Picture yourself as someone who wants to become an informed investor. You may have a basic understanding of personal finance, but the world of share trading may still feel daunting. And it's fair enough
– the industry is awash with jargon and share trading terms.
One question you might have is: "How do I invest in stocks in Australia?”
Well, it all starts with your goals. What do you want to achieve by investing? Are you looking for long term growth, a steady income, or maybe a bit of both? Do you see yourself as a short term trader who lives on the edge, or a long term investor who works towards financial independence ? Once you have a clear goal in mind, you can explore different ways to invest in stocks that align with what you want to achieve.
Here's the thing: depending on your end goals, there are loads of ways you can invest in Australia. But to find the right approach for your targets, it's important to understand the different types of investments available.
Don't worry! In this article, we'll break down how you can invest in Australia in simple ways. This way, you'll be better equipped as you embark on your investment journey.
NOTE: at Pearler, we prefer the term "investing" to "trading". However, many sources use the terms interchangeably. Similarly, the words "stock" and "shares" often appear as synonyms for each other. As a result, this article will alternate between these different terms. Whether you read "trading stock", "invest in shares", or "share trading", the meaning will be the same.
How to invest in the Australia — different investment types
One of the biggest hurdles a first-time investor can face is the uncertainty around different investment types (or asset classes). There's also the completely natural fear of making mistakes. And hey, it's totally normal to worry about making the wrong investment decisions. But guess what? Every investor starts somewhere, and learning is part of the process.
But for you to be more prepared, let's look into the three common types of stock-based asset classes you'll encounter in Australia:
CHESS-sponsored investing
Imagine you've just reached the end of a game of chess, and you want someone to make sure your pieces are secure. That's exactly what CHESS-sponsored investing does for your shares!
CHESS is short for Clearing House Electronic Subregister System. It may sound fancy, but it's a computer system used by the Australian Securities Exchange (ASX). Its job is to keep track of shares on the ASX and make sure everything runs smoothly and securely.
When you invest through a CHESS-sponsored investing or trading account, your shares are held by a separate entity, like a stock broker, on your behalf. They keep track of your shares and ensure that they're properly registered in your name. With CHESS-sponsored investing, you can become an investor in individual shares, as well as
exchange traded funds (ETFs) and listed investment companies (LICs)
.
Custodial investing
Think of Custodial Investing as putting your investments in a special lockbox, where someone else takes care of them on your behalf.
With Custodial investing, you hand over your investments to a responsible custodian who takes care of them for you. They manage and protect your investments, so you don't have to worry about it.
This means that while you're investing in the shares, you don't technically own them directly. The ASX lists the custodian's name and address as the "Owner." Then, the custodian assigns a beneficial interest in the shares to you, their customer.
The custodian also handles all the administrative tasks, such as buying and selling shares, keeping records, and managing dividends.
Micro-investing
Micro-investing is like planting tiny seeds that eventually grow into big trees. It's a strategy where you invest small amounts of money on a regular basis. Instead of needing a large lump sum to start investing, you can begin with just a few dollars.
When you invest in a micro-investing managed fund, you basically buy, sell, and hold units in those funds. This managed fund collects money from multiple customers, and will then invest it based on specific rules. When you put your money in a managed fund, you receive units in return. Each unit represents an equal portion of the fund's overall value.
What are the advantages of each investment type?
Thinking that there's a one-size-fits-all investment option out there can be a trap. The truth is, the best way to invest depends on your own situation and goals. So, let's keep an open mind and explore the options that align with your unique needs. There's no one right answer, but plenty of possibilities to help you reach your end goals!
CHESS-sponsored investing
Ownership clarity
With CHESS-sponsored investment, your name and personal details are directly recorded in the ASX. This means you have clear ownership of the shares you buy. It's like having your name written on a label attached to your stock, making it easier to keep track of what you own.
Direct control
When you buy and hold shares directly on the ASX, you have more control over your investments. It means you can make decisions about buying or selling stock on the ASX without relying on intermediaries or middlemen. This gives you more flexibility and freedom to manage your stock according to your own preferences and end goals.
Custodial investing
Professional expertise
As a Custodial investor, you can rely on the expertise of custodian brokers who manage your investment on your behalf. These professionals are expected to have the knowledge and experience to make an informed market determination. They handle the administrative tasks, such as record-keeping and settlement, giving you peace of mind.
Diversification opportunities
Custodial investing often provides access to a wide range of investment options. These options include different types of investments and ways to invest your money. By diversifying your portfolio, you're able to spread your investments across various opportunities. Diversification can help reduce risk and increase the potential for returns.
Micro-investing
Low barrier to entry
Being a micro investor allows you to start investing with small amounts of money. You don't need a large lump sum to get started. By investing small amounts regularly, you can gradually build your investment portfolio over time. It's like taking small steps towards your financial goals.
