NOTE from Pearler: we do our best to share general resources so you can do your own research. When it comes to tax, this is personal to your investing and financial position. We are not a tax advisor, and don't have any information about your personal situation. When investing, there may be tax implications and you should get advice from a licensed tax adviser.

In theory, the idea of having a portfolio of investments which grow in value and produce income is simple.

But when we actually go to do it, our minds become flooded with questions.

“When should I buy? How often should I invest? How do I keep my portfolio balanced as I add to it? And how do I keep track of it all?”

Great questions, that we’ve all wondered at one point or another.

In this article, I’ll provide some answers and hopefully help clear away the fog so you can move forward with greater confidence. Let’s get started with what seems like the most important question…

When is the right time to invest?

Oh boy, it’s a loaded question.

Some people suggest that the smartest move is to invest when the right opportunity comes along. And I’ll admit, this sounds fantastic on the surface.

Why not accumulate a war chest of savings and then pounce at the right time?

Well, in the share market, prices are always moving based on expectations of the future. So just because you might expect a recession in 2023, doesn’t mean share prices will end up cheaper.

That’s right. Typically, share prices fall in the 6-12 months before a recession, as economic news worsens and the market starts to ‘price in’ lower profits. On the other hand, when the economy is actually in recession, share prices usually start recovering.

Why? Because when green shoots start to appear (like somewhat positive economic news, or data that is simply less bad!), the future starts looking better than the current situation. Basically, we don’t know when the ‘right time’ will be.

Most of the time the market simply chugs along and goes up in value as companies keep paying dividends. So, as we've discussed in previous articles, waiting for the ‘right time’ tends to be a less profitable strategy. Don’t get me wrong, there are cases when it works. But more often than not, waiting means you end up paying a higher price when you eventually do invest.

What’s the solution? Invest when you can afford to, and always with a long time horizon.

How often should you buy?

This one depends on our personal circumstances.

On one hand, you want to minimise brokerage costs to maximise the amount of money going towards investments over fees.

On the other, investing more frequently keeps you focused, engaged, and motivated. And getting your money in the market sooner gets compounding working slightly faster.

The sensible approach, of course, is to find a balance between these goals.

Choosing a frequency also depends on how regularly you get paid, what you’re able to save, and so on. Some people like to invest every three months to turn their brokerage costs into a rounding error. Meanwhile, others are eager to invest as often as possible, often doing so multiple times per month.

If you’re investing $1,000 at a time, then paying $10 brokerage equates to 1% of your investment. But if you invest $5,000 and pay just $5 in brokerage, that’s only 0.1% - one tenth of the cost.

It comes back to what works best for your situation, your finances, and your interest level. There’s one factor that gets overlooked in this conversation: which will you find the most motivating?

Do you love stacking up your money until you can make a big purchase? Or do you find the idea of adding to your investments on a regular basis more exciting?

This matters because if we enjoy the experience more, it gives us greater motivation to work harder towards our goals. But if you’re solely a numbers person and want to figure out the ‘optimal’ choice, you can always play around with the investing frequency calculator.

Okay, we’ve covered when to invest and how often. Now, let’s turn our attention to managing the portfolio.

How to balance a portfolio

Here’s a super common question among those starting to build a portfolio: “If I have four funds I want to buy for my portfolio, how do I choose which one to buy? Should I top up each of them every month?”

For simplicity, let’s say you want to put 25% in each investment. While there may be an urge to keep them all the same by topping them up equally at the same time, there’s no need to approach it in such a strict way.

In fact, this would be very inefficient, creating lots of unnecessary brokerage costs, hassle and admin!

The easier way to approach this would be to choose one investment per month to purchase (at random if you can’t decide). Then, once you’ve got a stake in all four, you can simply choose the one which is furthest away from your ‘target’ each month. By the way, this is by far the most common way investors use Pearler’s Automate feature.

And let’s remember, for the first few years our portfolio is not very big. That means keeping the balance between each investment is far less important than simply getting more money invested!

If there are some holdings you don’t have a target for (such as an individual stock) then you’ll have to manage that differently. In that case, simply add when you want to, or consider selling if the position gets too large for comfort. That’s assuming it does amazingly well, which of course is a fantastic problem to have 🙂

While we’re on this theme of portfolio construction, we’ve actually covered aspects of this topic in the following two posts:

• How do I research what to invest in?
• Newbie Investor Checklist: What to consider when you start investing

Another frequently asked question is “how many ETFs should I have in my portfolio?” But we’ll cover that particular question in an upcoming Q&A article, so stay tuned.

Alright, we’ve got our portfolio and we’re investing regularly. Let’s run through a few details regarding the admin side of things.

Taxes and record keeping

Look, this part of investing is not fun. Nobody likes paperwork (even the electronic kind!). And I’m yet to find a person who jumps up and down with excitement about paying taxes.

Let’s just say both are a necessary evil of investing and wealth-building in a healthy society. Here’s a few simple tips for dealing with this aspect of share investing.

Record keeping. Firstly, ensure that your Pearler account is connected to Sharesight so that all transactions are recorded automatically. This will give you access to some very handy features, such as a taxable income report, as well as a capital gains report if you sold anything.

Both are incredibly useful if you’re like me and would rather not keep a spreadsheet with all this information! Having said that, some kind of backup is still sensible. For this reason, it’s a good idea to create an email folder for all your share transaction statements that come through after you’ve bought or sold, as well as your dividend statements.

Taxes. Luckily, this is much easier than it used to be (for whoever is doing your tax return). If you wait a couple of months after the financial year ends, the ATO has typically already received most (if not all) of your dividend income information.

This means it’s simply a case of checking it matches your Sharesight report, and adding in what’s missing. If you use an accountant, simply send or print off the report for them to work from.

As for deductions, you’re typically able to claim portions of your phone and internet costs. You should also be able to claim a few other fees incurred as part of earning investment income and managing the portfolio. You can find information on deductions for share investing on the ATO website.

By the way, let’s clarify something for new investors: all dividend income and franking credits must be reported. This is true regardless of whether you reinvest your dividends or not. Even though you didn’t ‘receive’ the dividends, you don’t get out of paying taxes just because you reinvested those payments!

Final thoughts

We’ve covered a bit of ground in this article: when to invest, different investing frequencies, balancing different holdings, and administration.

As you can see, once we break it down it’s not all that complicated. I hope you now have greater confidence to move forward and manage your own portfolio 🙂

If you’re still not sure of something, feel free to leave a comment below. And while we can’t give personal advice, we will collect general questions and add them to a future Q&A post for the benefit of all fellow investors.

Until next time, happy investing!