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A practical guide on how to invest in ASX shares

asx 200 open represented by feet standing at the start line
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Industry commentators often make it sound much harder than it is to invest in the share market. However, retail investors like you have a number of practical advantages over these perceived experts. You can invest in the share market for longer. You have relatively little cash to invest, so you can buy what you want. And you don’t have to provide quarterly, half-year or full-year performance updates.

So given that you have all of these advantages, here is a practical guide on how to invest in ASX shares. 

Get a broker

No, not a guy in an expensive pinstripe suit who’s going to charge you $100 to buy or sell what you’re telling him to. Online discount brokers provide a low cost and easy way to buy and sell shares. A number of them even provide some research, charting, watchlists and other tools.

A simple google search or use of a comparison site can be used to find the right broker for you. A quick search shows that you can currently get brokerage for as low as $9.50 per trade.

Formulate a strategy

The so-called experts will say that the hardest thing is to know what to buy. I think they’re nearly right. I personally think that the hardest part of investing is managing your emotions and biases. But stock selection still makes the podium tough.

The key to picking which ASX shares to invest in is to understand yourself and formulate a strategy accordingly. Have decades to invest? Have a huge emergency fund? Risk taker at heart? Then a growth-oriented portfolio will suit you best.

Naturally conservative? Needing the cash in 5 years? Wanting some income to live off of? Then a more defensive dividend portfolio might be for you.

Take the time to write down your goals, financial position and reflect on your psychology. It will serve you well and help you sleep at night.

Research, research, research

For first time investors in ASX shares, this relates to both your general share market and investing knowledge, as well as specific stocks.

Building your fundamental investing knowledge will make you faster at researching businesses, as well as more confident and faster in your decision making. Nowadays there are plenty of free or low cost resources out there. From YouTube, to blogs, to books, find out as much as you can about investing.

At a share-specific level, start to understand some businesses within your ‘circle of competence’. This could be the industry you work in, or products you use everyday. The Motley Fool provides great coverage of a lot of ASX shares on the website and even more detailed and in-depth research in the stock picking services.

Buy and hold, then buy some more

Buy and hold a diversified portfolio for the long term. Personally, I would recommend that new investors start buying broad-based exchange traded funds (ETFs) and then build a diversified portfolio of at least 15–20 shares. This number of investments boosts your chances of beating the market, whilst also reducing the chances of you losing your money over the long term.

An often overlooked key to this is your investing time horizon. Over 20 years, an investment in the S&P/ASX 200 Index (ASX: XJO) or S&P 500 has very little chance of losing you money. Each year less than that will increase your chances of losing money exponentially.

If you’re looking for ideas, my favourite ASX shares to buy now are Nanosonics Ltd (ASX: NAN), Xero Limited (ASX: XRO) and Resmed Inc. (ASX: RMD). Here’s a write up on Xero and some other favourites.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Lloyd Prout owns shares of Nanosonics Limited, Xero Limited and ResMed Inc and expresses his own opinions. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. The Motley Fool Australia has recommended ResMed Inc. 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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