How much do you need?
Most brokers would require the first trade to be at least $500 which would be referred to as the 'minimum marketable parcel of shares'. The size of increments or additional purchases afterwards would be at the individual broker's discretion.
The ASX suggests you should “start your share investing with at least $2,000” as a general guide. Understanding the costs involved should help you decide how much you want to invest.
CommSec Pocket allows you to invest with as little as $50 in 10 themed ETFs, including the biggest 200 companies. For a broader range, CommSec Aussie Shares offers access to over 2,000 Australian shares and ETFs, requiring $500 for the first trade and $100 in the same investment after that.
Starting small
When you buy or sell shares, each individual transaction incurs a brokerage fee in addition to the price of the shares themselves. This means the less you invest, the more the fees will be as a percentage of your total investment.
For example:
- If brokerage costs you $5 and you buy $600 of shares, brokerage will represent just over 0.8% of your investment
- If brokerage costs you $19.95 and you buy $5,000 worth of shares, brokerage will represent 0.4% of your investment
The point is, if you start with a small amount of money, the company you invest in may have to perform far above the average rate of return for you to make enough money to even cover your costs, let alone turn a profit, when you eventually sell your shares.
On the other hand, it’s important to understand shares are considered the riskiest type of investment and the more money you invest, the more of your savings you’re effectively opening up to that risk. You need to be comfortable with the possibility of a loss when you invest in the share market.
How do you choose which shares to buy?
Researching and choosing companies to invest in can be enjoyable and there are lots of tips and recommendations to guide you through the process.
MoneySmart suggests starting with companies in an industry that you know something about, as this may make it easier for you to understand how a business is doing.
What to look for?
While past financial performance and achievements can be important indicators of the stability of a business, what really drives share prices is a company’s future outlook.
MoneySmart recommends asking questions like:
- Will the goods and services this company provides be in demand in the future?
- Are there opportunities for the company to grow?
- Who are the company’s competitors and are they in a strong position?
Sources such as a company’s annual report, as well as its yearly and half-yearly financial results statements, can be good places to find relevant information. These can be found by searching for the company name on the ASX website.
Cheap but uncheerful
Cheap shares don’t always represent good value for money.
While ‘penny stocks’, for example, might look cheap at 10 to 20 cents per share, a small company with a shaky track record has the potential to wipe out your money fast.
Just because you can buy 5,000 shares at $0.20 each with your $1,000, doesn’t mean this is better value than purchasing 15 to 20 shares valued at around $60 per share. What matters when it comes to making money is not how many shares you own, but how much each share increases in value.
Be wary, too, of buying shares just because prices are falling. A company may have announced a profit downgrade or a change in its situation that materially damages its future chances of making money, which is causing its share price to fall.
Look at companies’ share price charts for a historical view of share value. If a share price has been falling over the long term, that company would probably be considered a high-risk investment.
Not rising too quickly?
On the other hand, rapid and significant share price growth can also be cause for concern.
Share prices generally rise when a company makes a positive announcement about its future—for example, a contract for new business, a profit forecast or a sales outlook.
But if the share value grows too quickly and the company doesn't deliver on its forecast, the prices might fall again as the shares become less desirable.
Basically, price is definitely important when choosing shares, but it should always be considered as part of a range of factors.
How much are you willing to lose?
Selling decisions are as critical as buying decisions to your results in the share market, MoneySmart notes.
Consider setting yourself a ‘percentage stop’ of around 15% for each company you buy shares in. This means deciding how much of your originally invested money you are willing to lose. Once a company’s share price falls below this amount, you commit to selling those shares. Otherwise, losses in one company may wipe out gains in the rest of your portfolio.
What next?
Browse market news and investing content or begin your investment journey from the CommBank app.
Log in to the CommBank app and search "Investing hub" to start exploring.
