A guide to understanding, evaluating, and entering the world of stock market investments. Understanding the dynamics of stock markets is important for making decisions that align with your risk tolerance and financial goals.
What is it?
A share is a part ownership of a company that typically generates an income. A company may distribute profits to shareholders as dividends.
How do you invest?
You can buy shares direct from the company if they are being offered for the first time, known as a share float or IPO (Initial Public Offering). More commonly shares are traded on a market such as the Australian Securities Exchange (ASX). You can buy shares in individual companies or you can buy units in a managed share fund such as an exchange traded fund (ETF).
You will need a share trading / brokerage account, search ‘compare share trading accounts’ to find comparison websites to help you choose a trading platform.
Your bank may have its own trading / broking account, or you may choose to use a stock broker or financial adviser.
Where to get more information
- Suitable for longer-term investments as markets can be volatile in the short term
- Historically returns have had more good than bad years, but you must be prepared for your investment to lose value at least once every 4-5 years
- Holding shares in different companies, in different industries, and even different markets helps lower overall risk (diversification)
- Don’t panic and sell investments after they have dropped in value, without a good reason, or before seeking advice. History suggests good quality shares tend to bounce back
- You will pay a brokerage fee every time you buy or sell shares so it’s not cost effective to make small trades often
- If you don’t want to spend a lot of time researching and managing your investments, a share fund may be a better alternative