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A beginners guide to financial investments - How to start investing

Jodie Humphries avatar
Jodie Humphries
- 7 min read
A beginners guide to financial investments - How to start investing

Thinking about investing but not sure where to start? This article is the ultimate beginners guide to investing, covering all the basics, including where to invest, how to invest, and how to prepare for your first investment.

How to begin investing

Before you enter the investment world, it’s important that you critically assess your financial situation to make sure you’re in a good position. You don’t want to be investing money you don’t actually have, which is why it’s important to review your bank balance and consider if you can afford to spare some cash.

It may be worth first creating a budget so you don’t end up investing more than you should. Your budget should clearly distinguish how much money you can afford to put towards your investments and how much you need to keep for expenses.

Then, you may want to consider developing your investment strategy. When you know how much money you have to work with, you can move on to distinguishing what kind of investor you want to be. Thinking about your goals and risk tolerance (i.e. your ability to cope with falls in the value of your investment) will help you decide on what investment path to go down.

Where to start investing

Once you’ve got an investment plan sorted, it’s time to look at where you can actually put your money in an attempt to grow it. From high-interest savings accounts to shares, we break down the different ways you can invest below.

High-interest savings account

Instead of having spare money sitting in an account that bears little-to-no interest, you could consider moving it to one that does. Putting your extra cash into a high-interest savings account is considered the least risky investment, as it provides stable, regular income through interest payments. That said, the value of your cash could potentially decline over time, even if its dollar amount stays the same. This can occur if the costs of goods and services rise too quickly (inflate) and your money buys less than it used to, meaning your interest rate is lower than the annual rate of inflation, so be sure to bear this in mind.

Term deposit

A term deposit allows you to lock away an amount of money for a certain period of time, with a fixed interest rate, in an effort to increase your total. Unlike a high-interest rate savings account where you can take out money whenever you like (albeit with some withdrawal conditions), with a term deposit you have to sit tight and wait until the term ends to access your cash.

More often than not, term deposits may offer a higher interest rate than savings accounts but, again, the value of the cash could decrease depending on inflation.

Bonds

A bond is a form of lending. When you buy a bond you’re essentially loaning money to an entity (typically a company or government) to fund projects or activities. In exchange for your loan, the bond issuer will pay you regular interest until the loan period ends, after which you’ll receive your original loan back. 

Something to keep in mind is that while bonds are considered a lower-risk investment, certain types can decrease in value over time, meaning you could potentially get back less than what you put in.

Shares

Shares represent units of ownership in a company, meaning when you buy one you’re essentially the part-owner of a business. To buy shares, you’ll need either a full-service broker or an online broker - both of which will incur some sort of service fee. 

There are two ways you can earn money from shares:

  • By profiting from capital growth (buying the shares at a low price and selling them for a higher price)
  • From dividends (when companies pay you a percentage of their profits).

Shares are commonly bought and sold on a stock exchange such as the Australian Securities Exchange (ASX). Here, you can invest in singular shares or a group of shares via Exchange Traded Funds (ETFs). You can also invest in open-ended shares where there’s an unlimited amount available or close-ended shares where there’s only so many to go around through an Initial Public Offering (IPO).

 

Shares are dubbed one of the riskiest types of investments because of their unpredictability. The key when investing in shares is to clearly understand how the company makes money, operates, and compares to their competitors. You should also read up on any company reports and keep up to date with the latest market news to ensure you’re making informed investment decisions.

Managed fund

If you want to get in on the investment action but don’t want to call all the financial shots, a managed fund could be a good solution. 

In a managed fund, your money is pooled together with other investors and used to invest in either a single asset fund or across a range of asset classes all within the one fund (often called a diversified fund).

With a managed fund, rather than buying shares in a business you’re buying units in a fund that’s managed by a professional. The fund manager is responsible for making investment decisions and trying to make the best return. In other words, they choose what investments to buy and sell, and when to do which, so you don’t have to.

Bear in mind that you’ll usually have to fork out fees for a stake in a managed fund.

Property

Another way to invest is buying a property now and selling it later, for a higher price than what you bought it for, to make profit. 

Property investments can include:

  • Residential properties
  • Commercial property
  • Retail premises
  • Hotel rooms or hotels
  • Industrial property 

It’s important to keep in mind that property prices aren’t guaranteed to rise and it can be more challenging and time consuming to sell quickly, unlike other investment options.

Superannuation

Most of us are putting money into our super everytime we get a paycheck. If you can afford it, making additional contributions to your super is a great way to boost your retirement savings and potentially reduce how much tax you have to pay.

Micro-investing

Micro-investing is a way to kick-start your investment journey without making a big commitment. It involves depositing minimal amounts of money, from your everyday transactions, into an investment portfolio (usually via an app). For example, a large popcorn at the cinemas at $5.50 will be rounded up to $6 and the 50 cents would then be invested. 

While returns tend to be lower as you have less to invest, over time you could build a substantial nest egg depending on how often you transact and how the market treats you.

Each micro-investing provider offers different investment options, so be sure to read up on what you’re investing in before you sign up.

How much do I need to start investing?

The bare minimum to buy a share on the ASX is $500. However, for managed funds it’s a little bit different. Many fund managers have a minimum investment amount of $5,000 to $250,000 for everyday investors (some call for less money but they’re few and far between). The reason the investment is higher is because fund managers make their money from either ongoing fees on large sums invested or commission on large trades, so they price those with smaller balances out of the market. 

When it comes to micro-investing, you can usually partake for less than $500.

What is ethical investing?

Ethical investing is about investing in companies that are doing something positive for the environment or society, or simply avoiding ones that are bad for both. It’s ultimately about putting your money in a place that aligns with your personal ethical values, so you can feel good about where you’re putting your money.

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The Bottomline

Getting started with investing may seem daunting, but it doesn’t have to be. We hope this investing for beginners guide has helped you understand the investment avenues that exist, and what they involve, so you know how to start investing in Australia. Remember, if you decide to invest, always consider your financial and personal circumstances first.

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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