Lexi Webster
Investing in shares is a great way to increase your wealth over the long term. In Australia, there are over 2,000 companies listed on the Australian Securities Exchange (ASX) to choose from, ranging from large, well-established companies to early-stage companies across various sectors. Before investing, it's important to understand the basics, assess your financial situation and goals, and decide on your risk tolerance. You can choose to invest a fixed amount of money or purchase a specific number of shares, and you'll need to use a broker to access the ASX. Brokers charge fees for their services, so it's essential to consider these costs when deciding how much to invest and which shares to buy. With the right knowledge and strategy, investing in shares can be a rewarding way to build your wealth.
| Characteristics | Values |
|---|---|
| Number of shares to buy | You can choose the number of shares you want to buy in a company or fund, or decide on a fixed amount of money to invest. |
| Brokerage fees | Brokerage fees vary by broker and should be considered when making investment decisions. |
| Brokerage account | You need to open a brokerage account with a provider like CommSec or nabtrade. |
| Investment goals | You should determine your financial goals and investment approach before investing. |
| Risk tolerance | Assess your risk tolerance and decide how much money you are willing to lose. |
| Investment timeframe | Consider your age and investment timeframe. |
| Diversification | Diversify your portfolio by spreading your investments across industry sectors to lower your risk. |
| Market knowledge | Educate yourself about the economy, interest rates, exchange rates, and government policies, and understand how these factors may affect a company's performance. |
| Financial stability | Ensure your financial stability by paying off high-interest debts and building an emergency fund before investing. |
| Dividends | You can reinvest dividends to buy more shares or withdraw them at any time. |
| Minimum deposit | The minimum deposit required varies depending on the payment method, ranging from $10 to $100. |
| Withdrawal | You can withdraw money from your share trading account at any time without any fees. |
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What You'll Learn
Understanding the basics of investing
Investment Options
When investing in shares, you have two main choices: purchasing a specific number of shares in a company or fund, or deciding on a fixed amount of money to invest. For instance, if a stock is valued at $0.50 per share, you could opt for 100 shares worth $50, or invest $250 to receive 500 shares. Remember that brokerage fees charged by the broker will be additional to the share price.
Brokerage Accounts
To buy or sell shares, you need to use a 'broker' or a third party that facilitates the transaction. You can choose between a full-service broker, who provides financial advice and assists in buying and selling, or an online broking service, where you make your own investment decisions at a lower cost. Brokers charge a fee per transaction, which is typically a percentage of the trade value.
Risk and Returns
Investing in shares is a way to build wealth over time, but it comes with inherent risks. It is crucial to understand your risk tolerance and financial goals before investing. Assess whether you are comfortable with potential losses and volatile share price movements, or if you prefer a more stable, long-term approach. Ensure you are financially stable and free of high-interest debt before investing, as it is often a long-term commitment.
Diversification
Diversifying your portfolio is a strategy to mitigate risk. This involves spreading your investments across different sectors and companies, so that a loss in one area does not significantly impact your overall gains. The Australian Securities Exchange (ASX) offers a wide range of investment options, including shares, bonds, ETFs, and managed funds, allowing investors to build a diversified portfolio.
Research and Education
It is important to educate yourself about the economy, interest rates, exchange rates, and government policies, and how these factors influence company performance. Stay updated on economic and financial market changes, and research companies before investing. The ASX education centre provides valuable resources for beginners, including online seminars.
Understanding these fundamental concepts is a great starting point for investing in shares. It is important to remember that investing carries risks, and seeking professional financial advice is recommended before making any investment decisions.
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Choosing a broker
When investing in shares in Australia, you will need to use a third party, known as a 'broker', to conduct the actual transaction of buying or selling shares. A broker acts as the middleman between buyers and sellers of shares. They often have high-performing technologies available to them that enable investors to get exposure to a variety of shares, for which they charge a fee.
There are two main types of brokers: an online broking service or a full-service broker. Online broking services tend to have lower fees as you make your own investment decisions, whereas a full-service broker can provide you with professional financial advice and help assess your current financial situation and set your financial goals, but they charge a percentage of the value of a trade.
When choosing a broker, you should consider your investment goals and your risk appetite. Your age and investment timeframe may affect your decisions. You should also be aware of brokerage fees and start with a small investment while understanding the risk. The less you invest, the more fees will be as a percentage of your total investment. For example, if brokerage costs you $5 and you buy $600 of shares, brokerage will represent just over 0.8% of your investment. However, if brokerage costs you $19.95 and you buy $5,000 worth of shares, brokerage will represent 0.4% of your investment.
You can open a brokerage account with a provider like CommSec or nabtrade. IG and Commonwealth Bank of Australia (CBA) also offer brokerage services.
