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.
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.
It offers execution-only services, which means it can make trades based on your instructions, without giving you any advice.
For example, 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 brokers, including CommSec, also offer advisory services to help you decide which shares to buy and sell, according to your personal circumstances and needs. This service 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.