There is no better time to start investing in ASX shares than right now. The sooner you start, the more time you’ll have to consolidate gains and grow your investments. You don’t need huge amounts of money to start investing in the ASX or even international share markets. What you do need is the motivation and determination to get started. So how do you do that?
Start small, think big
Small amounts can add up to a big investment over time. Consistency is key here. Some trading platforms will let you invest with as little as a few dollars at a time. Over time what seemed like inconsequential amounts can add up to something very substantial indeed.
Calculate how much of your income you want to put towards investments. Then put that money aside, whether on a weekly, fortnightly, or monthly basis. If it helps, you can open a separate account for investment funds. This can remove some of the temptation to access and spend the money. Add to your investment fund incrementally, but regularly.
Open a share trading account
There are many different online brokerage options available. Investigate these now, before you are ready to actually place a trade. Check the fees involved, the range of securities that can be traded, and any value-added services available.
Like everything else in life, there is a cost to investing. Trading ASX shares incurs brokerage charges. Ensure you understand the fees and charges levied by your chosen broker. These will impact on your returns. If you trade frequently, you can expect to incur more brokerage fees. If brokerage fees are fixed and you buy smaller portions of shares, your brokerage fees will be proportionately higher.
Figure out your goals
There are a vast array of investment options available both in Australia and abroad. Before you figure out which investment option(s) you want to pick, it pays to understand what you’re investing for. What are you trying to achieve? You could be looking to get an early start on a retirement nest egg, build a second income stream, or diversify your assets.
Your investment choices should be informed by your goals and risk tolerance. If you have longer-term goals, you can afford to take on a relatively larger amount of risk – there is a longer time period over which to ride out volatility in returns. Those with lower risk tolerances should opt for investments where returns are more certain. Oftentimes, however, this means returns are also lower. For example, bonds have historically provided lower returns than equity.
Potential investments should be assessed through a matrix of your goals and risk tolerance. Highly risky investments such as derivatives will not be suitable for many, but blue-chip ASX shares will be appropriate for a lot of investors. Those with longer-term horizons may be more willing to gamble on growth shares for capital gains while those looking for an income stream will instead seek dividend shares.
Do your research
Take your time to assess the investment landscape. There are more than 2000 shares listed on the ASX. And the ASX itself is only a small proportion of the global investable universe. Narrow down the type of securities you are interested in. This could be bonds, domestic shares, international shares, or something else. It is advisable to diversify across asset classes, although the precise mix of assets will depend on the individual.
Once you’ve figured out the asset classes you’re interested in, you can look at individual investments. To diversify within an investment class, you could consider exchange-traded funds (ETFs). ETFs are traded like shares and offer exposure to a basket of underlying securities. ETFs are available which provide exposure to ASX shares, international shares, fixed-interest securities, and more.
To invest directly in ASX shares, you will need to assess the companies listed on the ASX and decide which you think will perform well. Your investigations will be informed by your goals and risk profile. If an income stream is a priority, you may look to mature, profitable companies in stable industries like Coles Group Ltd (ASX: COL) and AGL Energy Limited (ASX: AGL). If potential capital growth is more important, you could look for younger, more disruptive companies with high growth prospects, like Afterpay Ltd (ASX: APT) or Megaport Ltd (ASX: MP1).
Make an investment
Once you’ve figured out your preferred investments, it’s time to execute on your plan. Presuming you’ve opened an online brokerage, you can put in a trading order. Orders can either be at the price you nominate or at the market price. If the price you nominate is lower than the market price, your trade will only be executed if the share price falls.
Once your trade has cleared, you will officially be an investor. Congratulations! You might think that you can sit back and take it easy from here, but that is not really the case. It’s important to keep an eye on your investments. Plus you’ll want to keep watching and researching future investment opportunities.
Remember the value of time
Don’t expect magic overnight. It took years for Warren Buffett to become Warren Buffett. Time is one of our most undervalued assets. Time allows returns to compound, which means, over time, they become greater and greater. Time also allows investors to ride out periods when the market is experiencing a downturn or providing flat returns. Time also allows you to learn and grow from your mistakes.
If you are considering investing in ASX shares, a timeline of five or more years is recommended. This allows a decent period to ride out volatility in share prices. You should keep an eye on your investments while you hold them, but don’t obsess over them. Checking the price of your ASX shares daily multiple times a day will not make a difference to your long-term returns.
The sooner the better is the motto when it comes to long-term investing. The sooner you start, the sooner your portfolio can start growing. Follow the steps above to get started investing and take control of your financial future.
Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO and COLESGROUP DEF SET. The Motley Fool Australia has recommended MEGAPORT FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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