Tip#6 Help with share selection for DIY investors
Read articles about companies of interest to you in newspapers, magazines and online. You will be surprised how quickly your knowledge and confidence grows. You can use online tools such as Sharesight to check the historic performance of a company to help you with your investment decisions.

Look online to find the innumerable share purchase recommendations for free as well as organisations that provide recommendations to paying subscribers. Whether they are free or not these services can be a valuable source of guidance and information but don’t follow them blindly. If it is not clear to you why their recommendations are sound don’t act on them. Do your own homework and come to your own decisions.

Tip#5 How to choose industries with good prospects
Some simple high-level thinking will quickly highlight industries with good potential. Here’s a few leading questions to get you thinking. There are plenty of other prospects as well.
• Will the world suddenly stop wanting the output of the Australian mining industry, or NZ dairy products?
• What are the implications of our aging population for retirement villages, rest homes, optometrists, dentists and providers of other medical services?
• Will tourists suddenly stop coming to Australia and NZ in ever increasing numbers?
• Does our banking industry have a good track record? (Hint: think APRA and the 4 pillars policy)

Tip#4 How to make good share selections
You DO NOT have to be a financial guru and you do not need a financial advisor to do well in the share market. All you have to do is focus on companies. Look for well-known companies with a long, proven track record offering top quality products and services that you understand and that you think will be in strong demand well into the future.

Tip#3 Learn the secrets of share market investing FOR FREE.
Do you want to invest in the share market but lack knowledge and confidence? We suggest you learn the same way many of our most successful customers did – buy a small parcel of shares in 2 or 3 companies. There is nothing like having some of your own money on the line to discover how the share market works! As you follow the fortunes of your stocks you will be amazed how quickly you get to grips with the ins and outs of share market investing.

Tip#2 The share market is not for everyone
Short-term market turbulence such as we are currently experiencing can be disconcerting and many investors at the moment are nervous about their on-paper losses. Despite all the evidence that the share market provides excellent investment opportunities, 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.

In Australia, for example the ATO requires that:

“You must keep:
• your acquisition and disposal statements (your ‘buy’ and ‘sell’ contracts) – keep these records for five years from the date you dispose of your shares
• your dividend statements – keep these records for five years from 31 October or, if you lodge later, for five years from the date you lodge your tax return.
You will receive most of the records you need to keep from:
• the company that issued the shares
• your stockbroker or online share trading provider
• your financial institution, if you took out a loan to buy the shares.”
Source: Australian Government Australian Taxation Office website.
To see the ATO’s full explanation of records you need to keep please see here.

No matter how organised you are, that’s a lot of paperwork for you to manage and store, and a lot of data for your adviser to sift through and enter into the appropriate forms. So that means work for you and your adviser, and subsequently, cost for you.

Good news is that Sharesight updates and maintains all of these records for you.
Once you set up a portfolio in Sharesight then all you need to do is arrange for your broker to email contract notes to that portfolio (for more information on how to do this see here), and your trades will be automatically recorded – with the appropriate contract note attached to each trade! From then on all your dividends (franked and un-franked amounts), current share prices, and any relevant corporate action information affecting your earnings are automatically updated in Sharesight.  Everything you need is ready to give to your adviser and ready for tax time!

Other good news is that you can share your Sharesight portfolio with your adviser so that they can access all these records and data when they need them as well. This means that they are confident that your records are accurate, spend less time entering data, and, have more time available to consult with you regarding any capital gains on shareholdings. This saves your adviser a lot of frustration and helps you achieve your best tax outcome! To learn how to do this please see here.

It may be that your Accountant or Tax Agent is already using Sharesight. We have a Professional Edition of Sharesight that allows advisers such as Accountants, Bookkeepers, Tax Agents and Financial Planners to administer client share portfolios. If you would like your adviser to learn more about Sharesight please ask them to visit Sharesight Professional or contact me at Vanessa.gorman@sharesight.com.au

Tip#1 Why you should invest in the share market
Innumerable studies have shown that over the longer term the share market will generally outperform other forms of investment.
“Over the long term” is a very important qualifier because you should only invest money in the share market that you will not need in the short/medium term. If you need your money at short notice, you run the risk of having to sell when markets are low, which could crystallise unnecessary losses for you. So don’t invest money in the share market unless you are confident you are not going to need it at a particular time in the future in case that time coincides with a slump in share prices.

