SO YOU WANT TO BUY SHARES
Take the plunge with this simple beginner’s guide to the stock market
When it comes to investments, one of the most common ways many people prepare for their future is by buying shares. But for the uninitiated, buying shares can seem difficult at best and downright risky at worst.
The good news? You don’t need a lot of money to get started, and there are plenty of resources to help you on your way.
“I think the best approach is to treat your share investing as a journey of ongoing learning,” financial expert and Shareplicity author Danielle Ecuyer says. “In the case of share investing, you want to aim by starting small, growing your knowledge and confidence.”
WHY BUY SHARES?
“Shares are an easy, low cost way to grow the value of your savings,” Ecuyer says. “You’re probably aware how low little you are receiving for your savings in a bank account. Shares offer a higher rate of return over time and higher returns allow for your savings to increase in value.”
WHAT ARE THE DRAWBACKS?
The most obvious downside to shares are the risks. “No investment is guaranteed, and shares are perceived as riskier (meaning you can lose money) relative to a bank deposit,” explains Ecuyer. “Share prices also move up and down, which can scare investors. However, if you plan your share investing and are prepared to invest over a period of time you can benefit from the long-term compounding effects from shares.
Compounding is when you reinvest the income to create more returns (money) in the future.”
IS IT SAFE TO BUY SHARES RIGHT NOW?
The key here is to think long-term. “Share investing is all about ‘time in the market, not timing the market,’” Ecuyer says. “What does this mean? No-one can accurately predict the best time to buy and sell, so investing your savings over time such as a few months, for example, means you can average the entry price of your share purchases. This is referred to as dollar cost averaging. Since share prices move up and down, when you average your purchases, the aim is to smooth the purchase price across the market swings.”
HOW CAN I AVOID MAKING BLUNDERS?
If you’re looking for a way to get rich quick, Ecuyer says shares may not be for you. “The biggest mistake is treating the share market like a casino and putting all your money into the latest ‘hot tip’. Hot tips may work but are not guaranteed,” she advises. “For every ‘get rich quick’ share investment there are hundreds of losers that you never hear about. Don’t put all your eggs in one basket. Owning a group of shares is more prudent and better risk management.”
HOW DO I GET STARTED?
All you need is $500 to begin with, and you can add as little as
$100 whenever you want. Unless you have a lot to invest, a stockbroker isn’t necessary. “There are numerous online share trading platforms,” adds Ecuyer. “I have used Commsec for years.” Other suggested platforms include Westpac Share Trading, Saxo Capital, CMC Markets and ETF platforms such as Raiz and Stockspot.
HOW CAN I BECOME SHARE SMART?
Learning about shares can be daunting, but there are more resources than ever, from social media to podcasts, books and financial newspapers. “Always remember to start small as there are a lot of commentators and experts, and too much information can be overwhelming,” Ecuyer says. “The hardest aspect for most investors is to understand risk, that is why most experts recommend you diversify the number of shares you own and that is why ETFs (exchange traded funds – a bundle of shares traded as one entity – share) are so popular.”