Looking to make your money work for you? You may want to learn how to buy shares. That’s what Monzi’s here to cover. With our easy guide for investing beginners, we’ll outline how you may purchase shares, what you need to consider and plenty more. You may become a savvy investor before you know it. Let’s go.
Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.
How to buy shares: what does it all mean?
The share market can seem like a complicated, inaccessible place where the stakes are high and the rewards are higher. However, if you’re just an average Aussie, it’s important to understand that you can invest in shares too. That said, before you dive in, you must understand the basics.
Firstly, if you buy shares in a company, then you effectively become a part-owner. With this, you may be entitled to benefits such as share dividends and the right to vote at shareholder meetings. The more shares you own, the greater the portion of the company that you own.
When you buy shares, you will buy them at a price, for example, it could be $50. If you have $500 to invest, then you can purchase ten shares. Your profits and loss will then be determined by how the prices move. If the price rises above what you initially paid, then you can sell your shares for a profit. However, if prices drop, then you may incur a loss.
With this, prices may move based on a range of factors including:
- Demand and supply of shares
- The economic and political climate
- Profitability and prospects
- Company management
- Fiscal policy
- External events (e.g. natural disasters, pandemics, etc.)
While that covers the basic logic behind shares, you’re here to learn how to buy them. Read on as Monzi explores what you need to know. Let’s get started.
How do I make a profit?
If you invest in shares, then positive returns can come in two forms.
Firstly, an increase in the share price can produce capital gains. In short, this refers to situations where you buy a share at one price (e.g. $75) and sell it at a higher price (e.g. $100). Your profit is then equal to the difference in price multiplied by the number of shares that you sold. However, the downside of this is that prices can drop too. As a result, you will incur losses if you sell your shares at a lower price than you bought them.
The other way to earn a profit is via share dividends. In short, this is a distribution of the company’s profits to its shareholders as a reward. Usually, this will occur once or twice each year and the amount you receive will be proportional to your shareholdings. However, companies don’t have to pay dividends and many won’t. As a result, this is something you must consider before you invest in a company.
How to buy shares: using a broker
If you’re looking to invest in the share market, then you will typically need to find a broker. While it may be possible to invest without one, using a broker will usually be the quickest, easiest and most convenient way.
As a guide, there are two types of brokers: online broking services and full-service brokers.
Firstly, an online broker provides you with a platform to make trades. Just open an account and then you’re free to invest your money in whatever way you choose. However, keep in mind that there are fees involved. In short, it may cost you anywhere from $5 to $30 to buy or sell shares.
On the other hand, full-service brokers do the work for you. Moreover, they may offer advice regarding where to invest your money. However, given that they do more, prices will be higher. With this, fees may be calculated as a percentage of your trade.
How do I choose a broker?
Firstly, you must decide between an online broker service and a full-service broker. For most small-time investors, an online broker will be more appropriate. However, beyond this, there are a range of other factors that you must consider including:
- Fees: how much does it cost to execute a trade? Is it charged as a fixed fee or as a percentage of your trade? Are there any other account fees to consider (e.g. annual fees)?
- What are your options: while you can invest via the ASX, do you have any international options?
- Past users and reviews: how have past clients found the platform? Read reviews online to get an idea of their customer service and ease-of-use.
- Who is their target: are they well set-up to cater to your needs as a novice investor or do they prefer experienced, wealthy investors?
Find the one that fits your needs and sign-up today. From there, you can begin your investment journey.
What do I need to sign-up for a brokerage account?
Creating an account with a broker will be similar to opening a bank account. In most cases, you must be at least 18 years old and an Australian citizen. Beyond that, you must provide some details and documents to verify your identity. As a guide, this may include:
- Personal details (e.g. name, date of birth, etc.)
- Tax file number
- Bank account details
- Verification documents (e.g. driver’s licence, passport, etc.)
Usually, it will be free to open an account. However, some brokers may require you to pay a fee. In any case, once your account has been activated you may transfer funds via debit card, credit card, BPAY or bank transfer. At that point, you’re free to start investing.
What should I think about before I invest in the stock market?
Investing in shares isn’t something that you should do on a whim. In most cases, you will be investing thousands of dollars. Moreover, you are not guaranteed to generate positive returns. As a result, there are many questions that you must ask yourself before you get started.
To give you an idea, aim to ask yourself the following:
- How much money can I invest?
- What can I afford to lose?
- Am I looking to invest for the short-term or the long-term?
- What will I do if prices drop or things don’t go to plan?
- When do I sell if my investments pay-off?
- Do I prefer low-risk or high-risk investments? How will that affect my returns?
Based on your answers, you can begin to understand how much you can invest, what your plan is and what you’re looking to get out of investing. From there, you can begin to find shares and investments that suit your preferences.