Some key highlights of the new navigation menu include:

• The holdings tab lets you quickly see the most recently accessed holdings in your portfolio. There’s also a search box so you can easily find any share in your portfolio (including sold shares). Now you can quickly bring up the holding detail page for a share from anywhere within Sharesight.
• The settings menu gives you quick access to all of the settings for the portfolio that you are currently working in. This makes it easier and quicker to edit portfolio settings, configure alerts, enable the contract note import functionality or set up a Xero connection.
• The Sharing and permissions tab gives you an easy way to see who has access to your portfolio, change sharing permissions and invite new users to access your portfolio.
• The help tab offers contextual help for each page and one-click access to post a question in our community forum.

Here’s a quick video we prepared to highlight the changes:

As always we look forward to your feedback as we continue to develop and improve Sharesight. Please leave your feedback below or join the conversation in our Community Forum.

We have an exciting roadmap ahead including our soon-to-be-introduced consolidated performance reporting across multiple portfolios and improved CGT reporting functionality for Australian subscribers. Stay tuned for more details!

What is franking?

In essence franking provides a tax credit to the shareholder for company tax already paid by the company.  It’s a way of avoiding double taxing of company profits.  For those not familiar with franking (or imputation for kiwis) you can find a good explanation here.   For the ATO’s explanation see here.

How does it work in Sharesight?

Let’s take Telstra as an example.  Telstra pays a fully franked dividend of 14c per share.  Each dividend carries a 6c franking credit for the tax paid by the company which lifts the “grossed-up” value of the dividend to 20c.  The 14c is paid by Telstra in cash and the 6c is claimable by the investor as a credit in their tax return.

When we calculate performance we take the full 20c grossed up dividend and include this in the return.  Needless to say it can make a big difference.

Have a look at this screen shot of 100 shares of TLS bought 12 months ago.

The compounded return from dividends is nearly 12%.   You can see in the two dividends received that the cash dividend paid and the franking credit is included.

In the following screenshot I have removed the franking credit – as if TLS carried no franking and it’s clear the return is significantly lower.

The dividends return without franking falls to just over 8%.    All things being equal, it certainly pays to own a company paying fully franked dividends.

One thing to note is that all franking is not the same.  QBE, for example earns a large portion of its income overseas which cannot be franked and therefore the gross dividend is lower than it would be if QBE were a 100% Australian-based company.   In the screenshot below you can see that only a portion of the total dividend is franked with the balance being an unfranked dividend.   All of this is captured in our return calculations.

Lastly, we also account for differences in dividend franking between Australian and NZ investors.  An Australian buying NZ shares is not entitled to NZ imputation credits.  Similarly a NZ  investor is not entitled to Australian franking credits (with some exceptions).  We capture this as well and do not include the franking in the above situations.

It’s all about trying to give you the true picture on your portfolio performance and making sure you can get your tax right with a minimum of fuss.

One interesting fact that emerged from our survey was that nearly 60% of our customers are over 55 and 25% are over 65. It’s interesting because it shows we older folk appreciate the benefits and advantages of using online services but it’s not surprising. After all investing in the share market is a long term project and for many of us it is not until the kids have grown up and the mortgage is paid off that we can really start building our portfolio.

Our oldest known customer is 93! I’d be interested to hear of anyone who can beat that. I’m not sure what his answer to my question above would be but it would be safe to say it would be more than 93!

The problem is that I have lost count of the number of times I have read articles from investment advisors and others advising that as we move through our retirement years we should reduce the proportion of our savings that we have invested in shares.

Their reasons for saying this have never made any sense to me. Are they saying that investing in the share market should be a long term proposition (agreed) and therefore, as life becomes less and less of a long term proposition, we should start selling up our shares?

There is no doubt that some older self-directed investors will eventually find that maintaining a share portfolio is too much of a chore but this does not have to mean selling up your portfolio. This is especially true if you are a Sharesight customer because you can share your portfolio with a professional advisor or family member who can then provide the level of assistance you require.

If you are intending to leave your shares to family members it makes sense for them to have the opportunity to become familiar with the portfolio ahead of time.