Did you know: You can buy great Australian shares like Commonwealth Bank of Australia (ASX: CBA) with as little as $500?
However, to cover the cost of brokerage, which is often a flat rate (for small amounts) that range from the ridiculous figure of $29.95 per trade to less than $10, you'll need at least $510 just to be safe.
However, many brokers will offer 'introductory specials' that allow you make a few trades for free. They are very kind.
Which broker should I choose?
Don't be sucked in by the marketing of 'free trades' or an offer for an 'extreme trading platform with super charting tools'.
As best, these charts are overrated and every platform has the basic tools. For the record, I have never used a chart in my brokerage account. I use Google Finance. So maybe I'm biased.
Also, forget about the 'live market prices'. Unless you're trading your life away in your brokerage account (socially and financially), who cares if your account has share prices 20 minutes delayed? You can still use stop losses or set buy orders 'at market' prices with delayed data feeds, thanks to the best execution policies of brokers and the ASX. As a plus, if you're a valuable customer they will give you the live prices for free.
When you choose a broker:
- In addition to the per trade cost focus on the holding costs or 'account fees'. You shouldn't pay them. Many brokers don't have account fees.
- Consider if it will be better — or worse — to have your banking and share brokerage with the same company. Sometimes, an overnight delay in getting money transferred from your share account to your bank account for a new flat screen TV can stop you doing something you'll regret. When I started, I banked with CUA and opened an account with CMC Markets.
Here's a link to Canstar's broker research.
Is my broker safe?
If you go with a reputable broker and not some 'online forex' or 'CFD' platform from a different country, chances are, your broker is protected by Australia's National Guarantee Fund.
It won't stop you from losing money by making terrible decisions based on candlestick charts. But it will help you if your broker does something dodgy with – or without – your permission. And if your broker goes belly up, your shares have a unique identifier which is usually stored in the ASX's backbone, known as CHESS.
A winning strategy?
If I had 500 big ones to invest today, I would go with a low-cost broker like those rated by Canstar, who is also not my bank and has no account fees.
The first thing I would buy is a big company I know well, like Commonwealth Bank of Australia or Telstra Corporation Ltd (ASX: TLS). It could be a terrible investment, but you will learn from it either way. And yes, $500 is a lot of money. But if you're just starting out it is better to make mistakes and learn now — because you have time to make it up.
Then, I would commit to investing regularly. Even if it is $10 a week, $100 a month or every bonus you get — just commit to a regular amount. Pay yourself.
The next purchase I would make is the iShares S&P 500 ETF (ASX: IVV) which is a basket of 500 of the USA's largest companies. You can get exposure to all 500 with 500 (dollars, that is). Pretty neat, right?
Automatically, reinvest the dividends you receive (have them credited to your brokerage account) and keep going.
Investing successfully is that simple.
