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Investing Guide For Beginners In Australia

Views 2782022.10.20

Deciding to invest in shares can be a powerful step in the direction of a robust portfolio. If you’re a beginner looking to take your first steps into the stock market, we’ve put together this helpful guide to give you all the insight you need to begin understanding the share market and build your initial investment strategy.

What are shares?

Simply put, shares represent a part ownership in a business. If that business is profitable or perceived highly, shares are more likely to be priced higher accordingly. Businesses that aren’t profitable, or that have a low perceived market value, are likely to sit at a lower price point.

How does investing in shares work?

There are multiple investment options when it comes to investing in shares. You can either invest directly, where you own shares on your own, or invest in a pool of money alongside other investors within a managed fund, which is then managed by a fund manager. This is called indirect investing, and is often a strong preference for those who are just starting out in the share market, as you don’t then need to decide which specific share you want to invest in. It utilises the benefit of professional advice without adding the additional step of seeking financial input.

What to do before investing?

While it may be exciting to start investing, it’s important to take a number of key steps first. By approaching your initial investments within a wider strategy, you can save yourself the heartache of confusion, wasted brokerage fees or the potential to lose money due to misinformation.

Prepare a budget

Budgets are necessary tools for all investors, beginners or experienced alike. They allow you to identify the surplus in your budget which can be allocated into your investments. If you invest without a budget, you risk running out of money for your daily needs.

Have an investment plan

A necessary ingredient of a solid investment strategy? Having an investment plan! Creating a plan can help you to identify the investments that suit your investment goals and risk tolerance, which, in turn, can enable you to achieve your financial goals faster. Financial advice can also be beneficial in drafting your investment plan.

Pay off high-interest debt

Before you begin investing in stocks, it’s important to pay off high-interest debt. This can help you save money over the long time through reducing or removing any interest associated with personal debts. Generally, it’s advised to clear any high-interest debts before making an investment, but an understanding of your personal goals and your budget can help you to balance long-term goals.

Establish an emergency fund

Nobody likes nasty financial surprises. If you place all of your excess money in investments, you may not have the liquidity you need to respond to an emergency. It’s advised to build a healthy emergency fund that can cover urgent, unexpected costs. The general rule of thumb is to work towards three months of living costs within an emergency fund.

Understand your investment goals

Each investor’s goals may be different, so by understanding your own goals, you can build an investment strategy that suits them. It’s important to understand individual priorities and desires, as these feed directly into the kinds of investment decisions you’ll need to make.

Why are you investing?

The first question to ask yourself is why are you investing? Perhaps you’re looking to build a long-term investment strategy that can serve you in retirement, or you’re willing to take on some short-term risk for the sake of a fast gain. Identify the ‘why’ behind your desire to invest, and look at what that means for your investment strategy.

What is your risk tolerance?

Some investors will prefer a conservative approach to their investments, while others take on a more aggressive approach to risk. Consider how much risk you’re willing to tolerate for the sake of reward, as well as how much risk you can genuinely afford against your capital and lifestyle requirements.

Be prepared for ups and downs

There’s a reason investing in shares can be risky, and being prepared for the ups and downs of the market is a must for any beginner investors. While you may have a great day when you see your shares rising in value, it’s all too easy to feel disheartened when they take a downwards turn. Learn about the ebbs and flows of the market and consider the long-term big picture, building emotional resilience when it comes to your ongoing investment outcomes.

What is your priority?

Different life stages result in different priorities. If you’re young and working full-time, you may need to prioritise between building a savings account, term deposits, a house deposit, travelling, starting a family, or investing in shares. Consider your individual needs in correlation to your goals and objectives, and build your investment strategy with these in mind.

How much time do you want to spend on investing?

Direct investment requires a significant amount of time to research individual stocks, understand market movements and buy or sell shares according to your findings and strategy. Indirect investment takes more of a ‘set and forget’ approach. By identifying how much time you want to give to your investment journey, you can decide which approach will suit you best.

Where to invest money?

So you’ve built a budget, an investment plan, paid down high-interest debt, saved an emergency fund and identified your investment goals - what now? Now it’s time to consider where to invest your hard-earned money in accordance with your goals and desired outcomes.

