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How to start investing as a sole trader

This article was written by our friends at Sharesies.The Sharesies platform is a wealth development platform with the purpose of creating financial empowerment for everyone. Sharesies’ vision is to give someone with $5 the same investment opportunities as someone with $5 million. You can invest on the Sharesies platform from as little as 1 cent in companies and funds listed in the AU, US, and NZ share markets. 

Being self-employed can be challenging—especially when you first start out. You’re hustling to get enough work to stay busy, you’re figuring out how much to charge, you’re trying to stay on top of the paperwork. Then, of course, there’s the actual work! 

It’s easy to get stuck in the day-to-day and forget to think about your future. So today, we’re going to talk about just that: how to “invest for future you”. It’s not about getting rich quick—you can go slow, and start investing no matter how much time or money you have (or how consistent your income is). Let’s get into it. 

Start small, then build

On the Sharesies platform, you can invest from as little as 1c. This means that you can start with a small, affordable amount just to get the lay of the land. As you get more confident, and as your business grows, you can start to increase that amount to suit you and learn as you go

No matter how much or how little you invest, if you invest for the long term, you might enjoy compound returns. This is when you leave your money invested and start to earn returns not just on your initial investment, but on the returns you make along the way. 

Over time, this can really add up—the key is when you start investing (as soon as possible!), not how much you start investing.

There are risks involved in investing though, and the share prices don’t always rise. 

Ride out the ups and downs with dollar-cost averaging

One way to ride out the ups and downs of the share market is through dollar-cost averaging. This is when you choose to invest a certain amount on a particular investment regularly, regardless of what the share price is. When prices are high, you’ll end up with fewer shares, but when prices are low, you’ll end up with more shares for your dollar. 

Rather than worrying about short-term fluctuations in the share price, dollar-cost averaging helps to smooth out the ups and downs over the long term. It’s not completely set-and-forget; you still need to check back in now and then. But it might be a suitable option for a time-poor sole trader than trying to buy and sell shares at the perfect moment.  

Automate, automate, automate

If you’re time poor, one way to manage your investments is by automating it. 

Hnry customers can automatically pay into their Sharesies Wallet  by setting up an Allocation in the Hnry app. You can set a fixed amount, or a percentage of each invoice to automatically be deposited into your Sharesies Wallet for you. 

If you set a fixed amount, you’ll have certainty, but if you set a percentage, your investment amount will grow with your income automatically. If you have a really good month, you’ll invest more that month; if you have a low-earning month, then you’ll protect your cash flow by paying less into your Allocations.  

Once the money is in your Sharesies Wallet, it’s ready to be invested. On the Sharesies platform, you can choose from over 8,000 companies and exchange-traded funds (ETFs) across Australia, the US, and NZ. 

Stay diversified

A key component of investing is diversification.  Investing involves risk and diversification is one way to try and mitigate this risk. This is basically the old adage “don’t put all your eggs in one basket.” Say you have $100 to invest. If you invest the entire $100 in one company, and that company goes under, then you’ve lost all your money. But if you invest $10 in each of 10 companies, and one of them goes under, then you’ve only lost $10. 

Diversification isn’t just investing in a bunch of companies—you can also spread your money across different geographic regions, sectors, and types of investments (shares, bonds, term deposits, etc.). You can also invest in ETFs, which spread your money across different investments depending on the ETF, giving you instant diversification.  

One more thing: don’t forget your emergency fund

An emergency fund is some cash in a bank account that you can tap into when unexpected things come up. This is something everyone should have, but it’s especially true when you’re a sole trader with unpredictable income.

As a sole trader, you need to prepare yourself for periods where you’re not earning. This probably isn’t news to you, but it’s worth mentioning because you don’t want to make the mistake of investing all of your excess money. If you want to invest, make sure you have some money put aside in a bank account for those slow months. Otherwise, you might have to withdraw from your investments and potentially miss out on gains, or perhaps lock in losses (by selling earlier than you intended).   

Time to get started

Your first steps are super easy: if you haven’t already, open accounts with both Hnry and the Sharesies platform. Connect them through the allocations in Hnry, then wait for your first invoice to get paid. Once it does, choose some things to invest in, and get underway; don’t forget to check back in every now and again to see how things are going!  

Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. Sharesies AU Pty Limited (ACN 646 197 122, Corporate Authorised Representative No. 1284794) is an authorised representative of Sanlam Private Wealth Pty Ltd (Australia Financial Services Licence No. 337927). Sharesies AU Pty Limited introduces interested people to the investment Service provided by Sharesies Limited (NZ). We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.

DISCLAIMER: The information on our website is for general educational purposes only. It doesn't cover all situations and circumstances, and shouldn't be taken as direct tax advice. If you're looking for specific help with your taxes, join Hnry and our team of experts can provide you with assistance tailored to your business needs.

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