'I wish I knew more about shares…I wouldn't even know where to start'. This is one of the most common things I hear when people discuss investments.
People often want to invest in the shares of large companies like Wesfarmers Ltd (ASX: WES) – which owns Coles and Officeworks – but don't know where to start. When it comes to investing in shares, in my opinion there are 3 broad steps:
- Getting started
- Learning how shares 'work'
- Finding good shares to invest in
Getting started
To get started in shares, you will need to sign up for an online brokerage account. This is just an account that holds your money for buying shares, and lets you place orders to buy and sell, as well as see what shares you own. Most of the Big 4 banks including Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB) have a brokerage account. There are also plenty of high quality and cheap non-bank brokers in the market like Belldirect, Interactive Broking, and CMC Markets.
Banks usually charge a lot more for their brokerage (around $15-$20 per buy or sell is common) but bank brokers can have extra advantages such as integrating your brokerage account with your normal online banking. Ask around and you will get plenty of good opinions on brokers.
Applying is usually as simple as filling out a form and attaching copies of your identification and posting it to the broker/ uploading it online.
Once your account is open, you will need to transfer some money to it. The minimum value of shares you can buy is $500, but you will need to have slightly more than that amount, to cover brokerage and because shares never round to a flat $500.
How shares work
The next step is learning how shares work. This is a topic that really needs a separate article, but here are the basics. Go to the Google Finance website and type in 'asx' (for Australian Stock Exchange) followed by the name of the company you think is interesting.
For example, I might have heard of a bank called 'commonwealth':
Here we can see the basic information of Commonwealth bank shares comes up. The 'shares 1.72B' in the right-hand black circle tells you that there are 1.72 billion commonwealth shares on issue. So when you buy 1 share, you really own 1/1.72 billionths of Commonwealth Bank's business.
If you multiply the number of shares by the share price of $84.81, you get the 'mkt cap' (left-hand black circle) of $146.71 billion. I.e., you could buy every share in Commonwealth Bank for $146.71 billion (how much is that in smashed avocado…?).
So to recap:
- Find a broker
- Apply to open a brokerage account
- Begin transferring money to your account
- Get transfixed by the fact that share prices change every second and spend hours watching them
- Find shares that you might like to buy
It sounds like an alien world, but getting started is not as difficult as it seems.
