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Table of Contents
This piece has been expert reviewed and fact checked by Forbes Advisor Australia Board Member, Shani Jayamanne, award-winning senior investment specialist at Morningstar, who is also the co-host of Morningstar Australia’s Investing Compass podcast.
Learning how to invest begins with understanding how to buy stocks, how they function and the various ways you can invest.
Historically, the return on equity investments has outpaced many other assets, making them a powerful tool for those looking to grow their wealth.
Our guide will help you to better understand the mechanics of stocks so you can make an informed decision about the best investment for you.
Related: Our pick of the best stocks to buy now
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Different Ways To Invest in Stocks
There is more than one way to invest in stocks. You can opt for any of the following approaches or use all three. How you buy stocks depends on your investment goals and how actively involved you’d like to be in managing your portfolio.
- Buy individual stocks. If you enjoy researching and reading about markets and companies, buying individual stocks could be an excellent way to start investing. Even if the share prices of some companies seem pretty high, you can look at purchasing fractional shares if you’re just starting and have only a modest amount of money.
- Invest in stock ETFs. Exchange-traded funds that are focused on equities buy many individual stocks to track an underlying index. Investing in an ETF is like buying stocks from a very broad selection of companies in the same sector or that comprise a stock index, such as the ASX200. ETF shares trade on exchanges like stocks but provide greater diversification than owning an individual stock.
- Own managed funds. Managed funds share certain similarities with ETFs, but there are substantial differences. Actively managed funds have managers who pick different stocks in an attempt to beat a benchmark index. When you buy units in a managed fund, your profits come from dividends, interest income and capital gains from the underlying assets that the fund invests in and actively manages.
Remember that there’s no right or wrong way to invest in stocks. Finding the best combination of individual stocks, ETFs, and managed funds might take some trial and error while you learn to invest and build your portfolio.
Choose How To Invest in Stocks
There are a variety of accounts and platforms that you can use to buy stocks. You can buy stocks yourself via an online brokerage, or you can hire a financial advisor or a robo-advisor to buy them for you. The best method will be the one that aligns with how much effort and guidance you’d like to invest in the process of managing your investments.
- Open a brokerage account. If you have a basic understanding of investing, you can open an online brokerage account and buy stocks. A brokerage account puts you in the driver’s seat when it comes to choosing and purchasing stocks.
- Hire a financial advisor. If you would prefer to have more advice and guidance for buying stocks and other financial goals, consider hiring a financial advisor. A financial advisor helps you specify your financial goals and then purchases and manages your investments for you, including buying stocks. Financial advisors charge fees, which can be a flat annual fee, a per-trade fee or a percentage of the assets they manage.
- Choose a robo-advisor. Robo-advisors are a simple way to invest in stocks. Most robo-advisors invest your money in different portfolios of ETFs, and they buy the assets and manage the portfolio for you. They are generally less expensive than financial advisors, but you seldom have the benefit of a live human to answer questions and guide your choices.
- Use a direct stock purchase plan. If you’d prefer to invest just a few stocks, many blue-chip companies offer plans that make it possible to purchase their stock directly. Many programs offer commission-free trades, but they may require other fees when you sell or transfer your shares.
Keep in mind that no matter the method you choose to invest in stocks, you’ll most likely pay fees at some point to buy or sell stocks, or for account management. Pay attention to fees and expense ratios on both managed funds and ETFs.
Don’t be shy about asking for a fee schedule or chatting with a customer service representative at an online brokerage or robo-advisor to advise you on fees you might incur as a customer.
Accounts To Invest in Stocks
In Australia, there are several types of accounts available for investing in shares:
Retail Brokerage Accounts: These are the most common type of accounts used for investing in shares. You can open a retail brokerage account with an online broker or through a financial advisor. These accounts do not have any special tax treatment and there are no contribution limits.
Superannuation Funds: These are retirement accounts where both you and your employer can contribute. The funds in your superannuation account are invested and the earnings are taxed at a concessional rate. There are annual contribution limits for both pre-tax and after-tax contributions.
Self Managed Super Funds (SMSFs): This is a private superannuation fund that you manage yourself. SMSFs can have up to four members, all of whom are trustees responsible for the fund’s compliance with relevant laws. SMSFs can invest in shares, property, and other assets.
Managed Funds: These are investment funds managed by professionals. You invest your money with a fund manager who pools it with other people’s money and invests it in a portfolio of shares, property, and other assets.
Each type of account has its own features, benefits, and rules. Depending on your financial goals and situation, you may choose to use one or more of these accounts to invest in shares. Setting up your investment accounts can be done through a broker (online or through your financial advisor), your bank (for investment bonds), or your employer (for superannuation accounts).
How to Fund Your Account
If you plan on buying shares via a Self Managed Super Fund (SMSF) retirement account, you might want to establish a monthly recurring deposit. Concessional super contributions are payments put into your super fund from your pre-tax income and are tax-deductible for self-employed people. They include your employer’s super guarantee (SG) contributions. Concessional super contributions are taxed at 15% when they are received by your super fund.
For example, the annual contribution limit for concessional (pre-tax) contributions is $30,000 for the 2024-25 financial year. If your goal is to make the most of your concessional contributions, understand what your employer contributions will be for the year first. Then, you can contribute whatever is left from the $30,000 cap.
