How to Invest Directly in Shares
If you’ve decided shares are for you and you’ve saved a little bit of money, it’s time for action! You can buy a parcel of shares for $500 although the Australian Securities Exchange (ASX) recommends a minimum of $2,000. You can also invest in shares through a managed fund.
Step 1 – Choose a broker
You’ll need to find yourself a broker and/or a financial adviser to trade on the ASX. There are 100 firms licensed to trade on the ASX and different types of brokers to choose from – from a full service broker (who’ll offer advice and consultation for a price) to a non-advisory broker (who will not offer advice but rather just put in the order for you). There are also plenty of cheap, easy to use online brokers – most of the major banks in Australia now have their own online brokerage service.
This section of the Australian Securities Exchange website has lists of brokers and also suggests things you should know and questions you should ask when you’re looking for a broker.
Step 2 – Research the companies in which you’re thinking of investing
Read widely and seek the best advice possible (don’t automatically take that ‘hot tip’ from Uncle John without doing research of your own first!). Most online brokers have good research facilities – once you’ve signed up you’ll be able to access reports on most companies. You can also jump on the websites of the companies you’re interested in and read their annual reports and finance data sheets.
You’ll get a few tips from the Australian Securities and Investments Commission’s consumer site MoneySmart when you’re researching companies.
The ASX site has free information once you sign up – price, company and trading information for companies listed on the Australian Securities Exchange. You can even pick dummy stocks and then track their progress.
Okay, so it’s not an attractive website. But it does publish Warren Buffett’s annual ‘letters’ – worth their weight in gold according to some finance writers.
Shopping for Shares by Tracey Edwards (2006, Wrightbooks)
Easy to read, fantastic summary of the types of things you should look out for in a company (such as being a market leader, debt-to-equity ratio, dividend yield, return-on-equity, etc.).
Top Stocks by Martin Roth (published annually, Wrightbooks)
Expert Martin Roth lists what he considers the top 100 companies and summarises their stats with explanations at the back of the book. Will save you loads of time.
Step 3 – Buy your shares
When you’ve worked out which companies you want to buy, and they’re at a price you want to buy them at, it’s time to rock. You can buy shares on any ASX trading day (generally any business day between 9am to 4pm) by placing a purchase order with a broker – either at market (you accept market price) or at limit (you list the highest price you are prepared to pay). Orders to buy and sell shares are entered into a computerised trading system by the broker. Buy and sell orders are matched by price in the order they were entered into the system. A trade occurs whenever a buy order is matched with a sell order.
This download talks about when you should consider selling or rebalancing your portfolio and also outlines tax implications.
Lots of useful information about buying and selling shares.
Find a financial adviser
Check out the Australian Securities and Investments Commission’s website MoneySmart – it has loads of great information about obtaining personal financial advice and finding a qualified financial adviser. Experts often suggest you find an adviser who charges by the hour instead of receiving a commission.
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