You can buy shares either directly, by investing in individual companies, or indirectly by investing in a fund.

Investing directly gives you complete control of which companies to invest in and when you buy and sell them.

However, there is always a risk that individual companies will not perform as well as you hoped and you could lose money.

It’s important to have a diversified portfolio of investments to reduce that level of risk.

Investment funds

Investing in funds is a way to reduce the concentration of risk because each fund holds a selection of different assets, although good returns are never guaranteed.

When you invest directly you have to pay a brokerage fee every time you buy or sell shares, but those costs are lower through a fund because they trade in bulk.

Investment funds do carry various other costs, however, which you should be aware of because they can eat into your investment returns over time.

Exchange traded funds are generally cheaper than other managed funds, because they aim to replicate rather than beat the performance of share indices or other groups of assets.

Investing in shares or funds

There are several different ways you can buy shares or invest in funds, the easiest of which is through an online broker such as CommSec.

Through an online broker you make an order online to buy a certain amount of shares in a company and the broker then places that order into the market according to your instructions, letting you know when the deal is done.

Some online brokers also offer advisory services to help you decide which shares to buy and sell, according to your personal circumstances and needs. This service typically comes at a higher cost.

You can also find brokers that offer discretionary services, which means they can buy and sell shares on your behalf, without consulting you each time.

This means the brokers can carry out deals quickly if they spot an opportunity, but you are effectively handing over control of your portfolio and it’s possible they will make more or less trades than you deem necessary.

Discretionary services come at a higher cost and you could need at least $50,000 available to make the most of this method in some cases.

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Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. You can view the CommSec Share Trading Terms and Conditions and our Financial Services Guide and should consider them before making any decision about these products and services. Past performance of any asset class mentioned in the article is not indicative of future performance.

© Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.  CommSec is a Market Participant of ASX Limited and Cboe Australia Pty Limited (formerly CHI-X Australia Pty Limited), a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited.