Anyone can buy and sell shares, from absolute beginners to experienced investors. Don’t worry if you aren’t sure what investment products are available or the difference between stocks and funds.
We’ll share everything about asset management and how to buy and sell your shares.
The stock market is a volatile place, and you can end up losing a fair bit of money if you don’t know what you are doing. However, investing in the stock market is easier than you might think. All you need is a basic understanding and an online brokerage account to begin investing in your financial product. Read on to learn all you need to know about investing for beginners.
Let’s get to the following commonly asked questions:
Essentially, a share is a single component of an organisation, and buying a share means that you own a unit of that organisation. Companies sell shares listed on the Australian Securities Exchange (ASX), and you can buy local Australian shares or global shares that are listed investments. For example, a company with 10,000 shares worth $10 a share would have a market cap of $100,000. This means if you bought 100 shares, you would own 1% of that company.
You probably are already investing in shares, and your super retirement funds invest your contributions in stocks and shares. There are also many employee share schemes that you might be participating in that provide dividends or fully franked credits.
When you buy shares, you can make money when the share increases in price. Some shares may pay dividends (eg. AGL Energy, CommBank, Rio Tinto, etc), which will distribute a percentage of their businesses profits to shareholders.
If the share price falls, however, and you sell, then you may lose money. Depending on the amount of money you invest and the individual stocks you choose, this can be pretty risky.
If you’re a beginner investor, you might ask, “isn’t my money safer in a bank?” Yes, while the stock price can change, you might see more returns than you would in a bank.
Your money is safer in an Australian bank as banks protect depositors up to $250,000 per account-holder per authorised deposit-taking institution (ADI) in the event of an ADI failing as per the Financial Claims Scheme (FCS). However, there is also a risk of holding too much cash in a bank account.
That’s because the inflation rate is higher than the yield that you would get from a typical savings account, or fixed-term deposit. In short, this means if you keep your money saved in a bank account over an extended period of time, then you will lose purchasing power:
So, from a consumer inflation perspective, savers will lose 2% of purchasing power yearly; which doesn’t factor in things like shadow inflation — meaning that the “real terms” of this could be a lot higher.
Blue-chip stocks refer to shares in a reputable, well-established, reliable company and are relatively safer investments.
As investments don’t usually involve borrowing money, your credit score or credit card won’t be affected by investing in shares. Bad credit, similarly, shouldn’t prevent you from buying and selling shares.
To begin stock investing, you need to learn and understand the difference between types of stocks.
A stock mutual fund or exchange-traded fund is a type of investment that allows you to purchase many small sections of different stocks in a single transaction.
Index funds, exchange-traded funds (ETFs) or mutual funds that track an index. Multiple shares in various companies and industries allow you to create a diverse portfolio.
In a nutshell, an index fund is a portfolio of equities that track a financial index. Here are some of the most common types of indices:
Mutual funds are inherently diversified, an advantage that lessens your risk. Shares across multiple organisations may help to average out the poorer investments.
Individual stocks are single or multiple shares from one company. You can build a diverse portfolio by buying individual stocks, but it takes more investment than a mutual fund.
Note: Asset classes are types of shares that have certain similarities and behave similarly on the market. Some examples include stocks, bonds, cash, real estate, and commodities. This article focuses on stocks.
There are five simple steps to begin buying shares in Australia. Most beginners can buy or sell shares without the help of financial advisors. However, if you wish to invest a large sum of money or are unsure of the beginning, it might be a good idea to seek financial advice.
The first step to working out your investment strategy is to ask yourself: what do you want from investing in stocks? Knowing what you want and your goals are the most crucial part of investing, and they can help you set limits, which is essential for smart investing.
To begin, choose your investments wisely. There are several investment options to start your journey.
The first option is to manage your shares yourself. Self-managing shares involve researching, managing an investment account, and buying and selling shares.
You will need to choose the proper investment account (compare online different options) and online share trading platforms. There are trading courses to learn everything you need to know about investment and different trading platforms.
Here are some of the most popular self-managed exchanges among millennials:
The sign-up process is quite simple and easy. Just enter your personal information — and the exchange will undergo a KYC/AML check to verify your identity.
