Thinking about buying shares in Australia but not sure where to start? It can seem a bit daunting at first, with all the talk about markets and brokers. But honestly, it’s more accessible than you might think. This guide is here to break down the basics of how to buy shares in Australia, making it easier for you to get your head around it. We’ll cover what shares actually are, how you can potentially make money, and what you need to do to get your investment journey rolling.
Key Takeaways
- A share is just a small piece of ownership in a company listed on the Australian Securities Exchange (ASX).
- You can make money from shares if their price goes up (capital growth) or through dividends, which are parts of a company’s profits.
- You’ll need to use a broker, which is a third party, to buy or sell shares on the exchange.
- Before you start, figure out your investment goals and how much you’re comfortable putting in, remembering that share investing carries risks.
- Educate yourself about the market and different types of investments, like individual shares or Exchange Traded Products (ETPs), to make informed decisions.
Understanding The Basics Of Buying Shares In Australia
So, you’re thinking about buying shares in Australia? That’s a big step, and it’s smart to get a handle on the basics before you jump in. Let’s break it down.
What Exactly Is A Share?
Think of a share as a tiny slice of ownership in a company. When you buy a share, you’re essentially becoming a part-owner of that business. Companies like Commonwealth Bank (CBA) or Woolworths (WOW) are listed on the Australian Securities Exchange (ASX), which is our main stock market. There are over 2,000 companies on the ASX, so there’s a lot to choose from. Owning even one share means you own a small piece of that company.
How Do You Make Money From Shares?
There are generally two ways people aim to profit from shares:
- Capital Growth: This is when you buy shares at a certain price and then sell them later for a higher price. The difference is your profit. Of course, the opposite can happen – if the price drops, you could lose money when you sell.
- Dividends: Some companies share a portion of their profits with their shareholders. These payments, called dividends, are usually made a couple of times a year. Not all companies pay them, but it’s a nice bonus if they do.
Is Investing In Shares Safer Than A Savings Account?
It’s true that money in a savings account or term deposit is generally considered safer. Banks are pretty reliable, and your money is usually protected. However, savings accounts typically offer much lower returns compared to what you could potentially earn by investing in shares. Shares come with more risk, but they also offer the chance for your money to grow more significantly over time. It’s a trade-off between security and potential growth.
Deciding how much you’re willing to invest is a big part of this. You don’t want to put money into shares that you might need in the short term. Thinking about your investment goals and how long you plan to stay invested is really important. For beginners, starting with a smaller amount you’re comfortable with is often a good idea. You can always add more later as you get more confident.
When you’re ready to actually buy or sell shares, you’ll need a middleman. This is where a brokerage account comes in. They’re the ones who can actually access the stock exchange and make trades on your behalf. We’ll get into that more later.
Getting Started With Your Share Investment Journey
So, you’re thinking about buying shares? That’s a big step, and it’s smart to get a bit of a plan together before you dive in. It’s not just about picking a company name you like; there’s a bit more to it.
Defining Your Investment Goals
First things first, why are you doing this? Are you saving for a house deposit in five years? Wanting to boost your retirement fund? Or maybe just looking to grow some extra cash on the side? Knowing your ‘why’ is super important because it shapes everything else. If you need the money in a year, shares might not be the best bet. But if you’re playing the long game, say 10 years or more, then shares can be a great option. Think about:
- Time Horizon: How long can you leave your money invested?
- Financial Goals: What are you saving for specifically?
- Risk Tolerance: How much of a dip in value can you stomach without panicking?
Understanding how much you’re willing to risk is a big part of setting realistic goals. Not all investments are created equal, and some will bounce around more than others. It’s about finding that sweet spot where you feel comfortable with the potential ups and downs.
How To Educate Yourself About Investing
Don’t just wing it! There’s a heap of information out there to help you get your head around investing. You don’t need a finance degree, but a bit of homework goes a long way. Check out resources from the ASX (that’s the Australian Securities Exchange) or government sites like MoneySmart. They break down things like economic news, interest rates, and how government policies can affect companies. Even looking at companies you know and understand can be a good starting point. Think about:
- Company Basics: What does the company actually do?
- Future Demand: Will people still want their products or services in a few years?