How do I choose the right stocks?
Unfortunately, nobody has a crystal ball. As a result, it’s impossible to predict with certainty which stocks will be the right ones to buy. In any case, that doesn’t mean that you should just make random selections either. Instead, you must do some research and assess the prospects and profile of a company to determine whether or not it’s a worthwhile investment.
Obviously, that’s a lot easier said than done. Even if your analysis is spot on, adverse external events such as pandemics or unfavourable policy changes can undo your best-laid plans.
That said, a starting point could be to monitor the market as a whole. In other words, keep an eye on interest rates, fiscal policy and how the economy is tracking. Next, consider what you’re after. Blue-chip stocks are safe but may be more expensive. Speculative companies may be cheaper but come with far greater risk.
Obviously, this is a simple outline of how you can get started. When it comes time for you to invest, read broadly. Moreover, don’t be afraid to seek out professional advice. Over time, you will begin to develop a sense of what may be a smart investment.
Finally, always remember that they can’t all be winners. Some investments will produce losses. It’s just part of the game and that’s the risk you assume when buying shares.
What company-specific information should I consider?
Share prices aren’t just affected by outside factors, many internal factors may impact the health and stability of the business. This, in turn, can impact the share price. As a result, before investing in a company, ensure you investigate the following:
- Annual reports
- Updates and company alerts
- Management structure
- Prospectus (available for companies offering shares for the first time)
- Research reports
- Market share
- Financials (e.g. debt to equity ratio, earnings per share)
However, if you are new to investing, then you may not yet understand how to interpret this information. In this case, consider approaching a professional for advice. Alternatively, do some research or take an online course that may help guide you through the early stages of understanding this information. A great place to start could be Moneysmart and their guide to choosing which shares to buy.
How to buy shares: what else can I invest in?
By purchasing a share, you essentially become a part-owner of the business. However, that’s not your only investment opportunity. Instead, other options include:
Exchange Traded Funds (ETFs)
Exchange Traded Funds invest in a group of different shares. You can then buy shares in that ETF. As a result, ETFs allow you to develop a diversified portfolio with minimal effort.
Managed funds pool your resources with other investors like you. When you invest, you are essentially buying a set amount of units within the fund and any returns you receive will be proportional to this. The fund will then buy shares, securities and assets on your behalf.
By purchasing a bond, you are effectively loaning a company or government money. With this, you will receive regular interest payments known as coupons and once the bond period ends, you will receive your initial investment back.
You may be able to invest in commodities such as gold or oil. While you could buy a gold nugget, usually investing in commodities will be done through ETFs or funds. If prices rise, then you can sell your commodities for a profit.
Peer to peer lending
Peer to peer (P2P) lending platforms connect investors with businesses and individuals who need to borrow money. As a result, you become a lender. If you agree to a loan with a borrower, they will make repayments with interest.
Ultimately, it’s up to you how you invest your money. Do your research to determine which option or options best align with your needs and risk preferences. Moreover, don’t be afraid to diversify your portfolio across a range of different investments either.
How to buy shares: making your purchase
So, you’ve found shares that you want to buy. Now, you have to purchase them. To do this through a broker, it should be relatively straightforward.
Log into your account and head to the relevant page to buy your shares. From there, you must enter the company that you want to buy shares in and the number of shares you want. Moreover, you may have the option to choose between a market order and a limit order.
Once you’ve completed that you will see the price which should include any brokerage fees. If you’re happy, hit submit. Assuming there are shares available, your purchase will be processed and you will officially become a shareholder.
Finally, to learn the difference between a market order and limit order, see below:
A market order is straightforward. In short, it means that you will buy or sell your shares as soon as possible at the current price level. To put this into an example, if the current price is $70 and you want to purchase 100 shares, then this trade will be executed immediately, assuming there are an adequate number of shares available.
Limit and stop orders
Limit and stop orders allows you to buy or sell shares if the price reaches a certain point. However, if the price does not increase or decrease to the pre-set amount, then no trade will be executed.
Firstly, with a buy limit order, you can establish an automatic cue to purchase shares if the price drops below a level that you choose. For example, the current price may be $100. However, you want to buy it for $95. By setting up a buy limit order, your purchase will be executed if the price drops to that level.
On the other hand, a stop-loss order may prevent you from incurring significant losses. If you are worried about prices falling too much, implement a stop-order. For example, you may own shares with a current price of $80 but are concerned about it falling below $75. In the event of this happening, a stop-loss order would sell your shares if the market price hits $75.
What’s the difference between the bid and ask price?
If you’re doing some research, you may run into the concept of the bid and ask prices. Usually, these prices will be similar. In most cases, there will be just a few cents difference. So, what do they mean?