There are also plenty of apps that you can use to track your portfolio, such as:
The second option is to enlist a fund manager or discount broker who buys or sells the shares for you. Full-service brokers will use your money to invest in shares to meet your goals and charge a brokerage fee.
Important: Avoid penny stocks until you are more experienced. They are high risk; a lack of research and low liquidity can make them an unwise investment. A penny stock is a share that has a low market cap — but can have large upside potential.
Before you can invest in a stock, you need a brokerage account, and a trading account is a bank account specifically for your investment funds.
Just like your checking account, you can deposit and withdraw money from your investment account. Compare several accounts. Different banks offer various benefits and charge fees.
Investment accounts are good for long-term savings. The stock market is volatile, and you are unlikely to make a considerable return immediately.
It is best to treat the money in your investment account as savings. Over time, you will see the benefits of investing more clearly.
Decide how much you want to deposit in your investing account. You don’t want to get carried away buying and selling shares, so decide on a set amount that you can reasonably afford.
Carefully consider your personal finances, and you can invest as much or as little as you want. Some people pay a regular fixed income into their investment account; others invest a lump sum now and then.
If you’re working with stockbrokers, they will likely require a minimum investment. Rather than putting all of your eggs in one basket, it is better to diversify your risk by buying a few shares and splitting your capital between them.
For example, if you have $10,000, then this could be:
Market volatility means that you might initially lose money when buying stocks. As market prices go up and down, your shares and stocks will gain and lose money.
Sound investment strategies buy products when they’re low in value and sell when they’re high in value. Make sure you focus on your long-term wealth with your managed investments.
It is easy to lose hope at the first loss, and however, just as your investment product went down in value, it will likely go up again. An excellent idea to diversify your portfolio.
Shares and growth stock in multiple assets and organisations reduce the risk of losing all your money. By splitting your investment vehicles, you minimise the impact of market volatility. Ensure you focus on long-term gains and set your goals accordingly.
Make sure to learn more about capital gains tax. If you hold an asset for greater than a year, you may be eligible for the 50% capital gains tax discount.
Important: The top 1% rarely sell assets. Instead, they use those assets to get asset-backed loans to accumulate more assets — this serves as a mechanism to avoid paying capital gains tax and allows HNWIs to snowball their asset accumulation. The “never sell” investment strategy is often referred to as “buy, borrow, die,” whereby HNWIs borrow against their assets and never sell. Then, they pass this wealth on to their children. So, before you start investing, learn about the tax ramifications, create a strategy, and be sure to seek out financial advice.
You have now successfully set up your investment account and started buying and selling shares in funds and active ETFs. The next step is to keep track of your shares.
Stay on top of your fund performance and create investment strategies so you know when to buy or sell your shares. Revisit your investments a few times a year to ensure they are still consistent with your investment goals.
Invest money in a diversified portfolio to reduce the impact of market volatility. When you become experienced in trading stocks, diversifying will help you seek better long-term gains.
Note: If you are near retiring, it might be sensible to transfer a balance to more conservative, diverse shares. As you will be withdrawing your money soon, you want more stable investments.
Start investing in stocks whenever you are ready. If you have a set amount of money you wish to invest in Australian shares, you can start investing in shares today.
Don’t worry if you are still unsure about how to go about investment funds. There are many online brokers or brokers for beginners that are willing to give investment advice.
You can also begin investing through an investment manager, or use robo advisers (also known as micro-investing). Some of the most well-known micro-investing platforms in Australia include:
On top of that, there are also plenty of stock recommendation services that charge a fee that often range from $99 into the thousands, like:
And, if you’re into technical analysis, you can also use tools like TradingView (charting), Simply Wall St (a proprietary stock analysis that uses a visual summary to assess a stock based on 5 criteria).
Now you have read our beginner’s guide to buying and selling your shares, you are ready to begin. The first step is to decide whether you want to enlist the help of a portfolio manager or manage your investments yourself. Investing is simple and easy. Stick to focussing on your long-term goals, and you will soon be reaping the benefits.
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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.