If you’re buying shares through an employer-sponsored superannuation fund, you’ll need to indicate what percentage of your pay or a flat dollar amount you want to be deducted from each pay cheque.
For all other types of investment accounts, establish clear investing goals and then decide how much of your monthly budget you want to invest in shares. You can choose to move funds into your account manually or set up recurring deposits to keep your share investment goals on track.
Here are a few things to keep in mind as you set your investment budget and fund your account:
Managed fund purchase minimums: Many managed funds have minimum initial purchase amounts. Be sure to research different options—Morningstar is a great resource—to find ones with zero or low minimums to start investing in shares as soon as possible.
Trading commissions: If your brokerage account charges a brokerage fee, you might want to consider building up your balance to purchase shares—especially individual stocks—until the fee only represents a small fraction of your dollars invested.
Managed fund fees: When buying a managed fund, be sure to review what the “load” is on the shares you’re purchasing. Some managed funds have an upfront or back-end sales charge—the so-called load—that’s assessed when you buy or sell shares. While not all managed funds have loads, knowing before you buy can help you avoid unexpected fees.
Start Investing in Stocks
Select the individual stocks, ETFs or mutual funds that align with your investment preferences and start investing.
If you’ve chosen to work with a robo-advisor, the system will invest your desired amount into a pre-planned portfolio that matches your goals. If you go with a financial advisor, they will buy stocks or funds on your behalf.
Upon successful execution of your order, the securities will be in your account, and you’ll begin enjoying the rewards of the stock market. And yes, your funds will reap dividends and experience losses as the market changes, but for the long-term, you’ll be taking part in an asset class that has helped investors grow their wealth for over a century.
As you make your initial stock purchases, consider enrolling in a dividend reinvestment plan (DRIP).
You may end up owning fractional shares, but that will keep more of your money working and less sitting in cash. Most DRIPs do not charge any fees to reinvest your income – that means you will save on brokerage.
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Set Up a Portfolio Review Schedule
Once you’ve started building up a portfolio of stocks, you’ll want to establish a schedule to check in on your investments and rebalance them if need be.
Rebalancing helps ensure your portfolio stays balanced with a mix of assets that are appropriate for your risk tolerance and financial goals. Market swings can shift your asset mix, so regular check-ins can help you make incremental trades to keep your portfolio in order.
There’s no need to check in on your portfolio daily, so a monthly or quarterly schedule is a good cadence. However, be aware that rebalancing will often mean that you will incur transaction costs and taxes.
It may be worth setting a range that you’re comfortable with instead of a set percentage. This will help with reducing unnecessary costs and taxes. For example, you may have a range of 70-80% in stocks, instead of 70%. As you review your portfolio, remember that the goal is to buy low and sell high. Investing in stocks is a long-term effort. You’ll experience inevitable swings as the market goes through its usual cycles.
The advice and information provided by ForbesAdvisor is general in nature and is not intended to replace independent financial advice. ForbesAdvisor encourages readers to seek expert advice in relation to their own financial decisions and investments.
Frequently Asked Questions (FAQs)
How should a beginner invest in stocks?
Beginners should start by setting clear financial goals and determining their risk tolerance. Next, educate yourself about the stock market and different investment options. Consider starting with a diversified mix of investments, such as a managed fund or an exchange-traded fund (ETF) that tracks the overall market or a specific sector.
It’s also advisable to start with a small amount of money that you can afford to lose and gradually increase your investment as you gain more confidence and knowledge. Speaking with a financial advisor can also be a great place to start and can give you confidence in how to get started on the right track.
How do I invest $100 in stocks?
One hundred dollars is a great starting point for investing in stocks. You can start by opening a brokerage account with an online broker that offers low or no minimum account balances and low trading commissions. Then, consider investing in a diversified ETF or buying shares of a company that you believe has strong growth potential. Remember to keep an eye on trading commissions, as they can quickly eat into your returns when investing a small amount of money.
How to buy stock in Australia?
To buy stocks in Australia, you will need to open a brokerage account with an online broker or a full-service broker. Once you have opened an account and deposited funds, you can buy shares of companies listed on the Australian Securities Exchange (ASX) or other global stock exchanges.
Simply log in to your brokerage account, search for the company you want to invest in, enter the number of shares you want to buy, and place your order. Be sure to regularly monitor your investments and make any necessary adjustments to your portfolio.
How do you invest in stocks for the long-term?
Investing in stocks for the long-term requires a different approach than short-term trading. Here are some tips for long-term investing:
Diversify your portfolio: Don’t put all your eggs in one basket. Make sure to diversify your investments across different sectors and geographic regions.
Invest regularly: Consider setting up a regular investment plan where you invest a fixed amount of money at regular intervals, regardless of market conditions.
Focus on quality: Invest in companies with a strong track record of performance, solid management, and a competitive advantage in their industry.
Think long-term: Stay focused on your long-term goals, and don’t get swayed by short-term market movements. Having a long-term perspective and staying patient and disciplined is essential.
Review and rebalance: Regularly review your portfolio to ensure it is aligned with your investment goals and risk tolerance. Rebalance your portfolio as needed to maintain your desired asset allocation.