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Last updated: September 17th, 2024
Stock market investing can be intimidating at the best of times, but with high inflation and interest rates, and economists flagging a possible recession, it’s even harder in 2024 to know how to invest in stocks to grow your wealth.
Yet, beginners can quickly tap into the power of long-term investing and join millions of other Australians participating in the share market.
To help you understand how to invest in stocks, we will share key share market investment options, investment strategies and tips for choosing the best share trading platforms.
Enjoy our beginner’s guide to investing in the Australian stock market 🙂
Set yourself up for long-term success by creating a solid financial foundation.
An obvious but vital point: trading shares exposes you to the risk of losing your money, which means it won’t be available for other essential purposes. Invest only what you can afford to lose.
Our tips are:
| Build an emergency fund | On top of your day-to-day budget, ensure you have enough to cover unforeseen expenses or emergencies. You should save at least three to six months of expenses in a separate bank account |
| Pay off high-interest debt | If you have credit card debt, we recommend paying it off before investing in the stock market. There’s no point paying 19% on your credit card’s balance while trying to earn 10% via stock purchases. |
| Understand your existing investments | For instance, how does your fund currently invest your superannuation money? You can usually nominate an industry, so knowing how your existing funds are invested can help you create a more diversified portfolio overall. |
Investors make money through one or both of the following ways:
Create an inventory of your material assets, current income, and expenses, and determine how much you can realistically invest in the share market. Use this guide.
In Australia, there are three main types of share market investment options available:
Also known as shares or equities, stocks represent ownership in a publicly listed company.
(Related: How To Buy Apple Stocks And Tesla Stocks).
Over 2,000 companies are listed on the Australian Securities Exchange (ASX), and you can buy shares in these companies through a full-service stockbroker or online brokerages like eToro, Tiger Brokers, and CMC Markets.
Picking individual stocks gives you a significant amount of control but requires more of your time and emotional discipline.
Investing gurus like Benjamin Graham advise that investors should avoid stock picking unless they are prepared to spend a few hours each week researching companies. The same applies to investors prone to acting on FOMO (fear of missing out)
ETFs are investment funds that are traded on stock exchanges.
Each ETF is� a collection of assets — often composed of stocks in line with an index like the ASX200 — that you can also buy and sell via online brokerages.
While ETFs are professionally managed, they often follow an index and have relatively low management fees compared to traditional managed funds.
Other ETFs may focus on a specific market sector, investment theme, or strategy (such as dividend-focused ETFs).
An exchange-traded fund isn’t necessarily limited to stocks.
(Related: Will The Interest Rates Rise In 2024?)
It can bundle in many asset classes, including bonds (Australian government bonds explained) and commodities.
(Related: eToro Review: Pros, Cons, Fees & Is It Any Good?)
A lot of your super is probably already invested on your behalf into a portfolio of stocks.
In doing so, you’ll put more of your money to work rather than giving it to the taxman.
The downside of this strategy is twofold:
Self-managed super funds (SMSFs) are a type of superannuation fund that the members themselves manage. A well-managed fund can give investors greater control over their investment strategy and tax planning.
A haphazard, short-term, emotion-driven approach to the stock market is unlikely to work.
A strategy provides structure, which will help you make consistent, level-headed, long-term focused decisions — no matter how the market behaves.
(Related: Is Ethical Investing Right For You?)
Consider in your plan of attack:
| Goals and risk tolerance | What are your timeframes? What returns do you aim to achieve? Be honest with yourself about your level of comfort in maintaining positions through significant declines in market value. |
| Scenario-based responses | What will you do when unexpected problems arise that adversely affect the price of your shares? When will you take profits? What level of price drop would impel you to sell? How will you use dividends? |
| Available time | When will you make time to research companies and the market more broadly? How will you develop trading knowledge, and how often will you review and adjust your investments? |
Some experts say you should invest 10% to 20% of your income. This figure, of course, is debatable and will depend on your individual circumstances.
Some investors will buy when prices are low, while others prefer a dollar-cost averaging approach whereby they automatically invest a small amount on a pre-defined schedule.
(Related: CMC Markets Review – Pros, Cons, Fees & Verdict).
Factor the following into your decision:
You can create an automatic money transfer to an account dedicated to investing. This will regularly top up your investable cash and prevent the temptation to spend it on depreciating assets.
The most common approach to picking stocks and ETFs is good old-fashioned research.
Remember that blue chip stocks, and other established large-cap companies heavily backed by institutional investors may pose less risk.
I’m not an investment expert, so I won’t even try to provide advice on the topic, but I highly recommend that you start by reading Intelligent Investor by Ben Graham.
If picking stocks isn’t your cup of tea, copy trading offers a more time-efficient alternative.
Instead of choosing stocks, your job shifts to choosing the best traders to copy, which comes with its own advantages and pitfalls.
(Related: How To Invest In Futures).
Australia has about a dozen online share trading platforms, or “brokerages”.
Most of them are headquartered overseas and operate here under the regulatory jurisdiction of ASIC.
(Related: Cheapest Stock Brokerages In Australia).
If you’re an absolute beginner, start by investing fake money first. Most trading platforms will give you the option to trade shares using demo accounts.
Interfaces of certain online brokerages can be challenging to understand (I’m looking at you, Interactive Brokers!).
Demo accounts are great for becoming familiar with the UI.
Demo accounts also:
Don’t spend too much time on demo accounts. You don’t learn much about risk management until you enter trades using real money.
Enter your purchase order via your online trading platform. You’ll be given a choice of a:
Once you purchased stocks or ETF units, you must regularly review your trades, referring back to your high-level investment strategy to keep your returns and risks in line with your goals:
Investing takes time and knowledge to perfect, and you don’t always get it right.
You may find it sobering that most professional investors fail to beat the mainstream indexes, like the ASX200 and S&P500.
(Related: How To Day Trade In Australia).
Some tips from Intelligent Investor author Ben Graham are:
(Related: Plus500 Review: Pros, Cons, Fees & Is It Any Good?)
No. You must purchase and sell shares through an ASX participant stock broker. Broadly, you will encounter two types of brokers:
Yes, technically. You can buy shares on the stock market via an IPO (Initial Public Offering), capital raising or a Dividend Reinvestment Plan (DRIP).
Below are books and podcasts that can be helpful for those at the beginning of their share investing journey.�
You can also discover a range of educational and informative investing podcasts here.
Beginner stock investors do have multiple hoops to jump through to successfully know how to invest in stocks in Australia.
But by analysing each step from a personal standpoint and examining what is sustainable for your budget and life, you formulate a plan that will make investing less challenging and more rewarding.
I recommend undertaking as much preparation and research as possible, experimenting with a demo account, and speaking to friends and family who invest before engaging a financial advisor or broker.
As Warren Buffett (the father of investing) says, ‘The most important quality for an investor is temperament, not intellect.’