Accessibility and convenience
Micro-investing platforms are user-friendly and accessible through a mobile app or website. They provide a convenient way to invest and manage your investments anytime and anywhere. In fact, as a would-be trader, you're likely a key target market for most micro-investing platforms. You can easily monitor your progress, make adjustments, and stay engaged with your investments, even if you're on the go.
Remember, these advantages are just some of the highlights for each investment type. It's important to know that each has its own drawbacks too. Plus, the perfect time to use CHESS-sponsored, custodial, or micro-investing depends on your personal situation and what you prefer. It's also key to consider your own goals and risk tolerance when choosing the right investment approach.
How to invest in shares
One thing that many beginner investors struggle with is not fully understanding how to undertake share investing on the stock market. When it comes to share trading, thorough research and analysis are important. By taking the time to gather information and analyse the potential of different stocks, you can make more informed choices.
There are places you can trust to get helpful information. Verified websites, financial news, online tools, and reliable investment apps can give you insights and data about stocks. You can also look online at financial statements, news about companies, and trends in the industry. These sources help us understand how a company is doing and where it might be going. Through their help, you can learn more about the stock market and make considered investment choices.
When evaluating stock, consider a company's ability to stay ahead of their competitors for a long time (see our article, " What is a moat? "). There are key factors that could indicate if a company has a strong moat, but it also pays to understand why they matter in investing.
We get it — investing in stock can be intimidating. But you know what's great? There are online platforms out there that can make share trading a whole lot easier. These online brokerage apps are designed to simplify the process and make it more accessible, especially for beginner investors.
Do I autoinvest or manually invest in shares?
One of the ways these platforms makes investing in stock easy for you is by allowing you to either autoinvest or manually invest.
Want to see how it can be easily done? Take Pearler, for example.
Autoinvest
If you prefer a hands-off approach, you can set up Autoinvest. This approach is often favoured by the long term investor, rather than the short term trader.
To set up Autoinvest, just head to your
Automate
page and follow the prompts. You can create multiple setups based on your preferences.
Choose a funding method, like recurring deposits or roundups, and decide whether the funds should go into your Shares portfolio or Pearler cash account.
With Shares Autoinvest, once your Autoinvest Shares Cash account reaches a certain amount (let's say $2,000), it automatically invests the whole balance. Any leftover amount is saved for the next round of Autoinvest.
You can find a full walkthrough at " How do I automatically invest with Pearler Shares? ".
Manual Investing
If you enjoy taking charge, you can manually invest in stock. Simply go to the
Invest > Shares
page on Pearler.
You can find stock by browsing, filtering, or using the search bar at the top. Once you've found a stock you're interested in, click on "Buy" or add it to your Dashboard. On the buy screen, enter the dollar amount you want to invest.
Double-check the details and confirm your order. During market hours, Pearler will do its best to purchase as many full units as possible with your allocated funds at the market price. Any remaining funds will be returned to your Primary cash account for your next investment.
This example shows how there are available platforms with tools and features that take the confusion out of investing. This way, you can focus on growing your wealth with confidence.
How to invest with micro-investing
Some people wonder if investing small amounts of money can actually make a significant impact on their financial goals. But here's the thing: micro-investing is all about starting small and building over time.
One way to possibly make micro-investing even more effective is by setting investment goals. By having realistic end goals and timeframes, you'll have something to strive for and stay motivated along the way.
Do I autoinvest or manually invest with micro-investing?
Similar to share trading, a number of platforms allow you to build your micro-investment either through auto or manual investing.
Let's take Pearler to demonstrate how these options can be used.
- Start by browsing the available funds on the Explore > Invest > Micro page.
- When you find a fund you like, you have two options: click "Buy" to make an immediate purchase or add it to your Dashboard for future reference.
- If you prefer a more automated approach, you can set up Autoinvest. Head to your Automate page and follow the prompts. You can even add multiple setups based on your preferences.
- With Autoinvest, you have the flexibility to make one-off contributions or set up recurring deposits or roundups. Your contributions will be invested right away, helping you grow your investments.
- Alternatively, you can manually invest by entering the dollar amount you want to invest on the buy screen. The entire amount will be invested for you.
- Before finalising your investment, double-check the details and confirm your order.
Micro-investing can be as simple as this. Whether you choose Autoinvest or manual investing, you have the tools and information start growing your wealth in a way that suits you best. So, take that first step, explore the available funds and investment platforms that could help you on your investing journey.
Investing in stocks as a personal journey
Investing is a personal choice that should align with your individual circumstances and goals. It's important to recognise that what works for one person may not work for another. Before you start share investing, consider your own suitability for it. Take into account factors such as your risk tolerance, time horizon, and financial situation.
Remember, investing is an ongoing learning process. Stay curious and be open to new ideas. Keep learning about different investment options, market trends, and economic factors that can impact your investments.
Look for user-friendly online platforms that will support you on your investing journey. Remember: the right investment app or trading platform for someone else may not be right for you. Make the most out of their online tools and resources to help you make informed decisions. But never forget: the final choice is yours. So take charge of your financial future, explore your options, and make investment decisions that are right for you.
Happy investing!
