Our Millennial Investor Series focuses on helping the younger generation understand the basic principles of money management and support them in achieving their financial goals.

So you have some savings set aside and you have decided to take the leap on your share investing journey. But how do you start?

Well, first you will need to find a stockbroker. This is a far less daunting process than you might think, so stick with me – all it takes is a couple of minutes of your time to set up.

What does a stockbroker do?

A stockbroker is someone who executes the buy and sell orders on behalf of their clients. Traditionally these were professionals who would stand on the trading floor with a piece of paper yelling out "Buy!" or "Sell!"

Of course, there are still traditional full service stockbrokers around today – though their processes have changed significantly over time. They can still provide an essential service for their customers through in-depth analysis and advice. This can be helpful for investors who are not willing or able to put in any time to research themselves. These stockbrokers, however, can cost an 'arm and a leg' and often have incentives that aren't aligned with the best interests of their clients. 

For example, some stockbrokers charge high per-trade brokerage fees. This incentivises the stockbroker to make a higher number of trades, rather than offering the best possible advice to maximise investor return or reduce risk.

Therefore, if you decide to use a full service stockbroker, it's important to make sure their incentives are aligned with your own. You should also ensure that the high brokerage costs and other fees you incur are more than compensated by strong investment returns. 

Online brokers

There is, however, a much simpler, more cost effective way to buy and sell shares – via an online broker. Online brokers allow you to make a trade with a couple of clicks on your phone or laptop. There are many online brokerage options, but we recommend you find one with the following features: 

• responsive customer service capabilities
• a user-friendly website
• decent reporting and a linked bank account for your investment funds 
• CHESS sponsorship – CHESS sponsorship means when you buy shares, the ASX records them as being owned in your name. Some brokers hold them on their own account and this could place your investments at risk if the broker was to go bankrupt. 

I use ANZ Share Investing – a decision based more on convenience than anything else. I already had other accounts with ANZ, so for me it was the most convenient option. The website is easy to navigate and the brokerage cost is not extreme at around $20 a trade. You could definitely find cheaper alternatives out there – many of my colleagues and friends use Commsec and are happy with the service. Commsec charges brokerage fees of only $10 for trades under $1,000.

The cost of brokerage is important as you do not want too much of your potential returns chewed up by fees. Our general suggestion is to avoid paying brokerage of more than 1.5% on any given trade. In other words, if brokerage costs $15 then make each of your purchases in lots no smaller than $1,000 each.

We certainly have an abundance of choice when it comes to a broker and each of us will have to make our own decisions based on which one suits us best. If you know you will struggle to make a decision amidst so much choice, then perhaps try Commsec, ANZ Share Investing or another online broker linked with one of the big banks. 

Once you take the few minutes required to set up your brokerage account and you have deposited your investible savings, then you can start making your first investment. 

A note from the writer

Hi everyone. I am Chris Copley, an analyst at The Motley Fool, providing research on Motley Fool Dividend Investor, Hidden Gems and Everlasting Income.

At The Motley Fool we are receiving more and more requests to provide support for Millennial Investors. As a Millennial Investor myself, helping younger investors is something I am very passionate about and strongly believe that with the right support and education we as Millennials have a prodigious opportunity to achieve our financial goals at an enviable age.

Each week I will release a new topic on investing principles A–Z and provide younger investors with all the basic tools they need to thrive in an ever complicated financial world. 

So follow along with me on your investment journey.

For new investors we suggest that you start from the beginning. You can follow along from our previous articles by following these links…

Here's what every millennial should know about getting started investing in the stock market

Why it's important for millennial investors to define their goals

Defining share markets and long-term investing for millennials

The post How do I choose a broker? appeared first on The Motley Fool Australia.

More reading

• 2 rapidly growing ASX shares down over 50% to buy now
• Why the negative gearing changes could impact CBA shares more than anyone realises
• 3 incredible ASX ETFs for Australian investors in June
• This ASX ETF is perfect for nervous investors
• Why did ASX 200 retail shares lead the market last week?

Motley Fool contributor Christopher Copley has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

Our Millennial Investor Series is focused on helping the younger generation understand the basic principles of money management and support them in achieving their financial goals.

The idea of investing in the sharemarket is something that can be very daunting to most millennials. 

We have all heard the horror stories of the trader who lost all of their money or those who were left in severe financial hardship after the Global Financial Crisis wiped out a considerable portion of savings. 

I'm also sure the current volatility is quite discouraging amidst the uncertain economic environment caused by the coronavirus pandemic. However, much of our fear stems from a lack of understanding, and it is this lack of understanding that tends to hurt investors more than the inevitable dips that will occur along the way.