Investing in shares

Investing in shares means you’re looking for an increase in share price, or a share in the company’s profits, in order to see a return on your investment. Make sure you’ve been able to research as your investment strategy requires, arming you with the information you need to make either a direct or indirect investment.

Why is investing in shares a good decision?

While some people may be scared off from investing in shares due to the risk of losing some (or all) of their capital, it’s important to keep in mind that money can only work for you if you’re willing to take on some risk. Without it, there’s no hope of reward! By investing in shares, you’re giving yourself a better chance of returns than simply saving those funds in a bank account for a rainy day.

How much money do you need to invest in shares?

Good news for all beginner investors: there’s no magic amount of money you need to reach before you can begin investing. Even if you only have $50 ready for investment, you can begin investing in the share market and watch your progress over time.

Is $1000 enough to start investing?

$1000 is certainly enough to start investing! This is a great amount for beginners looking to dip their toes into the share market, and can also represent a positive goal in terms of planning your first investment.

Are you ready to start investing in shares?

If you feel you’re ready to start investing in shares, here’s some helpful tips.

How to pick your first shares

Choosing your first shares can be an exciting part of the beginner investor’s journey. When picking a company to invest in, consider whether or not the products and services they provide will continue to be in demand in the future, whether or not they have opportunities to grow, and who their competitors are (and how they’re performing). It can also be useful for beginner investors to invest in companies within industries they understand, which will make it easier to evaluate the company’s track record and progress.

Basic investing terms to know

If you’re going to walk the walk, you’ll need to talk the talk! Necessary investing terms for beginners include…

Assets - Assets are items that have value within the market, often taking the form of resources within a company which can generate future economic benefits.

Sticker price - this is the intrinsic value of a business, despite the selling price on the market.

Earnings per share - these are the net earnings of the company divided by the number of shares in the company. They’re also known as profit per share.

Blue-chip - this is a term used to describe stocks issued by established companies which have usually been around for a long period, having proven their ability to bounce back from economic downturns.

It’s worthwhile spending some time researching basic investing terms in order to be comfortable with the language of the industry.

Basic investing metrics

Much like basic investing terms, understanding basic investing metrics is also of great importance for beginner investors. Familiarise yourself with…

Price-to-earnings ratio - this is a metric that helps investors in determining the market value of a stock when it’s compared to the company’s earnings.

Price-to-book ratio - this measures whether a stock is over or undervalued. It achieves this by comparing the net value of a company to its market capitalisation.

Debt-to-equity value - this is a stock metric useful in helping investors determine how a company finances its assets.

Free cash flow - this is the cash a company produces through its operations, once the cost of expenditures is removed.

PEG ratio - this is a modified version of the price-to-earnings ratio which also takes earning growth into account, measuring the relationship between price/earnings ratio and earnings growth.

Value stocks vs growth stocks

Growth stocks are companies which are considered to have the potential to outperform the overall market, thanks to their future potential. Value stocks, however, are companies that are currently share trading below their true worth, therefore providing a superior return. Making the right choice is only possible within the context of your individual investment strategy.

Things to look for when choosing your first shares

When looking for your first shares, it’s important to begin by understanding your risk appetite. By pairing this with an understanding of the investment environment, your existing awareness with the company or industry on offer, and the results of your research and analysis, you can gain insight as to whether or not that share is a strategic investment for your strategy.

It’s also important to be familiar with the terms and conditions of your investing platform of choice.

Stay current with the Australian economy

An educated investor is an empowered investor. By regularly staying up to date with the Australian economy, you’ll have the information you need to make decisions about adjustments within your investment portfolio. Moomoo makes it easy to access key information about the Australian share market through its real-time market data and educational tools.

Start with blue-chip companies

Unsure where to start investing? Look for blue-chip companies. These are businesses you’ll most likely already be familiar with.

Conclusion

Moomoo offers a beginner-friendly environment for buying shares in Australia. Whether you’re looking to purchase your first share, or you’ve been investing for years, moomoo provides access to comprehensive features that can empower your investment strategy. Sign up today and begin your investing journey!

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This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose of the above content.

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