This is a brief introduction to help you get started investing in the stock market. I am only brushing the surface when it comes to investing but hope to give you a general idea of what is involved and how easy it is to get started.
Get Started Investing
If you are considering investing in the stock market the FIRST and most important thing to do is work out your investment goals. This involves putting together an investment strategy and a asset allocation plan. It may be worthwhile seeking out the help of a professional advisor to get you on the right track.
Choosing A Broker
Next you will need to get in contact with a broker and setup an account. The big 4 banks each have their own service and there are many others you should consider. If your current bank offers the service it may be easier to get setup because they already have your information. It would be worthwhile checking out a comparison site such as www.infochoice.com.au www.canstar.com.au or www.finder.com.au to compare the different offerings.
Features to compare include
- Available Markets you can trade (local, international, Currency, Commodity)
- How easy the platform is to use
- Access to Market Data and Research
- Level of customer support offered
Choosing a broker will be largely determined by your trading style and the types of shares you would like to trade. If you plan to trade frequently in Australian shares then the fees will be an important factor, the ability to trade currencies not so much.
Most share trading platforms allow a minimum investment of $500. If you are new to share trading $500 is ok for getting your feet wet and learning how it works. I would suggest waiting until you have a minimum of around $4000 to invest to reduce your expenses. When making a buy or sell transaction you will get charged a transaction fee of around $20. If you invest $500 and get charged $20 that is a 4% expense, if you invest $4000 then $20 is a 0.5% expense.
Most Australian online brokers use CHESS when buying and setting shares. CHESS stands for Clearing House Electronic Sub-register System. CHESS is the Australian Stock Exchange’s computer-based share transaction and settlement system. Instead of holding physical certificates, they send you statements of your holdings and keep all records. You will get a unique HIN Holder Identification Number and have the ability to transfer holdings between brokers.
When you buy or sell shares the transaction known as a settlement. Settlement takes place 2 business days after the trade occurs. This is referred to as T+2. All this means is that when you buy shares the money only comes out of your account 2 business days later. When you sell the money goes into your account 2 business days later. I would recommend ensuring you have the funds in your trading account before making the transaction. It is not much fun trying to move funds between institutions at the last minute in my experience.
Dividends and Tax
If shares pay dividends you can nominate the bank account to have the money deposited. Dividends are generally distributed bi-annually for Australian shares. Some shares have a DRP Dividend Reinvestment Plan if you choose this option your dividends will be converted to additional shares when distributed. It is a good idea to provide your Tax File Number so you get taxed appropriately the default is the highest tax bracket. Selling shares for a profit incurs a capital gain and is taxed at your marginal tax rate. If shares are held for longer than 1 year you only get taxed on 50% of the gains.
I have primarily been using Commsec as my online broker for around 10 years now. There are brokers with cheaper transaction fees elsewhere but I find the ease of use, market data and support to be excellent.
I hope this article will help you to get started investing in the stock market. Let me know if you have a preferred broker and why you like their service.