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Assessing your risk tolerance
- Personality: Are you generally a risk-taker or more cautious? If large swings in the value of your portfolio are likely to make you anxious, you may want to stick to more conservative investments. On the other hand, if you're comfortable with taking on higher risks for the potential of greater returns, you may be more open to volatile investments.
- Financial goals: Why are you investing? If you're investing for a specific goal, such as saving for a house deposit or your children's education, you may have a lower risk tolerance. In this case, preserving your capital and achieving steady, predictable returns may be more important than chasing high-risk, high-reward investments.
- Time horizon: How long do you plan to invest for? Generally, investing in shares is most suitable for long-term goals. The longer your time horizon, the more time your investments have to recover from any short-term losses, and the less impact short-term market fluctuations will have on your overall returns.
- Financial situation: It's important to assess your current financial situation and ensure you have a stable financial foundation before investing. Consider paying off any high-interest debts and building an emergency fund to cover unexpected expenses. That way, you won't be forced to sell your investments at a loss if you encounter financial difficulties.
- Diversification: Diversifying your portfolio can help manage risk. By spreading your investments across different companies, industries, and asset classes, you can reduce the impact of any single investment loss. However, diversification may not always eliminate risks, so it's important to understand the specific risks associated with each investment.
- Risk management strategies: Consider implementing risk management strategies such as setting stop-loss orders, which involve committing to sell a stock if it falls below a certain price. This can help limit potential losses. Additionally, regularly reviewing and rebalancing your portfolio can ensure your investments remain aligned with your risk tolerance and financial goals.
Remember, investing in shares always carries some level of risk, and there are no guarantees of profits. It's essential to educate yourself, understand the risks involved, and assess your financial situation and goals before investing.
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Setting up a brokerage account
When choosing a broker, it's important to consider their reputation and whether they have the necessary licenses and registrations. Only registered brokers can access the Australian Securities Exchange (ASX) and execute trades. You can verify their registrations and licenses through the Australian Securities and Investments Commission (ASIC).
Once you've chosen a broker, you'll need to open an online trading account with them. This will require providing personal and financial information, and setting up a funding method such as a debit or credit card, Apple Pay, PayPal account, or BPAY. Different brokers may have different requirements and options for funding your account, so be sure to review their policies carefully.
After your account is set up, you'll be able to start investing in shares. It's important to remember that there are risks involved in share investing, and the value of your shares can go down as well as up. It's recommended to only invest money that you are willing to lose, and to diversify your portfolio to manage risk.
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Managing your portfolio
Understanding Risk and Setting Limits
Before investing, it's crucial to assess your risk tolerance. Are you comfortable with potential share price fluctuations, or would you prefer a more stable but potentially slower-growth investment? Your age, financial goals, and investment timeframe should all be considered when determining your risk appetite. Decide how much of your invested money you are willing to lose and set a limit. If a company's share price falls below this limit, commit to selling those shares to minimise potential losses.
Diversification
Diversifying your portfolio is a fundamental strategy to manage risk. Spread your investments across different industry sectors and companies at varying stages of growth. The Australian Securities Exchange (ASX) offers a wide range of investment options, including shares, bonds, ETFs, and managed funds. You can also invest in Exchange-Traded Funds (ETFs) that track market indices to gain exposure to specific markets or sectors.
Keeping Up-to-Date and Monitoring Performance
Stay informed about economic and financial market changes. Keep an eye on broader market trends and specific sectors you're invested in. Set up company alerts and regularly review your shares' performance. Utilise resources like real-time news, expert analyses, and stock research to make informed decisions.
Reinvesting Dividends
Any dividends or profits from your investments will be paid into your share trading account. You can choose to reinvest these dividends to compound your returns and accelerate wealth accumulation.
Brokerage Fees and Minimum Investments
Be mindful of brokerage fees associated with each transaction. These fees can impact your overall returns, especially when investing smaller amounts. Some platforms have minimum deposit requirements, so ensure you understand the fee structure before committing.
Seeking Professional Advice
If needed, don't hesitate to seek professional advice from a broker, accountant, or financial adviser. They can provide valuable insights and guidance tailored to your financial goals and risk tolerance.
Remember, managing your portfolio is an ongoing process that requires regular monitoring and adjustments to align with your investment strategy and financial objectives.
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Frequently asked questions
You can start by opening a brokerage account with a provider like CommSec or nabtrade. You will need to fund your account, and the minimum deposit required varies depending on the funding method. For example, the minimum deposit is $100 for credit/debit card, Apple Pay, and PayPal, while it is $10 for BPAY.
It is important to assess your financial goals, risk tolerance, and investment timeframe. You should also ensure that you are financially stable and do not carry any high-interest debt.
You can visit the Australian Securities Exchange (ASX) education centre for information and online seminars. The ASX website also has a share investing education section. Additionally, the CommBank app offers bite-sized learning and tips through its "Investing hub" feature.
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