If you’re wondering how you can invest in the stock market as a beginner in Australia, you’re at the right place.
Stock investing is one of the age-long wealth-building strategies you can leverage to better your financial condition. The easy access to technology has made this even better, as you can be a full-time stock investor right from the comfort of your home.
However, as one of the investments with a high return potential, stocks also have a high level of risk. Without adequate information, you might end up losing your capital and even going into debt.
This article discusses how you can invest in the stock market as a beginner in Australia. But before then …
What is Stock Investing?
Stock investing, or equity investing, is the act of buying and owning the shares of publicly traded companies with the expectation of earning a return on the investment (ROI).
When you buy the shares of a company, you become a partial owner of the company. As an owner, you share in the profit and loss of the company. That’s why your returns are directly tied to the company’s performance and profitability.
How Does the Stock Market Work?
The stock market is a marketplace where investors buy and sell shares of publicly traded companies. When companies need money, they can go to the stock market to seek investors. In exchange for the funds received, they issue shares (units of their equity) to the investors.
Stocks are bought and sold on stock exchanges, which are organized marketplaces where sellers and buys come together to trade securities. The sellers are the companies, while the buyers are the investors.
Investors trade stocks on stock exchanges through brokerage firms, which are third-party firms licensed by the Australian Securities and Investments Commission.
Stock prices are determined by the forces of demand and supply in the market. That means, the higher the demand for a stock, the higher the price. The demands for stocks are mainly influenced by the company’s performance, economic conditions, industry trends, and investor sentiments.
Now that you know what stocks are and how the stock market is, let’s understand how to invest in the stock market.
How to Invest in the Stock Market as a Beginner in Australia
Here’s a step-by-step guide you can use to invest in the Australian stock market as a beginner:
Educate Yourself
Stock investing is complex and requires you to be well-informed before diving right into it. Therefore, before you start investing, take your time to understand how the stock market works and the various investment options available to you.
Understanding the key concepts in stock investing, such as stocks, bonds, ETFs, risk management, portfolio diversification, etc., is essential for successfully navigating stock investing.
The Australian Securities Exchange (ASX) is the major stock exchange in Australia and offers investments in many securities, including stocks, bonds, ETFs, etc.
Be Financially Prepared
Like every investment, stock investing is risky. You can lose all your money if you put it in the wrong asset. Also, research has shown that stocks are more profitable in the long term.
Therefore, you must ensure that you have the resources to go into stock investing and the patience to wait for a bountiful return.
To enable your investment to work effectively for you, ensure you get rid of your high-interest debts first and have enough funds set aside for emergencies.
Set Clear Investment Goals
Once you’re sure you have the financial capacity to do stock investing, outline your investment goals. These are the core reasons you’re investing. It could be to save for retirement, buy a house, get an education, or simply grow your wealth.
Your investment goals are essential for helping you determine your investment strategy and risk tolerance. For example, if you’re investing to buy a house in two years, you’ll be less likely to take as much risk as someone who’s investing to increase their wealth in the long run.
Similarly, someone who’s investing to have a regular income will most likely have a portfolio of dividend stocks rather than growth stocks.
Determine How Much You Need to Invest
As stated earlier, stock investing requires sufficient funds and time to give desired returns. But it’s essential to start small, from what you can afford to forego for a long while. It’s a wrong investment practice to invest money you’ll need in the next few months or years.
Therefore, you must first set aside the funds you need for immediate use. This might be your mortgage funds, tuition fees, wedding, or any other funds you’ll need within two to five years.
The reason you should only use money you don’t need in the short term is that stock investing is a long-term game. The stock market is usually unstable in the short term, as you can see stocks have a drop of 15 to 25% in a year.
Open a Brokerage Account
Once you’ve determined how much you want to invest, the next step is to open an account with a brokerage firm in Australia. There are many of them, from Interactive Brokers to CMC Markets, Plus500, AvaTrade, Pepperstone, etc.
Choose a broker that offers low fees, a user-friendly platform, and access to a wide range of investment options. Also, consider brokers that offer extensive research tools to help you understand the companies you’re investing in.
Choose Your Investments
After you’ve chosen a broker, decide on the types of investments you want in your portfolio. You can invest in individual stocks, exchange-traded funds (ETFs), managed funds, or a combination of them.
As a beginner, you might be tempted to put all your funds in trending high-growth shares in the market. While that looks like a promising way to build wealth, it’s usually advisable to start with less risky, diversified assets like ETFs. This enables you to grow at your pace while studying your risk tolerance.
Begin Investing
Once you’re sure of the investments you want your portfolio to be made up of, you can start placing your trades.
Start with small amounts and gradually increase your investments as you gain confidence and experience.
Monitor and Rebalance Your Portfolio
Regularly review your investments to ensure they align with your risk tolerance and the investment goals you set above. Rebalance your portfolio, if necessary, by buying or selling assets to maintain your desired asset allocation.
Conclusion
Stock investing is a high-risk, high-reward investment. You can multiply your investment within a given time. But chances are you can lose your capital.
Therefore, it’s essential you do extensive research, diversify your investments, and invest only the amount you can afford to lose. Also, start small, be patient, and focus on the long-term growth of your investment.
Hopefully, this article has given you insights on how best to invest in the stock market as a beginner in Australia.