- Competition: Who else is doing something similar, and how are they doing?
Determining Your Initial Investment Amount
This is where things get practical. How much cash are you actually going to put in? A lot of brokers have a minimum for your first trade, often around $500, sometimes referred to as a ‘minimum marketable parcel’. The ASX generally suggests starting with at least $2,000 if you can. But here’s the thing: if you’re only investing a small amount, the fees can eat into your returns pretty quickly. For example, if you have a $10 brokerage fee and you invest $500, that’s 2% gone straight away. If you invest $5,000, that same $10 fee is only 0.2%. So, while starting small is fine, be aware of how those costs add up. Some platforms, like CommSec Pocket, let you start with as little as $50 in specific ETFs, which can be a good way to dip your toes in.
Navigating The Australian Share Market
So, you’re ready to dip your toes into buying shares on the Australian Securities Exchange (ASX). It’s a big place, with over 2,000 companies listed, from the big banks to mining giants and everything in between. It can feel a bit overwhelming at first, but breaking it down makes it much more manageable. Think of it like exploring a new suburb – you wouldn’t just wander aimlessly, right? You’d look at a map, figure out where the shops are, maybe find a nice park. The share market is similar.
Understanding Different Types Of Investments
When you look at the ASX, it’s not just about buying a single share of, say, Commonwealth Bank. There are a few different ways you can put your money to work:
- Individual Shares: This is what most people think of first. You buy a piece of a specific company, like Woolworths or Rio Tinto. You become a part-owner, and your fortunes are tied directly to that company’s performance.
- Exchange Traded Products (ETPs): These are like a basket of shares. Instead of picking one company, you can buy into a bundle that tracks a specific industry (like tech or healthcare) or a whole index (like the ASX 200). ETFs are the most common type of ETP.
- Managed Funds: Here, a professional fund manager pools money from lots of investors and buys a mix of assets – shares, bonds, property, you name it. It’s a way to get diversification without having to pick everything yourself.
- Bonds: These are essentially loans you give to a company or government. They pay you regular interest, and you get your original loan amount back when the bond matures. They’re generally seen as less risky than shares.
How To Choose Which Shares To Buy
This is where it gets interesting, and honestly, a bit personal. There’s no magic formula, but a good starting point is to look at companies you actually know or use. Do you shop at Coles? Use Telstra? That familiarity can be a good anchor.
Here are a few things to consider:
- Your Goals: Are you looking for steady income from dividends, or are you hoping for big growth over the long term? This will shape what kind of companies you look for.
- Company Performance: Have a peek at their recent financial reports. Are they making money? Are their sales growing? You don’t need to be an accountant, but a quick look at the basics can tell you a lot.
- Industry Trends: Is the industry the company is in growing or shrinking? For example, renewable energy is a growing sector, while some traditional industries might be facing challenges.
It’s easy to get caught up in the hype of a ‘hot’ stock, but remember that most successful investing is about patience and picking solid businesses, not just chasing quick wins. Think long-term.
What To Look For In A Company’s Future Outlook
When you’re trying to figure out if a company has good prospects, you’re basically trying to predict what might happen down the track. This involves a bit of detective work.
- Management Quality: Who’s running the show? Do they have a good track record? A strong, experienced management team can make a big difference.
- Competitive Advantage: What makes this company stand out from its rivals? Do they have a unique product, a strong brand, or some other edge that’s hard for others to copy?
- Growth Potential: Is there room for this company to get bigger? Are they expanding into new markets, developing new products, or benefiting from broader economic trends?
It’s a bit like looking at a plant. You want to see strong roots (the company’s current performance), a healthy stem (good management), and signs of new growth (future potential). Don’t forget that even the best-laid plans can go awry, so diversification across different companies and industries is always a smart move.
The Role Of A Broker In Buying Shares
So, you’ve decided you want to dip your toes into the share market. That’s great! But here’s the thing: you can’t just walk up to the Australian Securities Exchange (ASX) and buy shares directly. Nope, you need a middleman, and that’s where a broker comes in. Think of them as your ticket to the exchange floor.
