How to Buy Shares - Beginners Guide
How to Buy Shares - Beginners Guide
Thinking about entering the share market? This "how to buy shares" article runs through basic steps involved when starting out. For example questions to ask yourself about why you want to buy shares, getting set up and ready to buy shares, and finally how to find shares and how to buy shares in Australia.
Why Buy Shares?
Shares are part ownership of a business. When you buy a share you are buying a small slice (equity) of a big company. You buy shares for the dividend income and for the share price increasing over time. You can get started for only $500 ! Before you start ask yourself some of the following questions about why you want to enter the share market.
- Why do you want to start buying shares?
- What are my financial goals and strategy?
- What risk am I willing to take?
- Finally get financial advice if needed to help you construct a clear plan.
The Set-Up Process - getting ready to buy shares
- Choose a Stockbroker
- Set up a Trading Account
- Find a Trade Tracking Solution
1. Choose a Stockbroker - full service or non-advisory
If new to the Sharemarket, it's important to know that you will require the services of a stockbroker to act as your agent to buy & sell shares traded on the ASX on your behalf. Types of Stockbrockers:
|Provides advice on what to invest in||Do not provide specific advice on investing|
|Makes the decisions on what shares to buy & sell on your behalf||You make your own decisions on what shares to buy or sell|
|The full service broker buys the shares on your behalf||They simply execute your buy & sell orders in the market|
|Recommended if new to the sharemarket with limited knowledge of trading||Recommended for people confident in their sharemarket knowledge & decision making|
2. Set up your Trading Account
Your stockbroker will need you to link a bank account to a cash management or trading account to provide money in advance of your trading. Its a good idea to set up a bank account specifically for trading. You will also need to decide on the "Entity", who will own the shares? Will you be buying shares as a company, trust or individual?
It's no secret that building a successful trading portfolio is about keeping accurate trading records and monitoring performance data. Taking some time to choose the right Trade Tracking Solution to record, track and analyse your trading can overcome this often time consuming task. Look for some of the following features when deciding on a trade tracking solution:
One location - Track & manage your share portfolio/s in one place
- Automated retrieval of share prices & dividends
- Save time with an Upload Multiple trades automation
- Profit/Loss & Gain/ Loss automatically recalculated
- Automated custom stop loss/take profit warnings to support your trading model
- Dashboard that automatically updates when changes are made to give you a snapshot of your portfolio performance.
Analysis Features - Charts & Reporting to help you make better trading decisions
- Charts that display the best & worst performing stocks in your portfolio
- Value Added Monthly Index (VMI) to track monthly hypothetical performance of your trading.
- Includes unrealised & realised profit/loss.
- Dashboard for a quick summarised real time display of the key indicators of your portfolio performance.
- Tax Reports. Make sure the solution you choose can generate financial year reports to provide your accountant.
Easy to Use - Clear navigation, quick search capability & a comprehensive help site
It is a good idea to find a solution that offers a FREE Trial. This is the best way to get a feel for the product and whether its a good fit for you. During your free trial look for the above features and try them. Also communicate with the help desk to test their responsiveness!
How to Find & Buy Shares
- Choose which Share Types to buy
- How to find which Companies to invest in.
- How to Diversify your share portfolio.
- How to Place your order
1. Choose which Share Types to buy
Hopefully you have asked yourself those questions on why you want to start buying shares. This puts you in a better position to answer the next questions about what types of shares you want to buy. Below explains some of the basic share types:
Regular Income Shares
If you want regular income from your trading look at companies who pay high dividends. These are usually larger companies listed on the ASX.
Capital Growth Shares
For capital growth it is best to focus on smaller companies who are more likely to reinvest profits in the business.
Steady Returns Less Risk Shares
Australia's "Blue Chip" top 50 companies are a good starting point if you are looking for steady returns. These are well established stable companies with less risk.
High Risk / Higher Returns Shares
Suited to experienced traders willing to risk capital to gain higher returns. These types of shares are from Speculative companies that don't have a long market history.
2. How to choose which Companies to invest in - Research & Compare
If you have chosen a non-advisory broker you will need to put in the time to research and compare companies when buying shares.
Start with a business sector or industry you know
Create a list of companies you are interested in and check:
- Current position in the market.
- Compare it to its competitors.
- Compare earnings per share, price-earnings ration & dividend yield.
- Look at demand. Do their goods and services have longevity?
- Future growth. What is the future growth expectancy?
Resources to use when researching companies:
Some example resources to use when researching companies:
- Annual Reports - these are like a report card for business
- Company Prospectus - for companies issuing shares for the first time.
- Company Alerts - stay current by subscribing to free alerts from ASIC, ASX, Company websites and business & financial media
- Research Reports - use your broker to gain access to research reports of companies on your interest list.
3. Diversify your Portfolio - Spread your Risk
By using a diversification strategy you lower your portfolio risk and should get more stable returns. The reason this works is because different asset classes do well at different times. So if one business or sector fails or doesn't perform well you wont lose all your money.
How to Diversify?
You diversify by investing your money across different "Asset Classes" then diversify across the different options within each asset class. For example the sharemarket is one asset class and different sectors within this asset class are healthcare, resources, energy or financials.
Types of Asset Classes
As mentioned, shares are one asset Class. Others include:
- Bonds (fixed interest stocks)
- Commodities - oil & gas, gold & silver, industrial & agricultural.
A Simple way for investment beginners to Diversify - Managed Funds
Managed funds and managed accounts are a simple way to help you invest across a range of asset classes. When you invest in a managed fund, your money is pooled together with other investors. The fund manager then buys and sells assets on your behalf.
Some offer pre-made diversified portfolios, and depending on their asset allocation you can choose whether you want a conservative, growth or high growth managed fund portfolio. Managed funds charge fees so be sure to check these fees before you choose which one to invest in.
4. How to Place your Share Market Order
An order is your instructions to your broker to purchase or sell a security on your behalf. Orders are used to buy and sell stocks, currencies, futures, commodities, options, bonds and other assets.
If you chose a full-service broker they will provide the advice on what to buy and place all trades on your behalf. If you have gone with a non-advisory broker you will make your own trades either by phone or logging into your brokers trading platform. Once you log into the trading platform the next basic steps will be:
- Choose to buy or Sell
- Select the company you wish to trade by name or stock code
- Enter the number of shares to buy or sell or enter the dollar amount.
- Choose the order type
- Preview and check your order
- Place your order.
- Upload your trades into your trade tracking tool
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XLAutomation accepts no responsibility for any claim, loss or damage as a result of information on this website. The content provided is general information and not for trading purposes. No information should be consicered financial advice or used to make an investment decesion.