Firstly, the bid price is the highest price that a buyer will pay for that share. On the other hand, the ask price is the lowest price that a seller will accept for that share.
Typically, the ask price will be higher than the bid price. The logic behind this is that an investor would not sell their share for less than they are willing to buy it for. So, when you place an order, you will buy at the lowest ask price or sell at the highest bid price.
How much does it cost to buy shares?
As we’ve already touched on, if you are going through a broker, then you must pay a fee each time you buy or sell shares. With this, the exact fee will vary based on the broker that you have an account with. At a basic level, fees may be $5-20. However, if you are using a full-service broker, then fees may range into the hundreds.
Given this, the more you invest, the smaller your brokerage fee will be as a percentage of your trade. In other words, a $20 fee is much more significant on a $500 investment than a $5,000 investment (e.g. 4% vs 0.4%). As a result, your small investment would need to generate a significant return to offset the initial costs.
What’s the minimum trade value?
If you are buying shares in a company that you own no shares in, then your minimum initial purchase must be $500. However, once you become a shareholder, you are free to purchase more shares with no minimum. In other words, while your first purchase may be $500, your next could be $50. Just be mindful of any brokerage fees associated with making a trade.
Do I have to pay tax on any gains?
Australia has a capital gains tax. As a result, if you sell shares and make a profit, then you must declare this as part of your annual tax return. Gains are taxed at your marginal rate. However, if you hold the investment for more than one year before selling, then only half the gain is taxed. Moreover, if you incur losses on other investments, then this can be used to offset your gains for tax purposes.
For more information, it may be best to contact the Australian Taxation Office (ATO) or your accountant. They may be able to explain further and provide advice tailored to your situation.
How do I monitor my portfolio?
Once you buy your shares, you shouldn’t just set and forget. Instead, you must constantly monitor the market. That way, you can potentially find opportunities to invest or take steps to avoid losses if things take a turn for the worst.
With this, you must first keep an eye on your shares. To do this, read annual reports and published updates from companies that you hold shares in. Moreover, track their current share price via the Australian Securities Exchange (ASX).
In addition to this, look at the market as a whole. By assessing trends and seeing how things are going, you may find a range of new investment opportunities. On the other hand, you may see things slowing down, which could be a signal to get out while you can.
For more information, make sure that you read Moneysmart’s guide to tracking your share portfolio.
What are the risks of buying shares?
Investing is inherently risky. While your investments could generate positive turns, they could also go bust too. As a guide, some common risks of investing include:
- Losses: share prices can and do go down. So, while you may think that you’re investing in a growing company, you cannot accurately predict the future. If prices fall, you may incur losses.
- Unpredictability: things may be travelling smoothly today. However, as the 2008 Global Financial Crisis and COVID-19 pandemic have shown, you never know what’s around the corner. Events like this may adversely affect share prices and the value of your portfolio.
- Investing in what you don’t understand: keep it simple. There are a range of securities that you can invest in. However, it’s usually better to stick to what you know, at least initially.
- Bankruptcy: as a common stockholder, you’re last in line to be paid if the company goes broke. As a result, you may not get your money back and could experience significant losses.
Given this, it’s important to have a clear plan. Understand how much you can afford to lose and know when the right time to get out is. Moreover, do your research and, wherever possible, diversify your portfolio across organisations, industries and securities to ensure that your risk is spread-out rather than concentrated.
How to buy shares: diversifying
Don’t put all your eggs in the one basket. At some point, we’ve all heard this expression. However, when it comes to purchasing shares, it is particularly important and underlies the concept of diversification.
In regards to investing, diversifying is the practice of buying shares and securities across a range of different countries, industries, asset classes and investments. In short, it’s a risk management strategy. By adding a broad range of investments to your portfolio, you may insulate your portfolio against some risk.
Going back to not putting all your eggs in one basket, if you buy shares in only one company, then the price may go up or down. If it goes down, then you will lose. However, if you hold a range of different shares, then losses in some shares may be offset by gains in others. As a result, you don’t have to rely on a single investment paying off.
If you are constructing a portfolio, then diversification is something you must consider. For most retail investors, investing in ETFs and managed funds may be the easiest way to do this.
Isn’t a savings account less risky?
Yes, of course.
If you are not comfortable with the risks or want to be conservative with your money, then high-interest savings accounts and term deposits are much safer. However, the potential returns may not be as high.
Ultimately, the trade-off with any investment is risk vs reward. If you don’t want to incur losses, then you will take fewer risks. On the other hand, if you understand what you can afford to lose and take calculated risks, the share market may produce handsome returns to help you grow your net worth.
