For most of us, getting started in the share market can be quite a daunting proposition, especially if you’re unfamiliar with the market’s ins and outs. I don’t think making an investment in the market needs to be such an uphill battle. That’s why I’m going to talk you through how to buy shares in Australia in 6 simple steps.
How To Buy Shares In Australia – Contents
- 1. Think about your investing style
- 2. Make a wishlist of potential investments
- 3. Choose an investment broker
- 4. Select the shares you want to invest in
- 5. Place your order
- 6. Monitoring & Selling
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How To Buy Shares In Australia – Step 1: Think about your investing style
The first thing to consider when learning how to buy shares in Australia is if you’re a passive or active investor. A passive investor chooses to have a buy and hold the portfolio for the long term and have minimal interest in or time for analysing individual businesses. Instead, they would much rather invest in an exchange-traded fund (ETF) that tracks an index like S&P 500 or ASX 200.
Check out my article Passive vs Active Investing for further analysis of the two investing styles.
If you’d like to learn more about ETFs, check out my thoughts on the best ETFs in Australia, or the 6 things you need to know about an ETF before investing.
Other things you’ll need to consider before investing are your investing time horizon, and appetite for risk. Both of these factors will drive your asset allocation choices. Check out this article on asset allocation for more information and why you need to consider it.
How To Buy Shares In Australia – Step 2: Make a wishlist of potential investments
Once you’ve thought about the investment approach you’d like to take and your appetite for risk, it’s time to start thinking about the investment vehicles you’d like to employ to help you reach your investing goals.
Making A Wishlist For Passive Investors
Making a wishlist is a simpler exercise for the passive investor not interested in picking stocks.
To start your wishlist, it’s worth considering a handful of broad-based, index-tracking ETFs that will give you global diversification at a low cost (MER). Check out this post the learn how to invest in index funds through ETFs in Australia.
For example, a combination of ASX: VAS, ASX: VTS, and ASX: VEU will provide you with access to the largest companies in Australia, America, and the rest of the developed world at a low cost.
Making A Wishlist For Active Investors
If you want to have a go at active investing, your wishlist should consist of companies that you’re capable of understanding and have an interest in.
Investing in businesses you understand makes your life a whole lot less stressful when the stock market is in a funk. Why? Because you have confidence in and thoroughly understand the businesses you’re invested in.
Finding Companies You Understand
To find businesses within your circle of competence, start by asking yourself two simple questions.
- What do I spend my money on? and
- What do I do in my spare time?
For instance, if you spend stacks of time and money at Bunnings, businesses like Wesfarmers, the parent company of Bunnings might interest you. Or if you love getting your hands on the latest tech, JB Hi-Fi might be worth looking into.
Once you have answers to these questions, I’m confident you should be able to start formulating a shortlist of listed businesses you can understand and analyse further.
A good place to start looking for a business that might appeal to you is Yahoo Finance. Yahoo Finance categorizes different businesses into their particular sector so you can filter through them with ease.
A Wishlist Isn’t A Green Light
Remember, making a wishlist is purely a starting point to get you thinking about the types of companies you’d like to invest in. As an active investor, you’ll need to consider several factors including but not limited to price (value), competitive advantage, and management competency/alignment before making an investment in an individual company.
Check out my other articles on Active investing for more information on the factors worth considering.
How To Buy Shares In Australia – Step 3: Choose An Investment Broker
Now to the easier part. Picking a broker. A brokers core role is to act as an intermediary between buyers and sellers. It’s important to understand when you’re purchasing a stock, you’re purchasing that stock from a seller. That seller has decided to sell their stock at a price you’re willing to buy it and vice versa. It’s your broker’s job to facilitate this transaction and for their efforts, we pay them a small fee.
Currently, all of Australia’s Big 4 Banks have an online brokerage platform with analyst insights and company analysis tools/information. There are other online brokers like Self Wealth and CMC markets who provide a similar service. Online brokerage is certainly the cheapest and most popular option for everyday investors with brokerage being between $5-$20 per trade.
Keep in mind that brokerage fees may increase depending on the size of your investment.
A New Breed Of Brokers
Recently a flurry of new-age brokers like Pearler, Superhero and Stake have entered the marketplace with intentions to steal market share from the incumbents. I’d highly recommend checking these guys out too!
Currently, I have my investments with Commsec, however, I do respect, and align with Pearlers ‘get rich slow mantra’. If you decide Pearler is the right fit for you, you can use this affiliate link to get your first trade free!
Full Services Brokers
If you’re looking for something extra, a Full-Service Broker will provide you with additional advice and support. Typically an FSB can provide investment options and potentially invest on your behalf. With brokerage starting at around $80 per trade, an FSB is more suited to investors with larger amounts of capital.
