Wanting to grow your money beyond a savings account and thinking of investing in the share market? Shares can be one of the most effective ways to build long-term wealth (we touched briefly on this in our blog on wealth creation strategies).
But as a beginner, the graphs, the charts, the big numbers — and the even bigger words that have you googling every meaning — can feel like learning a new language.
We hear you, so here’s a breakdown of the basics of share investing for beginners. It gives you an overview of: what shares are, how to prepare before you invest, the different ways to get started, and why diversification matters.
What exactly are shares?
At its core, it’s quite straightforward: when you buy shares (also called stocks or equities), you’re buying a small slice of an existing business.
If that business does well, your shares can grow in value. Some companies also pay dividends — cash rewards paid out to shareholders, usually from profits.
Of course, like with every investment, there’s always risks. Share prices can go up or down, and in the worst case, you could lose money.
That’s why it pays to be prepared before you jump in headfirst.
Getting your finances on solid grounds
Before you start investing in the share market, it’s important to make sure your financial foundations are solid. Think of it as building the base of a house — without it, the rest can wobble.
- Keep an emergency fund: Many people aim for three to six months of living expenses in a savings account as a safety net.
- Pay off high-interest debt: Interest on credit cards or personal loans is often higher than the returns you might get from investing. Clearing these first can free up more money in the long run.
- Choose a starting amount: According to the ASX, an investment can start with as little as AUD 500 plus brokerage costs. There’s no set rule for how much you should invest, but many trades on the ASX tend to sit around the AUD 2,000 mark — giving you an idea of what’s common among everyday investors.
Next, consider your investment timeframe. Think in terms of short term, medium term, or long term.
Your timeframe matters because it shapes how much risk you might be comfortable with. For example, if you’re saving for a house deposit in the next couple of years, you’ll probably want to take a more cautious approach. But if you’re investing for retirement that’s still decades away, you can usually afford to ride out more of the market’s ups and downs.
Choosing your approach to investing in the share market
When it comes to shares and investing, beginners usually start in one of two ways:
- Lump-sum investing: Putting all your money in at once. This can capture market growth immediately, but also means you’re more exposed if prices fall soon after.
- Dollar-cost averaging: Investing smaller amounts regularly, like monthly. This spreads out your entry points, which can reduce the impact of short-term volatility, though it may also mean missing out if the market rises quickly.
You’ll also need to decide how to invest. You can:
- Buy shares directly: This means more control as you’re choosing individual companies yourself. It also usually requires more money and you need to do a bit more ‘homework’ to build a balanced portfolio.
- Invest through funds: ETFs (Exchange-Traded Funds) or managed funds let you invest in a collection of companies in one go. They can save you the work of researching each company individually but you’ll have less control over the specific businesses included.
Diversification in shares and investing
One of the golden rules of investing in the share market is not putting all your eggs in one basket. By spreading your money across companies, industries, and even countries, you reduce the impact if one performs poorly. This can be done by choosing a mix of individual shares or by using funds like ETFs or managed funds that provide broader exposure in a single step.
Final thoughts
Some things get better with time — like a slow-cooked meal, a well-worn pair of jeans, or a good bottle of wine. Building wealth through shares and investing often works the same way: it’s patience that often brings the best outcome.
Markets will always rise and fall, which is why keeping a long-term mindset is so important.
If you’re ready to take the next step and need expert input on your investment strategy, reach out today.
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