Finally, keep in mind that not all shares and investments come with the same level of risk. ETFs and managed funds are known for providing consistent, steady returns, whereas speculative companies can be boom or bust. As a result, consider your risk preferences before deciding where to invest your money.
How to buy shares: is it worth it?
In short, it can be. However, nobody can predict the future.
If you can build a diversified portfolio, then you may insulate yourself from the systematic risk of the market. However, you can never invest in the share market without any risk. Prices may go up or down. So, while you could make significant long-term gains that may make investing worthwhile, there will be losses too.
In addition to this, consider how much you are able to invest. While it’s great to start small, brokerage fees and other account fees could mean that it’s not viable for you. For instance, if you’re only looking to invest $500, then your chosen stock may need to produce significant returns, just to offset the initial $20 fee you paid to purchase the shares.
Ultimately, Monzi cannot say whether or not it will be worth it for you. You must do your research and consider your options. If you can build a strong, diversified portfolio, then, yes, investing could be a smart financial move. Just ensure that you understand and account for the risks too.
How to buy shares: can I borrow money to invest?
Investment loans or margin loans may allow you to borrow-to-invest. However, these loans come with considerable risk. As a result, they are usually only an option for the seasoned investor. After all, if you borrow money to invest it and your investment tanks, then you could be facing considerable losses.
In any case, with margin loans, you typically must keep your loan to value ratio (LVR) above a certain level (e.g. 70%). In short, your LVR equals your loan value divided by your investment value. If your investment value falls, then your LVR will increase. If your LVR exceeds a predetermined threshold, then you will receive a margin call. With this, you must deposit additional funds or sell part of your investment to get your LVR back to a reasonable level.
In any case, this is fairly complicated and likely won’t be relevant if you’re just a beginner. That said, if you would like to learn more, Moneysmart has provided a great explanation regarding borrowing to invest.
Does Monzi offer investment loans?
Unfortunately, we don’t.
At Monzi, we’re not lenders. As a result, we are unable to offer you the option of borrowing to invest. With this, if you feel like an investment loan is right for you, then do your research to find a lender who may be able to help.
What we may offer, though, is a quick lender-finder service for you. As a result, if you have an emergency cash need, then you can apply for cash loans today from $300 to $10,000. From there, we’ll do our best to match you with an available credit provider. If everything runs smoothly, you may receive an outcome in just 60 minutes.
Ultimately, Monzi is here to make life easier for Aussies. Rather than dealing with the stress and hassle of finding a lender yourself, let Monzi do the work for you. All it takes is one application and your journey with Monzi is underway.
What can I use a personal loan to cover?
While you can’t use a personal loan to purchase shares or other investments, they can be used to cover a wide range of common expenses. As a guide, Aussies just like you apply with Monzi to access quick cash for:
- Car repairs
- Last-minute bills
- Unexpected household maintenance and repairs
- Emergency travel costs
- Debt consolidation
- Rental bond
And the list could go on. Online personal loans may be a manageable and flexible option if you’re in the midst of a cash shortfall and need money today. Apply with Monzi and we could match you with a lender who may offer the cash you need up to $10,000.
How do I apply?
Guess what! You’re about to discover one of the secrets behind why Monzi is so popular. In short, our application process is quick and easy. In other words, there’s no hassle and you could have it completed in minutes. Just follow the steps we’ve listed below:
- Use Monzi’s loan slider to select a loan amount and repayment term. However, keep in mind that small loans under $2,000 come with fixed, 12-month repayments.
- Complete Monzi’s online application by supplying all the necessary details. Then, hit ‘Submit.’
- Put your feet up. Once you’ve applied, we get to work. Our automated system will attempt to match you with an available lender willing to consider your application.
- You’ll receive an outcome. If we find a match, then your lender will be in touch to outline the next steps.
It’s that easy. However, remember that Monzi is not a lender and won’t offer you a loan. Moreover, we cannot guarantee if your application will be successful. If you are matched with a lender, they will conduct an assessment to determine your outcome.
How to buy shares: the wrap-up
The share market can seem like the great unknown. However, it doesn’t have to be. By understanding how to buy shares, you could make your money work for you. While there are always risks to consider, a few savvy investments here or there could help you grow your nest egg. At Monzi, we’ve tried to outline how you may take initial steps towards this. Now, go out and do your research to determine if it’s viable for you.
If you’re not quite ready to become the Wolf of Wall Street but need an instant cash loan, then Monzi could help you. Apply for cash loans from $300 to $10,000 now. Cut out the hassle. Monzi makes it easy. You may be matched with a great Aussie lender before you know it.
Finally, if you’ve got any questions about Monzi or what our lender-finder service involves, don’t be afraid to reach out. Contact us at firstname.lastname@example.org. We’d love to hear from you.