Say you and seven of your close friends went out for pizza. But for everyone to get at least a slice, all of you need to pitch in some cash. The bigger you contribute to the pot, the bigger your share. In a way, every person on the table owns a part of that pizza.
That’s shareholding in a nutshell—owning a piece of a company for a particular amount of cash. Selling shares or stocks is one source of income for companies, whether to create new products or pay off their dues. In exchange, shareholders receive the right to a fraction of the company’s revenue and participate in internal affairs (e.g., electing board members).
The place to go
For buying and selling shares, the stock market is the place to go. There are currently over 2,000 companies listed on the Australian Securities Exchange (ASX), complete with details on share prices and projected growth or decline. Shareholders either make or lose money, depending on how well a company performs over time, so it shouldn’t be taken lightly.
If you want to become one of over six million people owning ASX-listed shares, you’ll need to step up your money sense. Right now, you’re one of over two million people who are excited to get in the game but have no idea how to start. Fortunately, this guide has got you covered.
1. Expert advice is a must
It’s not unusual for one to think that buying and selling shares can’t be that complicated. After all, you’re putting your hard-earned cash on a company, much like betting in roulette. However, like roulette, shareholding requires some strategizing.
Ask any expert, and they’ll say that the stock market’s full of surprises. Even when a company posts growth after growth for the first few years, it’ll only take a day or two to lose all its gains and then some. COVID-19 is an example, with shares still falling in the wake of new lockdowns due to more contagious variants running wild.
Investing in the ASX at such a volatile time warrants loads of data, but that alone won’t suffice. You also need to translate the numbers into digestible info through means like stock advice by Maqro. Having the benefits of real-time tracking and professional advice within reach can help you make more informed decisions even in the most unpredictable situations.
2. Prioritize other expenses
To encourage more people to invest, the ASX allows investments of as low as AUD $500. But before setting aside your investment, experts suggest settling your other dues—more so, ensuring cash for the rainy days.
One mistake most people make is thinking that buying and selling shares is a quick way to make money. As the market works on compound interest, the wealth earned won’t feel substantial until several years of holding on to the stocks. No doubt that there’ll be ups and downs over the years, but the rewards will outweigh the costs.
It’s also important to remember that investing isn’t free. Shareholders pay brokers to facilitate a stock transaction, either a fixed price or a fraction of the transaction’s value. The investment is also taxable, typically income and capital gains taxes. Be ready to pay these fees, on top of your investment capital.
3. Diversify your investments
You’re probably familiar with the adage ‘Never put all your eggs in one basket’. That rings true in shareholding; you don’t want to put all your funds in a single stock.
Owning single stocks have the benefit of exercising more control over your investments and paying lower taxes. But in an environment where stocks can go high or low as they please in a flash, it’s easy to lose money if your one stock goes down. Furthermore, with such a risk, you need to spend more time monitoring its movement closely.
Experts recommend spreading out your investments over a minimum of 25 different stocks to mitigate the risk of losing money. Additionally, Dale Gillham, a renowned stock market analyst in Australia, suggests investing no more than 20% in one stock. This way, any loss in one stock won’t be as much, and it’s possible to recoup it if the other stocks grow.
4. Watch the news regularly
Tuning in to prime-time news, reading the morning paper, or browsing online news sites can go a long way in helping you win the stock market game. It’s more than just looking at the graphs and figures in the Business section; it pays to be updated on what’s going on in the world.
For example, electric cars are looking to be the next best thing in the automotive industry, and these cars need lithium-ion batteries. Knowing this, you’d want to invest in a company involved in making an electric car—whether an electric battery manufacturer or a lithium mining firm. As long as a market for these cars exists, investing in these companies will benefit you in the long term.
Catching up on current affairs provides valuable insight into what’s coming and going. Savvy investors use it to decide when to buy high, sell low or buy low, sell high. If a specific trend is likely to remain for a long while, it’s best to invest in relevant shares.
5. Calm down if everything goes south
Finally, always keep a cool head, no matter where the graph goes. Most shareholders tend to sell their stocks at the sight of a decline, but it sets them up to miss out if the stock market rebounds. Experts suggest knowing how much of a loss your finances can withstand before you’re forced to take action, commonly known as risk tolerance.
Gains and losses are immutable parts of shareholding. Take these into consideration when setting up your investment portfolio to prevent the shock from getting the best of you. Take a page from this video that discusses how today’s seasoned entrepreneurs manage to make the stock market work to their benefit.
As this guide has explained, shareholding requires due diligence. Setting aside enough capital, researching the best investments, and playing the long waiting game are necessary for achieving financial success. If you understand these, then the stock market won’t be as scary as you think it is.