So before we get into the complexities of the market, let's first define exactly how the share market works.

What is the share market?

A share market is where investors 'meet' to buy and sell investments. It works in a very similar manner to real estate auctions — where through a broker, buyers and sellers negotiate a price and make a trade.

The companies on the market issue shares and each share represents a proportionate ownership of the company itself. For example, if Company A had 10 shares outstanding and we own 1 share, then we would have a 10% ownership stake in the company. In other words, we would own 10% of the company's assets and any liabilities, as well as any earnings it may be generating.

How do investors make money?

On the share market, this is generally done in two ways: capital gains and dividends.

Capital gains 

A capital gain occurs when the value of the investment is higher than what it was worth at its original purchase price. For example, if I bought 5 CSL Limited (ASX: CSL) shares at $200 per share and later sold those shares for $300 per share, then I will receive a capital gain of $500. This is because I initially invested $1,000 and in return received $1,500 when I sold.

Dividends 

When a company generates a profit, it can distribute a proportion of this profit as a dividend. For example, if Telstra Corporation Ltd (ASX: TLS) generates a profit of 20 cents per share, it could decide to distribute 16 cents back to its shareholders. If Telstra shares were currently trading for a price of $3.20 per share, then it would be paying its shareholders a dividend yield of 5% (16 cents divided by $3.20 = 5%).

The nature of the share market

For new investors, it is also important to understand that markets are volatile and the level of uncertainty is high due to an infinite number of possibilities. 

If we look at a chart of the All Ordinaries Index (ASX: XAO) over the last few decades, it is clear that it does not move in a straight line.

Company share prices and markets as a whole can fluctuate dramatically over the short term based upon economic factors and the overall sentiment of investors. 

Our job as investors is to determine the most likely outcome and identify the obstacles along the way that may impact on that outcome being achieved. Once understanding the risks and rewards involved in achieving a certain outcome, we then decide whether or not the risk/reward ratio is in our favour and invest accordingly.

The uncertainty involved with investing in shares, combined with the expected volatility of our investments, is what allows us to generate stronger returns from equities than from risk-free cash investments. Hence, for those with a longer-term investment horizon, volatility should be embraced, rather than feared. 

As a long-term investor, the approach we take is to focus on the performance of the business and its prospects several years down the track. We seek to avoid letting the short-term price fluctuations of a share impact upon our thoughts on the long-term prospects of the business itself.

One common mistake inexperienced investors make is they let fear dictate their next move. 

As stated by Warren Buffett — one of the most successful investors over the last several decades — 'we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful'. 

Many investors make the mistake of selling at the most inopportune time; they sell at the height of market fear and decide that investing is not for them.

That is why we often highlight to any new investor that investing requires patience and an ultra long-term mindset. Recognise your investments at some stage could fall dramatically but remind yourselves during these times that history has shown 'this too shall pass'.

The number 1 piece of advice that we can give to any new investor is that when you purchase shares on the market, you are buying an ownership stake in a company. Whilst the share price in the short term can fluctuate due to sentiment, over the long term a company's share price tends to move in lockstep with its underlying business performance. 

To summarise share market investing into one small sentence: Find high-quality companies, invest for the long term, and let the power of compounding do the rest.

A note from the writer

Hi everyone. I am Chris Copley, an analyst at The Motley Fool, providing research on Motley Fool Dividend Investor, Hidden Gems and Everlasting Income.

At The Motley Fool, we are receiving more and more requests to provide support for Millennial Investors. As a Millennial Investor myself, helping younger investors is something I am very passionate about and strongly believe that with the right support and education we as Millennials have a prodigious opportunity to achieve our financial goals at an enviable age.

Each week I will release a new topic on investing principles A-Z and provide younger investors with all the basic tools they need to thrive in an ever-complicated financial world. 

So follow along with me on your investment journey.

For new investors, we suggest that you start from the beginning. You can follow along from our previous articles below.

Here's what every millennial should know about getting started investing in the stock market

Why it's important for millennial investors to define their goals

The post Defining share markets and long-term investing for millennials appeared first on The Motley Fool Australia.

More reading

• I'd aim for $1 million in retirement buying just 10 ASX 200 shares
• 3 defensive ASX dividend shares I'd buy and hold
• Passive income investors: Term deposits or ASX dividend stocks in 2026?
• 3 of the best ASX dividend shares to buy in June
• Down 60%: 3 oversold ASX 200 shares to buy in June

Christopher Copley has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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.

Our Millennial Investor Series is focused on helping the younger generation understand the basic principles of money management and support them in achieving their financial goals.

Why it's important for millennial investors to define their goals

When we go to the shops we don't just walk up to a member of the staff and ask for a shirt. We all go to the shops with something in mind. We may need it to be a particular size, colour, quality or even something that matches our own personality or style.

Bear with me on this one as it may turn out to be a pretty loose metaphor — when it comes to fashion I really have no idea what I'm talking about. I go shopping for clothes very infrequently and when I find something that I like I buy a few of it. I often am teased by my mates because the last time I went shopping I found a grey polo shirt that I liked so I bought three of them. But hey, if it ain't broke?

Anyway, just like shopping for each of us is a very personal experience, so too is investing.

Each of us needs to find our own strategy that not only fits our personal situation, but that we are comfortable with. A strategy that passes the 'sleep at night' test, which asks a simple but very important question: Are you comfortable with the decision you are making or will it keep you up at night?

Before you decide how you are going to invest and what approach you will take, you first need to define your goals.

What are you saving for?

Is it a house deposit, retirement, dream holiday, a Tesla, or even to cover costs for a soon to be new addition to the family?

What is a realistic timeframe for achieving these goals?

Is the timing flexible or is it set and unable to be moved?

The reason why defining your goals is so important is that each type of investment — shares, property, cash, bonds — has its own risks and limitations and different investment strategies will be more appropriate for different financial goals.

Major and commonly used asset classes 

Cash

This includes savings accounts and term deposits.

Cash investments are the least volatile and lowest risk type of investment. They are generally suitable for investors with a shorter term outlook or those with a very low tolerance to risk. Be aware that — especially in the low interest rate environment we are currently in — the return you will receive from cash investments is quite low.

Fixed interest

Including government and corporate bonds and other hybrid securities.

Fixed interest investments are also — in general — relatively stable investments. 

For those who don't know what a bond is, essentially it is similar to a loan in which we lend money to the borrower — whether it is a company or government  — and in return receive regular interest payments over an agreed upon time period. 

The returns on some bonds can be higher than what is achieved via cash, but it generally corresponds to taking increased risk. For instance, a corporate bond could result in a wipeout in the event of an insolvency. 

Property

This includes direct property investments in residential/commercial property as well as indirect investments through listed property vehicles.

Property has performed very well over the last decade. It is generally considered to be less risky than shares. Just like the share market though, property prices can be quite volatile so the investment time frame is generally suggested to be over a longer time horizon. 

Be aware, though, that to invest directly in property you will generally need a large deposit and an investment is generally hundreds of thousands of dollars. If you don't have much in the way of savings then to invest in property can often mean you are taking on a significant amount of debt — a risk in itself — and you are not particularly diversified due to limited funding to invest in multiple assets. 

Also, property is less liquid than other asset classes  — in other words, it is more difficult, less timely and more costly to purchase and sell property.

It's important to note for new investors that you can also gain exposure to an investment in the property market without having to save up the significant deposit required on purchasing a property directly. 

There are multiple real estate investment trusts (REITs) listed on the ASX, which give investors exposure to different areas of the property market at low cost and with far less hassle than owning your own investment property. There is also the added benefit of being able to purchase these investments with a smaller amount of total savings as well as higher liquidity. 

Equities 

Includes Australian and international shares.

Shares have been the highest performing asset class over the last several decades. Shares are — in general — a highly liquid investment that can be purchased at low cost and with relative ease. 

Shares are considered to be one of the more risky investment types, especially for those investing over a shorter time period. The risks can be somewhat reduced through diversification — purchasing a range of companies across multiple industries and regions to spread risk — and a longer holding period.

At The Motley Fool, we are predominantly share investors, so much of what I will be focusing on in the coming articles will be on supporting investors on the do's and don'ts of investing in shares, and ways to make money on the market. 

It is important to stress that investing in shares is not a way to make a quick buck! You need to have a long term approach to protect yourselves from the inevitable volatility that will come with each investment.

So, keep the following in mind throughout your investing journey: What are your goals and what is your time-frame to achieve them?

And then allocate your savings to the type of investments that will best help you achieve those goals in a way that passes the 'sleep at night' test…

A note from the writer

Hi everyone. I am Chris Copley, an analyst at The Motley Fool, providing research on Motley Fool Dividend Investor, Hidden Gems and Everlasting Income.

At The Motley Fool, we are receiving more and more requests to provide support for Millennial Investors. As a Millennial Investor myself, helping younger investors is something I am very passionate about and strongly believe that with the right support and education we as Millennials have a prodigious opportunity to achieve our financial goals at an enviable age.

Each week I will release a new topic on investing principles A-Z and provide younger investors with all the basic tools they need to thrive in an ever-complicated financial world. 

So follow along with me on your investment journey.

For new investors we suggest that you start from the beginning. You can follow along from our previous article here.

The post Why it's important for millennial investors to define their goals appeared first on The Motley Fool Australia.

More reading

• 2 rapidly growing ASX shares down over 50% to buy now
• Why the negative gearing changes could impact CBA shares more than anyone realises
• 3 incredible ASX ETFs for Australian investors in June
• This ASX ETF is perfect for nervous investors
• Why did ASX 200 retail shares lead the market last week?

Motley Fool contributor Christopher Copley has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

This is the first article in our Millennial Investor series focused on helping the younger generation understand the basic principles of money management and support them in achieving their financial goals.

A journey of a thousand miles begins with a single step.

I'm sure many of you have heard the old proverb. The problem is the first step is usually the hardest to make. When the destination seems so far away, we are wired to continually delay until we reach a point where there is no way that we are going to comfortably reach the finish line – at least in our desired time frame.

We probably all have financial goals which may include wealth creation, achieving financial independence or to eventually buy that dream house, but surprisingly, starting our investment journey is something that many of us millennials don't even consider. Whether it is simply something we ignore until we reach a certain point, or we just simply don't understand the benefits that it can bring.

Now the first thing that I will point out is the journey is not – and should not – be the same for everyone. We all have our personal situations, risk profiles and goals that should absolutely impact upon our own strategies and approach.

That being said, we should all have our eyes wide open to the possibilities, opportunities and obstacles along the way. This can make our trek less arduous and instead something that we can enjoy, or at least tolerate, with as little stress as possible.

So, let's start at the beginning of our journey.

When should we start investing?

Let's answer that with an example of two different investors, Sarah and Matt. 

Sarah is 20 years old and decides to start investing. She invests $3,000 a year over 40 years into the sharemarket and generates the average market return. Matt is 40 years old and invests $12,000 a year over 20 years into the sharemarket and also generates the average market return.

To keep things simple, we will assume that the market returns 10% per annum, which is close to the historical long-term average return of equities.  

This is the result. 

Over their investing lifetime, Sarah deposited $120,000 and Matt, on the other hand, deposited $240,000. Yet when they reach the age of 60, the value of Sarah's savings is nearly twice that of Matt's. With a relatively small yearly deposit of just $3,000, Sarah has amassed over $1.3 million.

Such is the power of compounding and highlights why young investors have the upper hand.

Now, let's consider if Sarah was to delay investing for one year. What would the impact be on her savings by the time she reaches 60? If Sarah starts at 20, she will have a total balance of $1,327,778, yet if she starts at 21 she will have $1,204,343. This is more than $123,000 less than if she started a year earlier. 

There is a common misconception that investing is just for the older generations. In reality, due to our longer investment horizon and the power of compounding, it is the younger investor who has all the advantage. 

We at The Motley Fool love to say it's never too late to start investing. This is undoubtedly true, but ask your parents or your grandparents and you will find that they will all say the same thing: 'I wish I started investing earlier'. 

For those of you who are currently yelling at your screen saying, "I have no savings! I can't start investing without savings!" First of all, you're right. Sorry, that is a prerequisite. However, you don't need money to start your investment journey. 

The journey starts with the first and most important step, and that is acquiring the basic knowledge of money management and an understanding of how you can use the power of compounding and sound investment decisions to your favour. By acquiring this basic knowledge, I am confident that you will reach your financial goals at a rate that many of you did not think possible.

So for those of you who are still with me — don't worry I get it, this article does not come in meme form so undoubtedly many have drifted off — I would just like to leave you all with one key statement!

Make today the day that you take the first step on your investment journey. 

A note from the writer

Hi everyone. I am Chris Copley, an analyst at The Motley Fool working on Motley Fool Dividend Investor, Hidden Gems and Everlasting Income.

At The Motley Fool we are receiving more and more requests to provide support for Millennial Investors. As a Millennial Investor myself, helping younger investors is something I am very passionate about and strongly believe that with the right support and education we as Millennials have a prodigious opportunity to achieve our financial goals at an enviable age.

Each week I will release a new topic on investing principles A-Z and provide younger investors with all the basic tools they need to thrive in an ever-complicated financial world. 

So follow along with me on your investment journey.

The post Here's what every millennial should know about getting started investing in the stock market appeared first on The Motley Fool Australia.

More reading

• 2 rapidly growing ASX shares down over 50% to buy now
• Why the negative gearing changes could impact CBA shares more than anyone realises
• 3 incredible ASX ETFs for Australian investors in June
• This ASX ETF is perfect for nervous investors
• Why did ASX 200 retail shares lead the market last week?

Motley Fool contributor Christopher Copley has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.