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How To Get Started Investing in Shares

by dollarwise
how to get started investing in shares

It Can Be Scary to Get Started Investing in Shares

To get started investing in shares is pretty scary. Where do you start? What do you invest in? What if you buy at the wrong time? It can be pretty daunting and so I wanted to make a few posts to help you find your way into the world of investing. I was fortunate enough to be given some shares as part of an inheritance many years ago. As I saw those shares increase and pay dividends I realized pretty early on that this was a pretty good gig. A massive mortgage put pay to that for a season, but now we are on top of that and able to invest far more into the share market.

Why Invest in Shares?

There’s plenty of guru’s out there with pretty charts. But the long and the short of it is that even with all the huge market corrections, bears and bulls, shares have always returned well above inflation for the long term investor. Leaving your money in cash is tantamount to going nowhere as inflation will always eat up most returns from cash. To beat inflation you need something that increases in value and pays back some cash. That means 1 of 3 options, shares, property or a business. That’s pretty much it. And shares are really just buying a slice of good businesses.

How To Get Started Investing in Shares

So you’re keen to get started? What next? Here’s 3 simple options to get you going with your first investment. My preference would be to go with option 3 as that will open more options in the future. But all 3 will get you going. And it depends how hands on you want to be in the process.

Invest money directly with a Managed Fund

Instead of picking shares yourself, you can pay for someone else to manage your funds for you. There’s literally hundred’s of managed funds investing all over the world. I’m no expert in this area and don’t have any of my money with a fund manager outside super. But if I did, my first port of call would be Vanguard to invest in Australian and/or US index funds. Index funds just buy a slice of every company in the index and so will track say the ASX 200 or the S&P500, etc. As the whole share market goes, so go your funds. They are the safest and lowest fee funds and often beat the managed funds that are trying to ‘beat the market’.

That said, you can find managed funds that will invest in any number of ways. Just be careful of financial planners directing you to one fund or another. It’s not always for your benefit as much as their commission! Also be aware of how much the fee’s are. A fund may look good but if it’s taking more than 1% in fees every year, that’s a lot of money you’re giving away.

With managed funds you will usually need a minimum investment amount, but many then allow you to add little by little over time, say a few hundred dollars a month, etc. This is a great option if you don’t want to be overly engaged in the day to day of watching your account, but want to keep a growing investment over time. Just set up an automatic transfer every month and watch your investment grow. It’s that simple to get started investing in shares.

Invest With A Robo Advisor

Robo advisors will cheaply invest your money in a variety of ETF’s (exchange traded funds); these are index funds that trade on the share market. The advantage of a robo trader is that they can spread risk and rebalance your portfolio with a variety of different ETF index funds. They may for example invest in an Australian ETF index fund along with a global fund and in a bond fund or gold fund. You can usually choose your own level of risk. Two operating in Australian are Acorns Australia and Stockspot.

Again they allow you to invest small amounts of money in an ongoing way to build your investment over time. That said, I think that a starting balance of $5-10k is needed to allow them to invest in a balanced way (not a requirement of theirs, but not wise to start with less or they will over invest in some areas and under invest in others). Their fees are typically less than most managed funds. Acorns Australia’s fee is 0.275%, Stockspot is 0.066%. Overall, this is a cheap way to have a diversified share portfolio. Once again this requires very little input. You don’t need to buy and sell anything, it’s all done for you and covered in the small fees you pay.

This would be the option I’d recommend if you don’t want to go with the third option of doing it yourself.

Open a Share Trading Account with An Online Trading Platform

The last option is for you to personally invest directly in the share market by buying and selling shares yourself. This is a pretty simple process, much like opening a bank account. Fill in the forms online, deposit some funds and away you go. The cheapest option is to go with an online share trading platform like CMC Markets, IG Markets, NAB Trade, Commsec, etc. Of these IG Markets is the cheapest with trading starting at $8, CMC Markets at $9.90, NAB Trade at $14.95 and Commsec at $19.95. Be careful that you open a share trading account and not a CFD trading account. CFD’s (contracts for difference) are a dangerous leveraging tool that you want to avoid. These trading platforms all do the same thing, but some offer more advice or better returns on cash held in the accounts. You might as well go with the cheaper options in my opinion.

Now your account is set up, it’s just a matter of purchasing shares. You pay a commission each time you purchase or sell shares. This means you need to be a little bit more hands on. If that’s not for you, I’d go with option 1 or 2. The other thing to keep in mind is that the biggest problem with trading shares is the share trader. That is, fear often leads to making irrational decisions like selling too early or at a large loss. You need to be patient and not care too much what’s happening day to day. Buy shares in good companies and holding them is the way to go. If they pay decent dividends you will have made your money and some, even with downturns.

Now you can get started trading shares. The big question is what shares do you buy? In my next post I’ll walk through making your first share purchase and beyond. Happy investing.

8 comments

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8 comments

Mrs. ETT January 14, 2017 - 7:08 am

I started with Acorns Australia as a super-easy way just to start. I am using it as a test-bed to figure out my emotions and how I will react when the markets rise and fall. For that reason, I started with $200, and contribute $25/week. I’m sure it’s not as efficient as it could be elsewhere, but to me it is a low risk way of dipping my toe in the water. Next step is Vanguard.

This is a great summary of the options – very clearly explained. Thanks.

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dollarwise January 14, 2017 - 1:37 pm

Would love to hear over time how it goes and how you’ve found Acorns. Over the medium term you will be ahead by investing in Australia’s and the world’s best businesses. Glad to see you’ve made a start.

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Buy, Hold Long January 15, 2017 - 10:21 am

Acorns is definitely the way to go for beginners as it takes minimal effort and it can give results easily. It has good reviews and is a set and forget method for making money. Excellent for beginners to medium term investors.

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The Wannabe Investor January 23, 2017 - 8:38 pm

Hi DW,

Acorns is perfect till you can manage to save the first 4-5000 after that it become beneficial to invest in ETFs or LICs as you double up on fees. I can’t wait for robinhood to launch in Australia as I think it will shake up the online brokers and force them to offer better deals.

Cheers
Rohan

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dollarwise January 26, 2017 - 11:13 am

Thanks for dropping by WI. I agree with you, ETF’ sand LICs are a great way to go. I’ll keep a look out for robinhood. The industry certainly needs someone to shake things up. Cheers Luke.

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Dividends Down Under February 4, 2017 - 11:10 pm

Nice post Luke 🙂 Great introduction to shares, I like it.

Tristan

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dollarwise February 10, 2017 - 1:50 pm

Cheers. Thanks Tristan.

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avidinvestor May 8, 2018 - 11:35 am

Nicely put together article. I’ve used Macrovue as my trading platform for a while now and it has one of the best user interfaces going around. They’ve got competitive brokerage fees and importantly for me offer thematic portfolios that are fully customisable to your own stock picks. So it’s really a 2-in-1 platform to use as you choose, rather than simply a trading platform.

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