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How To Invest In Australia For Beginners 2023 (Easy) | ASX Stock Market 101 [Step By Step]

How To Invest In Australia For Beginners 2023 (Easy) | ASX Stock Market 101 [Step By Step]

Investing in Australian Shares for Beginners

In this blog post, I will explain the best way to invest in Australian shares if you’re a beginner. I will also provide a simplified explanation of how the Australian stock market works and how you can make money from it. By the end of this post, you’ll have enough information to decide if you’re ready to start investing and sign up for an online stock brokerage account.

What is the Stock Market?

The stock market, specifically the Australian Securities Exchange (ASX), is a place where you can buy and sell shares of publicly listed companies in Australia. Companies like Commonwealth Bank, Woolworths, JB Hi-Fi, and Telstra are all publicly listed on the ASX, and by buying shares of their company, you become a part owner on paper.

How Do You Make Money in the Stock Market?

There are two ways to make money in the stock market:

  • Share Price Appreciation: If the share price of a company goes up, the value of your shares also increases. You can sell the shares at a higher price and make a profit.
  • Dividends: Some companies pay dividends to their shareholders as a thank you for investing in their stock. Dividends are cash rewards paid out from the company’s net profits.

Investing in Individual Companies or Index Funds

When it comes to investing in the stock market, you have two options:

  • Investing in Individual Companies: This involves buying shares of specific companies. While it can be more profitable, it also carries more risk since it’s a single company.
  • Investing in Index Funds: Index funds, such as ETFs, mirror the performance of a designated index, like the ASX 200. This diversifies your investment and historically reduces risk.

It’s important to note that stocks and shares mean the same thing, but they are used in different contexts. Stocks refer to broad ownership of a company, while shares represent the exact amount of ownership in a company.

Why should you invest instead of saving your money in the bank? While saving money is generally a good idea, keeping it in a bank account for a long time is not ideal due to inflation. Inflation is when the purchasing power of money decreases over time, resulting in an increase in prices. Essentially, your money loses value over time. For example, a Big Mac that costs $5 today may cost $7 in 10 years. In Australia, the inflation rate is about 2% per year, so keeping your money in a bank account means you’re losing money in the long term.

On the other hand, investing in the stock market can be a good way to combat inflation. While the stock market may be unpredictable in the short term, historical data shows that it has consistently gone up in the long term. Past performance is not an indicator of future results, but it is a good historical guide to consider. However, before you start investing, there are two important things you need to do.

Paying off high interest debt

Prioritize paying off high interest debts such as credit card debt and personal loans. Investing in stocks may offer a return of 7-10% on average per year, while credit card debt can have interest rates as high as 20%. By paying off high interest debt, you are saving yourself from paying excessive interest and getting a guaranteed return.

Saving up emergency funds

It is crucial to have three to six months’ worth of expenses saved up in case of any unforeseen financial crisis or job loss. This provides financial security and allows you to avoid selling shares at a loss during a market downturn. Having an emergency fund also reduces the psychological pressure and improves the quality of life.

Buying your first stock

To start investing in the stock market, you need to sign up for an online brokerage account. There are several platforms available in Australia, such as ComSec, SelfWealth, Stake, Perla, and CMC Markets. Do some research, watch videos, and read articles to find the best platform for you. Remember, the most important thing is to educate yourself and start investing to develop good financial habits and work towards financial freedom.