It’s time to cut through the noise.

Do you want to invest in shares?

Do you want to invest for 10+ years?

And do you want to avoid spending hours managing your portfolio or thousands on professional investment management fees?

If so, you sound like an everyday Australian.

And the right way for everyday Australians who want to invest by this metric is incremental amounts in diversified portfolios for the long term.

What does this mean? I’ll tell you.

First, for legal reasons, I need to make it explicitly clear that this advice does not take your personal financial situation into account. You have financial circumstances and goals that are specific to you – just like your health.

However, just like health, >90% of everyday Australians can achieve >90% of the results by doing the 10% of things that really matter.

When it comes to long-term investing, two things really matter:

1. Incremental investing
2. Diversified portfolios

It doesn’t really matter what broker you use; which shares or ETFs you’re invested in; or how big your investment amounts are. You can get everything else wrong, but if you get these two right, you’re going to get great long-term investing results.

So, what are they?

1. Incremental investing

Incremental investing involves making new investments on a regular, consistent basis (and not selling old ones on a whim!).

It’s as simple as that. It’s also as hard as that.

To do this correctly, you need to invest on the exact day of the week / month you planned, regardless of what the share market is doing.

In other words, you need to IGNORE THE NOISE. And keep ignoring it for 10+ years!

And you need to keep investing the same amount each time over 10+ years (or the same percentage of your income).

This way, you’re investing no matter what the market is doing.

Time in the market beats timing the market. And by doing this, you’re also dollar-cost averaging – a proven long-term investing strategy.

2. Diversified portfolios

A diversified portfolio essentially involves spreading your investment money across different types of assets and investments within each asset class.

As the saying goes: “don’t put all your eggs in one basket”. Diversified portfolios are portfolios that do exactly that.

There isn’t any universally accepted threshold for “sufficient diversification”, but two common rules of thumb are:

1. The 5-10-20 Rule : This rule suggests that no single stock should represent more than 5% of your portfolio, no industry should make up more than 10%, and no asset class should comprise more than 20%. This helps ensure that your portfolio isn't overly reliant on the performance of a single company, industry, or asset class.
2. Number of shares : For share portfolios, holding at least 15-20 different shares across various sectors can be a good benchmark for diversification. More may be better, but the marginal benefit tends to diminish after around 20-30 shares.
   

To diversify correctly, your incremental investments need to be continually spread evenly throughout your diversified portfolio in a systematic way.

You can’t own lots of assets but then only continue to invest in one asset – that’s not true diversification.

You have two options available to you:

1. Spread each incremental investment across all of the assets in your portfolio
2. Systematically top-up each asset in your portfolio over time (e.g. every new month invest in a different asset until you’ve invested in all assets in your portfolio, then start over)
   

Now, for many investors (ourselves included), this process can sound like…a lot of work. This is where our next two tools enter the picture.

ETFs: a tried and tested tool for diversification

If you own 20 individual shares, you need to be investing at least $10,000 per month to deliver option 1 (ASX min. investment is $500).

Alternatively, if you were to invest in one share per month for 20 months, it would almost take you two years to finish investing in all 20 shares and restart the cycle.

Therefore, for most Everyday Australians, investing directly in individual shares isn’t the best way to invest for the long-term.

Enter exchange-traded funds (ETFs) .

An ETF is an investment fund and exchange-traded product that pools money from multiple investors to purchase a diversified portfolio of assets, including stocks, bonds, or other securities. Unlike traditional mutual funds, ETFs are traded on stock exchanges throughout the day, offering liquidity and flexibility to investors.

By investing in one ETF, your investment is spread across 10’s, 100’s or sometimes even 1000’s of individual assets.

To create a diversified portfolio that you can easily incrementally invest in, you can simply select a handful of popular ETFs that are focused on different geographies and/or asset classes.

Alternatively, you could simplify everything further and invest in a single diversified ETF (or two), which are ETFs that invest in other ETFs. This can potentially create a sufficiently diversified portfolio in a single security.

Automate: a simplified way to regularly invest

Creating a diversified portfolio is the easy part.

The hard part is continuing to invest incrementally on a consistent basis for 10+ years. Down to the exact day of the week or month if you can.

There’s so much market noise, particularly in market downturns. And sometimes life gets busy and it’s easy to forget or delay, and before you know it another month has passed. It takes a lot of effort to get this right without a dependable, low-effort system to streamline incremental investments.

How can you create this system?

Firstly, figure out when you want to invest. The most popular and one of the easiest to execute strategies is to invest a fixed amount each time you get paid.

Then once you’ve done this, find a long-term focused investing platform that gives you the ability to set up investment automations.

For example, let’s say you get paid fortnightly, and you want to allocate $500 to investments every time you get paid, but only want to “invest” in $1,000 increments. Using Pearler's Automate feature , you can arrange $500 to be transferred to your Pearler account every fortnight and then for your Pearler cash balance to be invested once it reaches $1,000. There are lots of other ways you can automate too.

But what if I pick stocks? Won’t that earn me more money?

The table below is from the latest S&P Indives Versus Active (SPIVA) Report, which compares stock market indices (which ETFs track) with the performance of active fund managers across different asset classes.

Over a 15-year period:

• 81% of Australian equity active funds were outperformed by the index
• 95% of international equity active funds were outperformed by the index
• 82% of Australian real-estate investment trusts were outperformed by the index
  

In summary, professional investors, whose job it is to analyse and evaluate investments, consistently underperform index and exchange-traded funds (ETFs) on average.

So, if the vast majority of professionals underperform the index, do you really think you can?

Better off spending that extra time and effort on doing the things you love – or earning more and investing it in ETFs!

I hope this article helps, and happy investing

Kurt