It’s important to note that the more you trade, the more brokerage fees your broker takes from your pocket. Stock Brokers are salespeople who work on commission. This means their investment advice may not always be in your best interest. Take their advice with a grain of salt and try to form your own opinion before making an investment.
If you’re looking to start a little smaller, there are some great micro-investing platforms out there that automatically invest your spare change. I’ve used Raiz and Spaceship in the past and had no problems with either platform. Commsec pocket is another alternative, although I haven’t personally used it.
If you’d like to sign up with either Raiz or Spaceship, you can use the affiliate links below to open your account with a free $5.
How To Buy Shares In Australia – Step 4: Choose The Shares You’d Like To Invest In.
Once you’ve set up your trading account, you’re ready to make your first investment. $500 is typically the smallest amount you can use to invest assuming you’re using a traditional online broker. This cap doesn’t apply to micro-investing platforms like Raiz and Spaceship.
Start by logging into your trading account and searching for the quote/symbol of the stock/ETF you want to invest in. For example, Coles Ltd code on the ASX is COL.
The Bid & Ask Price
Once you find the listing you’re looking for, you’ll see the current price buyers are offering to pay for one share, this is called the bid. It will also let you know what price sellers are offering and what the last price the stock was actually purchased at, these are called the ask and last price respectively.
A good online broker will do their best to get you a price closer to the bid when placing a buy order and closer to the ask when placing a sell order. On the flip side, a not so good broker will do the opposite.
How To Buy Shares In Australia – Step 5: Place Your Order
To place your order, you’ll need to select buy. From there you’ll be prompted to choose the number of shares you want to purchase and at what price. For example, if you want to invest $10,000 in a company with a last price of $100 per share, simply divide $10,000 into $100 and you’ll end up at 100 shares.
Now that you know how many shares you’d like, you need to determine if you’re going to set a limit order or a market order.
A limit order is a maximum price you’d be willing to pay per share for a business/ETF. Let’s say the maximum you want to pay per share is $100. If you employ a limit order at $100, your broker will do their best to fulfil your order at or below that price. Never over.
If nobody is willing to sell their shares at the price you set, your limit order will remain with the broker until the price falls, or the order expires. The beauty of limit orders is that you’re able to specify exactly how much you’d be willing to pay for your shares. Unfortunately, it could take a while to get there depending on how low you set it.
When placing a market order your broker will simply get you a price as close as possible to the last price. This process usually happens in seconds. A market order is fantastic because it won’t leave you waiting for days or weeks for your order to execute.
Keep in mind that you may pay a little more per share if the price is moving up, or a little less if the price per share is moving down.
Don’t forget to transfer to your share trading account!
Online brokers require you to have adequate funds in your share trading account (created when you sign-up) to cover the cost of your investment. The amount you need to transfer will be a combination of the amount you invested plus any brokerage and/or transactions costs.
All trades on the ASX and Chi-X settle after two business days. That means your account needs to have sufficient funds available beforehand! Certain brokers will charge fines if your funds haven’t hit your brokerage account before the trade settles, so make sure you’re all over it like a fly on sh*t.
How To Buy Shares In Australia – Step 6: Monitoring & Selling
Once you’re invested, you’ll need to monitor your investment to some extent, and potentially sell it (depending on your approach).
A passive, long term investment in a broad-based index-tracking ETF generally doesn’t need to be monitored frequently. Remember a passive long term investment is designed to work away for you in the background. On the flip side, a short term trade into a single share will require more of your attention.
Sharesight have developed a great tool to track the performance of all your investments in one place. Their free version allows you to monitor up to 10 holdings at no cost. Alternatively, you could use a good old spreadsheet to track it all in one place.
The process of selling is very similar to the way you buy shares as described earlier. Just like buying shares, you can sell through a limit order or a market order. A market order will sell your shares straight away as close as possible to the last price. A limit order gives you the option to set the lowest sale price you’d be happy to accept.
Remember, there are certain capital gains, and other tax implications you need to consider before selling. This guide on investing and tax from Money Smart is a solid starting point. If you need more advice on your specific situation, have a chat with a licensed tax accountant.
Hopefully this article has given you some insight into how to buy shares in Australia. Remember, knowing how to buy shares in Australia is by no means a green light to invest in the first stock you see.
The work required to build a successful investment portfolio demands due diligence and patience, anyone who tells you otherwise is probably ill-informed. So with that said, get researching!
About The Author – Jesse
Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it.
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Disclaimer: This website (the “The Money Pal”) is published and provided for informational and entertainment purposes only. The information in the Blog constitutes the Content Creator’s own opinions and it should not be regarded as financial advice.