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When it comes to investing, unfortunately, there’s no ‘one-size-fits-all’ approach. How you start investing also depends on your financial goals for the short and long term. Before you jump headfirst into choosing a company or sector to invest in, you need to do some research and weigh up the risks and benefits involved. If you’re new to investing, it’s important to reach out to a financial advisor before you start so you can discuss which strategy is right for you.
Let’s look at how to start investing in stocks in Australia.
How to start investing in stocks.
There are a few things to consider when investing for the first time, but most people are unsure where to begin.
Research: Investing is a big decision and one which shouldn’t be taken lightly. While there is great potential to earn money, there’s also the chance of losing money too, so it’s important to understand what you’re getting yourself into. Resources like the Australian Stock Exchange (ASX) website is a great place for information, including The Sharemarket Game which allows you to practice investing in stocks with fake money so you can get a feel for how it works. You can also turn to resources such as Moneysmart, Commbank and the Inovayt website.
Consider your goals: What financial goals do you have in mind both long and short-term? Do you have any outstanding debt? It’s worth clearing off any debt you have to give yourself the best chance to profit off the stock market. If you’re wanting to buy a house and are saving for a deposit, investing might not be the best option for you as it may be too much of a risk. If you’re not sure about what your financial goals are, but would like to have some put in place, it’s best to chat to a professional.
Talk to someone: To get a detailed understanding of how the stock market works, talking to a professional is a good way to go. They will be able to help you set up financial goals, guide you through how the process of investing in stocks works, and let you know which option is best for your situation.
Inovayt Financial Advisor Melbourne, Luke Mase, says, “When starting in the stock market, make sure you do your research, practice and start broadly before you start going into specific shares and strategies.”
What should I look for when it comes to finding a company to invest in?
When it comes to finding a company you’d like to invest in, there are a few things to consider. Choosing an industry to invest in is the first thing to think about. Are you wanting to invest in the healthcare industry, technology industry, or Fast-Moving Consumer Goods (FMCG) industry? There are many niche industries to choose from, however, it’s important to research each company in detail, no matter what sector they’re in.
Luke says, “Sector is always important – is it a ‘hot’ sector or a sector that’s going to grow? When looking specifically at companies, look at their revenues – are they making money? What’s their trend looking like? If you look back on the last 3-5 years and revenues are all the same, why aren’t they growing? Why are they stagnant? Are they in debt? These are all things to consider.”
When researching a company, you can find this information in the company announcements on their website.
“Annual or quarterly company reports will show debt positions, income positions and activities (such as major contract signings),” Luke says. He advises that there’s a lot of information to read and get your head around when choosing a company to invest in.
If you’re wanting to invest in multiple companies, it’s always a good idea to spread your portfolio around multiple sectors to lower your overall risk.
MoneySmart says, “By diversifying, you take advantage of each company's strengths. And you are better protected if one industry has a bad year. If a company fails, you lose only part of your investment, not your whole portfolio.”
What’s the best stock trading platform and how much should I invest to start with?
The best stock trading platform will vary based on your strategy and financial goals. For a platform that will offer some further advice, CommSec has a wealth of knowledge for beginner investors, including everything from how the stock market works, to what investments are right for you. Other platforms like SelfWealth offer cheap options at $9.50 a trade. This company allows you to create a free account, and then easily buy and sell shares. You can easily transfer money from your bank account to the app via BPAY to buy stocks, which you can manage via the app. Superhero is another brokerage trading platform where you can buy shares from $5.
Exchange-Traded Funds – or ETFs – are great ways to get your foot into the door of investing. An ETF is a managed fund that you can buy or sell on an exchange, like the ASX. They are ideal for beginners because they have a range of benefits including low expense ratios, abundant liquidity, a range of investment choices, diversification, low investment thresholds and more.
How much should I start investing with?
How much you should start to invest is entirely dependent on your situation and financial goals.
Luke says, “It depends on what your strategy is overall, but I recommend investing in what you’re comfortable with. It also depends on how risky you’re looking to go but start by dipping your toe in until you get an idea of how it all works. When your comfort levels are up, then you can branch out a little more.”
Talking to a finance professional will allow you to set up your financial goals which will then give you an idea of how you want to invest.
Investing in the stock market can be a rewarding opportunity when done correctly. It’s important to note, there’s always an element of risk when investing your money into something. Be sure to research thoroughly before jumping into the market and talk to one of our financial advisor professionals if you would like to get started in the stock market.