Why You Need A Broker To Access The Exchange
Basically, only licensed brokers are allowed to place buy and sell orders on the official exchanges. They’ve got the systems and the permissions to actually make the trades happen. Without one, you’re on the outside looking in. Brokers act as the go-between, connecting you, the buyer or seller, with the other side of the deal. They often have access to fancy technology that helps them execute trades quickly and efficiently, which is pretty important when share prices can change in the blink of an eye.
Opening And Funding Your Brokerage Account
Getting started with a broker is usually pretty straightforward. Most will have an online application form you can fill out. They’ll need to verify your identity, which is standard practice these days. Once your account is approved, you’ll need to put some money into it. This is the cash you’ll use to buy your shares.
Here’s a general idea of how it works:
- Application: Fill out the online form. This usually includes personal details and identity verification.
- Approval: Wait for the broker to confirm your account is set up.
- Funding: Transfer money from your bank account into your new brokerage account.
How A Brokerage Account Functions
Once you’ve got funds in your account, you can start trading. You’ll typically use the broker’s online platform or app. This is where you’ll see the shares available, check prices, and place your orders. When you buy shares, they’re held within your brokerage account. Any dividends a company pays out will usually be deposited straight into this account too. It’s like a central hub for all your share investments. You can log in anytime to see how your investments are doing, check the value of your holdings, and manage your trades. It’s all about making the process as easy as possible for you to buy and sell.
Brokers charge fees for their services, so it’s important to understand what these are before you start trading. These costs can include brokerage fees per trade, and sometimes currency conversion fees if you’re trading international shares. Always check the fee schedule of your chosen broker.
Making Your First Share Trades
Alright, so you’ve done your homework, figured out your goals, and you’re ready to actually buy some shares. This is where things get real, and honestly, it’s not as complicated as it might sound. Think of it like this: you’ve got your shopping list, and now you’re heading to the market.
Investing Using A Share Trading Platform
Most of us won’t be walking onto the stock exchange floor ourselves – that’s what share trading platforms are for. These are basically online tools, often provided by your broker, that let you buy and sell shares from your computer or phone. You’ll log in, search for the company you want to invest in, and then place your order. It’s pretty straightforward once you get the hang of it. You can usually buy a specific number of shares, or decide on a dollar amount you want to invest, and the platform will sort out how many shares that gets you. Just remember, the price you see doesn’t include the fees, so keep that in mind.
Deciding How Much To Invest
This is a big one, and honestly, there’s no magic number. The ASX suggests starting with at least $2,000, but that might be a bit steep for some. Others, like CommSec Pocket, let you start with as little as $50 in specific Exchange Traded Funds (ETFs). The key thing is to only invest money you’re comfortable potentially losing. If you’re starting small, say $500, and your brokerage fee is $10, that’s 2% of your investment gone straight away. If you invest $5,000 and the fee is still $10, it’s only 0.2%. So, the less you invest, the bigger chunk those fees take.
Here’s a quick look at how fees can stack up:
| Investment Amount | Brokerage Fee | Percentage of Investment |
|---|---|---|
| $500 | $10 | 2.0% |
| $1,000 | $10 | 1.0% |
| $5,000 | $10 | 0.2% |
It’s really important to understand that the less you invest initially, the more those brokerage fees will eat into your returns. You need your investment to grow enough just to cover those costs before you even start making a profit.
Understanding Brokerage Fees And Costs
Speaking of fees, let’s break them down a bit more. Every time you buy or sell shares, you’ll pay a brokerage fee. This is how your broker gets paid for their service – connecting you to the stock exchange. These fees can vary quite a bit between different brokers. Some might charge a flat fee, while others might take a percentage of the transaction value. It’s worth shopping around and comparing these costs because they can significantly impact how much money you actually make, especially when you’re starting out. Don’t forget to also consider any other potential costs, like account keeping fees, though these are less common these days. Getting a handle on these costs upfront will help you avoid any nasty surprises down the track and make more informed decisions about your investments. You can find out more about how to invest effectively by checking out this guide.
Risks And Considerations When Buying Shares
Alright, so you’re thinking about buying shares. That’s great! But before you jump in, let’s have a real chat about the not-so-fun stuff. Investing in shares isn’t like putting money in a savings account where it’s pretty much guaranteed to be there. The market can be a bit of a rollercoaster, and you need to be prepared for that.
