If you’re not familiar with it, investing can seem like a scary concept. You don’t know the first thing about investing or stocks, your mum says it’s basically gambling and, let’s face it, numbers were never your strong suit (or is that just us?!).
But even though it might feel a bit out of your reach, investing doesn’t have to be so daunting, and, in fact, if done thoughtfully, can be a smart, effective way to build your personal wealth.
First, let’s start off with what we mean when we say investing. For the purposes of this article, we’re focusing specifically on investing in the sharemarket (rather than in property or a small business, for example).
A share in its simplest form relates to a single unit of ownership in a company. So, when you buy shares, you technically become a part owner in that business. Pretty cool, huh?
Investing in shares involves using your cash to purchase shares in companies that you think will generate you a return on your investment over time. This return on investment can come in two ways; through an increase in the company’s share price when they’re doing well (which means, you’d make some money if you were to sell your shares), or through dividends, which are shares in the company’s profits (usually paid out to shareholders a couple of times a year as a sweetener).
Once you’ve decided to take the leap and start investing, it’s important to consider how you want to make your first move. There are a number of ways in which you can buy shares these days, so pick a path that best suits you and your circumstances.
You Can Use A Broker
Brokers buy and sell shares on your behalf and you can use broking services through an online trading platform, which you can access through your bank eg CBA has Commsec, NAB has Nabtrade etc. All you need to do is set up an account and you can start buying and selling shares online, just like internet banking. Before you start though, it’s important you fully understand what you’re doing, so have a chat to the service provider and they can talk you through your first transaction and/or answer any questions you might have.
There’s An App For That
If you’re feeling a bit unsure and just want to dip your toe in the water, there are a number of apps available now that let you do just that. One of our favourites is Raiz, which helps you put your investing on autopilot by rounding up your spare change. You simply download the app, create a profile and link it to your bank account, and Raiz will round up each of your transactions to the nearest dollar, and invest the change into a diversified portfolio (which basically just means it puts your money into a range of stocks so all your eggs aren’t in one basket). Raiz lets you choose a portfolio that’s in line with your specific goals and the level of risk you want to take and it’s a great way to get a taste for investing.
If you’re going it alone, it can be hard to work out what is actually a worthy investment, and this can feel overwhelming, but it doesn’t need to be.
Low-Risk, Diversified Options
A great way to get started in the sharemarket is to put your money into what’s called an exchange-traded fund, or ETF. An ETF is simply a fund that mimics the performance of the stock exchange, rather than individual shares that trade on the stock exchange, which just means you get access to a portfolio of successful companies instead of just one. There are a number of ETFs out there, so do some research to see if this is an option you want to explore.
Do Your Homework
Remember, when you’re buying shares in a company, you own a little piece of it, so doing some research is a great way to determine if you feel good about putting your money into a particular company. Start by checking out their website and what they do and then have a read of their media coverage to give you a sense of how they’re going (and to be aware of any scandals!). If you’re feeling extra keen, you can also dig a little deeper. All companies that are listed on the stock exchange are required to make their annual reports publicly available, so if you want to mull over the company’s strategy or results, you can!
By now, you might be chomping at the bit to fire up your investment portfolio, but before you dive in, there are a few key things you should remember.
Don’t Be A Sheep
In investing, as in life, doing something just cause everyone else is rarely works out for the best. The fact is, nobody really knows what’s going to happen on the sharemarket, so do your research and be confident in your decisions and you’ll be fine.
Don’t Spend Money You Can’t Afford To Lose
Smart investing is a long-term game. Get-rich-quick stocks and overnight success stories are few and far between. Put your money thoughtfully into shares and leave it there. If you’re trying to raise some cash for Coachella, or drum up next month’s rent, this is not the way to do it.
See above. Investing is not about quick wins. Put your money in with the intention of not touching it for years (not one or two, think 10-20). Watching (and fretting over) your investments’ share prices every day is just a recipe for anxiety as well as a pointless pursuit - the market will fluctuate and share prices will rise and fall, but if you’re playing the long game, you can be confident that the market will eventually correct and you’ll be sitting pretty.
Need to save some cash before you can think about investing? Check out our guide to saving.
Design credit: Isaac Smith