Latest News

How to Invest in the Stock Market for Beginners

The first stock exchange in Australia was established in 1861, when Melbourne became the inaugural city to establish one, a decade after the official start of the Gold Rush. Such was its success that within 28 years, Sydney, Hobart, Brisbane, Adelaide, and Perth had all followed suit.

Since then, millions of Aussies have invested in the stock market, many of which have made a tidy sum from the venture.

If you are interested in trying to grow some wealth through stocks and shares, you might not be aware of how to go about doing so.

But don’t worry, we’ve got you covered.

Here is our guide on how beginners can best go about investing in the stock market Down Under.

 

What is the stock market? 

Before outlining how to best go about investing in the stock market, it’s worth clarifying what exactly we are referring to.

Essentially, stocks are a type of securities that enable people (who become known as shareholders) to own a stake in a public company.

Typically, these companies issue them to try and increase profits by facilitating further growth in their business.

The stock market is the platform where both regular people and serious investors can trade securities in various companies through different exchanges. Every individual unit of stock has a ‘share price’, which determines how much you pay for the privilege of owning it.

Those who choose to invest in any given unit(s) of stock do so in the hope that its value will increase and, therefore, provide them with profit, either through regular dividends issued by the company or selling the stock outright for a higher price than you bought it for.

There is no guarantee this will happen of course, and it’s worth noting you could lose all the money you outlayed – in extreme cases.

However, for many people, especially those in for the long haul, it can be a solid investment.

 

Best Way To Invest

Ok, so now you know what the stock market is, what is the best way to invest as a beginner?

Here are some things you should bear in mind.

 

  1. Get a Broker

Until you have a better understanding of the way the market works, it is a good idea to enlist the services of a broker or use a brokerage app.

The key advantage of doing this is that both will be able to give you insights into the ASX performance, which should help you build up your portfolio initially.

It is worth noting that before you can start investing in stocks, you will have to set up a cash management account. This should be relatively straightforward to do, and your chosen broker or broker app will be able to advise on the process.

 

  1. Invest wisely 

If we all knew the best stock to invest in, we’d all be millionaires. However, unfortunately we don’t. Which is why you should make the effort to invest wisely.

It is good to track how a stock has performed over the last 5 to 50+ years to establish a baseline of its potential for growth.

However, you should look at other factors that could cause the stock price to change including the amount of profit the company is making and what type of PR coverage they are getting in the media.

Be mindful of current events and economic conditions, too. For example, during the COVID pandemic, it was probably a good time to invest in companies that sold masks and hand sanitiser.

 

  1. Diversify your investments

You’ve no doubt heard the saying, ‘Don’t put your eggs in one basket. Well, this is a good maxim to adhere to when you are beginning your investment journey.

By investing in different companies, across widely different industries, such as healthcare, automotive, oil and gaming, you will go a long way towards minimising the risk of losing all your money.

There is nothing worse than buying securities in one business and then discovering their share price has plummeted significantly in value due to poor performance and leadership.

 

  1. Invest regularly

A ‘set and forget’ strategy of buying stocks as a one-time purchase and letting the market do its thing for 20 or 30 years until you are ready to sell can be profitable.

Yet, if you are looking to make some serious cash, it is a good idea to regularly build on your investments.

For instance, if you are 40 years old and you decide to invest $100 a week for 25 years until you retire, you will have invested $130,000 overall.

Over that 25-year period, the value of your shares could have doubled, trebled or done even better – especially if you diversified those investments.

It does take a bit of discipline to consistently invest. So, for this reason, you should consider setting up a direct debit the day after you get paid, which transfers the money out of your bank account to your cash management account for immediate investment.