Understanding The Risks Of Share Market Volatility
Basically, share prices go up and down. It’s called volatility. Sometimes it’s because the whole economy is doing well, or maybe not so well. Other times, it’s just about what people think of a particular company. You could lose money if the price drops below what you paid for it. It’s not just about one company, either. Sometimes, big global events, like a natural disaster or a change in interest rates, can shake up the entire market, affecting even companies that are doing everything right. It’s a bit like a big ship – if the ocean gets rough, everything on board feels it.
What Is A Bull Market And A Bear Market?
You’ll hear these terms thrown around a lot. Think of it this way:
- Bull Market: This is when things are generally looking good. Share prices are climbing, people are feeling optimistic about the economy, and companies are often doing well. It’s usually defined as a period where the market has gone up by 20% or more from a recent low.
- Bear Market: This is the opposite. People are feeling a bit nervous, the economy might be slowing down, and share prices are generally falling. A bear market is typically when the market has dropped by 20% or more from a recent high.
Knowing these terms helps you understand the general mood of the market, but remember, even in a bull market, individual shares can still go down, and vice versa.
How Much Are You Willing To Lose?
This is probably the most important question you need to ask yourself. Before you even put a dollar into the share market, you need to figure out what you can afford to lose without it completely wrecking your life. Investing in shares is considered riskier than, say, a term deposit. If you’re investing a small amount, you might need a really big jump in share price just to cover the costs of buying and selling. On the flip side, if you invest more, you’re opening up more of your savings to that risk. It’s about being comfortable with the idea that the value of your investment could go down. Don’t invest money you need for rent next month or for your emergency fund. Seriously, only invest what you can genuinely afford to see decrease in value, or even disappear entirely.
So, Ready to Take the Plunge?
Getting started with buying shares in Australia might seem a bit daunting at first, but it’s really just about taking those first few steps. Remember, you don’t need a massive amount of cash to begin, and learning as you go is totally normal. Think about your goals, figure out what you’re comfortable risking, and do a bit of homework on companies that catch your eye. Whether you start small with a few shares or look into things like ETFs, the main thing is to get going. It’s your money, and giving it a chance to grow beyond a savings account is a smart move for your future.
Frequently Asked Questions
What exactly is a share, and how do I get one?
Think of a share as a tiny piece of a company. When you buy a share, you’re actually buying a little bit of ownership in that business. Companies like CBA or Woolworths are listed on the Australian Securities Exchange (ASX), which is like a big marketplace for buying and selling these ownership pieces. To buy or sell shares, you’ll need to use a helper called a ‘broker’.
How can I actually make money from owning shares?
There are two main ways you can make money. First, if the company does well, the price of your share might go up, and you can sell it for more than you paid for it. This is called ‘capital growth’. Second, some companies share their profits with their owners (shareholders) by paying out a bit of money, usually twice a year. These payments are called ‘dividends’.
Is putting my money in shares safer than a savings account?
Savings accounts are generally safer because your money is protected. However, shares can potentially offer better returns over time than a savings account. It’s a trade-off: shares have more risk, but also the chance for your money to grow more. Many people keep some money in savings for safety and invest the rest in shares for growth.
How much money do I need to start investing in shares?
It really depends on the broker and what you want to invest in. Some brokers might ask for a minimum of $500 for your first trade. However, some apps let you start with as little as $50. It’s important to remember that brokerage fees can make up a bigger chunk of your investment if you’re investing smaller amounts.
What’s the difference between a bull market and a bear market?
Imagine the market is like a mood. A ‘bull market’ is when people are feeling optimistic and confident about the economy, so stock prices are generally going up. A ‘bear market’ is the opposite – people are worried and cautious, so stock prices are usually falling. It’s important to know these terms because they can affect how your investments perform.
What should I look for when deciding which company shares to buy?
It’s a good idea to start with companies in industries you understand. Look at their past performance, but more importantly, think about their future. Will people still want their products or services down the track? Does the company have plans to grow? How does it stack up against its competitors? Checking out a company’s financial reports can also give you clues.
