be bought and sold just like shares.
However, most of these funds, both unlisted and exchange-traded, generally have a large bias towards the biggest companies in each sector.
If you're trying to ride the coat-tails of one of the really big companies you can often refine your investment to the same sector as Me company you are chasing.
The biggest companies in each sector usually make up a huge proportion of the fund.
To get a wider piece of the action there are more general index funds.
"One option is to invest in a broad index fund such as the ASX 200 which gives you a little bit of everything," Mr Morris said.
"The obvious benefits are that it's a low-cost means of diversifying with just one transaction, so you incur less brokerage and don't waste a whole lot of time trying to pick and choose companies," Mr Morris said.
"On the con side, however, these funds can also be heavily weighted toward a small group of companies.
"You might think you are getting a lot of diversification, but in reality you are missing out on a lot of other exciting sectors," Mr Morris said.
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