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So you have built up some savings and decided it’s time to step off the sidelines and begin investing. At this point, fear, overwhelm and analysis paralysis can begin to take hold. Where should you invest? What if you get it wrong and lose it all? When is the best time to start? These are just some of the questions that many first-time investors have.
The good news is that there are simple solutions available to help you get started, grow your confidence and reduce your risk along the way. We share three places to get started investing, along with all their benefits and downsides, here.
ASX Sharemarket Game
The Australian Stock Exchange allows you to experience investing in the stock market through their Sharemarket Game. This online game is a great starting point for every first-time investor.
How Does It Work?
It works by giving you $50,000 of virtual cash and allowing you to place trades using live share prices. It holds your hand through developing your investment strategy and picking shares you wish to buy and sell, and then carrying out the trade. You can play alone, or choose to join in with friends and form a team. To join you just need to sign up via the ASX website (it’s free).
What Are the Benefits?
The main benefit of the game is that it allows you to track real investments in real time and see how your investments would work out. You aren’t investing real money and there are no fees involved, so it is a pretty risk free and easy way to get practised at investing, without the pressure to get it right.
What Is the Downside?
The main downside is that you aren’t working with real money. Which means that you aren’t benefiting from any profits you would have made from a real trade. In addition, not every investment option is available to choose from.
Keep in mind that while your investments may perform well in the game, it is no guarantee you would make the same choices with your own, real, cash. Even so, the downside in participating is minimal and there is a lot to be gained from participating.
Micro-Investing Apps
Investing virtual money is great, however, when we know that we are using pretend money, it can be easy to feel more relaxed and confident about our investment decisions. This is why micro-investing apps can be a great next step for beginner investors. They give you the opportunity to get a taste of investing with real money, without having to risk large sums.
How Does It Work?
These apps work by connecting your investment account with your nominated bank account to enable ease of transferring funds via direct debit. You can then choose to invest regular amounts at a time, invest a lump sum or even use a round-up setting that enables you to transfer loose change into your investment app.
What Are the Benefits?
The main benefits of micro-investing apps are that you don’t need large sums to invest so it is easy to get started. They can also remove decision overwhelm by giving you a limited selection of investment options to choose from.
What Is the Downside?
The primary downside is the fees involved with micro-investing apps. Depending on the amounts you are investing and frequency, you may find that the fees (although small) make up a large portion of your investment compared to what you would pay if you were investing larger sums yourself. You also don’t have as wide a choice or control over the investments available and it may not be the most tax-effective way for you to invest.
Micro investing apps are a great starting point as they enable you to dip your toes into the water and get a feel for investing, without taking on significant risk. Just make sure that once you have a few thousand dollars to invest, you reassess the suitability of micro-investing apps against other available options (such as managed funds, ETFs and buying shares directly yourself).
Index Funds
If you find yourself with larger sums you are ready to invest, Exchange Traded Funds (also known as index funds) make a logical next step.
How Does It Work?
In order to invest in an ETF, all you need is to get to know which ETFs are in the market and take your pick. The easiest way to obtain this information is to visit the website of the Australian Stock Exchange or research houses such as Morningstar to first find out which index funds are on the market. From there, you can go to the particular fund’s website and download their product disclosure statement (PDS), which will tell you more about their investment philosophy and fees. Once you have made your choice, just set up an online trading account and you are ready to buy your first shares.
What Are the Benefits?
The beauty of starting out with index funds is that they’re low-cost, transparent and don’t require a minimum investment. They also make it easy to diversify your investments just by picking funds that track differing index benchmarks (for example, you might like to invest in Australian companies, international companies, property funds and further slice your investments according to exposure to various sectors).
What Is the Downside?
The primary downside with ETFs is that they are not actively managed – in other words, they do not look for the optimal time to buy or sell shares in a particular company. Proponents of active management will argue that you can potentially suffer greater losses in a downturn because the fund hasn’t sold those shares to lock in a profit. You can also experience significant volatility depending on the sector that the index fund is investing in.
When it comes to investing, ultimately, your best lessons really are going to come from doing. There’s only so much that you can learn from watching on the sidelines and reading up about it. The ASX Sharemarket game and micro-investing apps make it easy for you to get a taste of the world of investing, without having to risk much (or any) of your money.
Once you feel ready to start investing larger sums of your real cash, open an online trading account (if you plan to buy and sell shares yourself) or book an appointment with a financial advisor to take the next steps.
Natasha Janssens is a Certified Money Coach (CMC)® and founder of Women with Cents. She is an award winning financial educator with a passion for supporting women to transform their relationship with money. If you don’t know what you don’t know when it comes to money and financial matters, her book Wonder Woman’s Guide to Money is for you. For more of Natasha’s tips follow her on Instagram and take the Money Type Quiz.
