The world we live in is drastically different from five years ago, and it continues to change. After the pandemic’s peak in March of 2020 – there was a spike in young Australians looking to invest their money into stocks. But around 64 per cent of those adults didn’t know how investments worked nor how to get started. So we’ve put together a beginners’ guide to investing for those who want to get started.
The key takeaways:
- It would be best if you used a broker to buy shares (either an online broker or a full-service broker)
- Diversify your shares
- Research, research, research before investing
- Think about the risks and goals you have
- $500 is the minimum share you can buy
Why
If you start investing in your twenties – no matter the amount, you have time on your side to grow that money, thanks to compounding interest. This interest is calculated on the initial principal – which includes the accumulated interest from the previous periods. It is then calculated by multiplying the initial principal amount by one + the annual interest rate raised to the number of compound periods. The number of compound periods makes a significant difference in the total interest per annum.
Before you Invest
There are a few things to look at before diving into the world of investments. Take a look at your debts (not including student debt) like credit cards and personal loans; are they in good shape? If not, work on them first. Take care of any interest you need to pay for these before you can begin earning interest from your investments.
Amount
You don’t need to be swimming in money to start investing – this is a common misconception. But if you have some spare cash and are interested in learning how it works – it’s worth a shot. You need $500 as your minimum investment in the Australian share market. The Australian Securities Exchange (ASX) has to cover administration costs.
Where
If you’re unsure of where to start – get in touch with us today to simplify this process. Whether or not you decide to have a financial planner step in, it’s still essential to understand your investment options before diving in. There are four main areas in which you can invest your money: Shares, Managed Funds, Exchange Trade Funds and Superannuation.
Starting
You can’t go up to a company and ask to buy some of their stock – so you need to utilise an authorised broker. You can choose from a full-service broker who can advise you on what shares to buy and then buy/sell these for you. Or you could use an online broker (on platforms like CommSec, CMC etc.) who will charge a smaller fee, but you are in charge of all decisions and risks.
Some organisations run an employee share scheme – where employees have the opportunity to buy shares in the company they work at, usually with a discounted (or no) fee.
Research
It pays to do your research instead of blinding picking when it comes to investing. As your deciding which investment avenue to invest in, try and think about why you’re investing, if it matches your investment goals and is worth any potential risk.
A good starting point is to invest in a company you already know and are interested in. Whether that’s your employer, an industry you’re interested in, or a manufacturer of a product you love – these are the starting point for your research.
Read up on the investor sections of these company websites and their annual reports to see how they are performing (e.g. financial returns, meeting targets etc.).
Diving headfirst into investing can be daunting for a first-time investor – but it’s never too early to start. You shouldn’t rush into any decisions blindly; take your time and think over all your options before committing to anything. Don’t be frightened by fluctuations in the market – they come and go, but the longer you’re in the market, the better off you’ll be.
We recommend consulting with a financial expert to go over your circumstances to receive some advice specific to your situation before you invest. If you’re curious to know more – book your 30-minute consultation today.
