So you’ve watched Wolf of Wall Street and decided you wanna make it big on the stock exchange. Congratulations on being influenced by a movie that’s primarily one huge drug fuelled bender, but that’s besides the point.
The stock market is a bit like the ocean – to outsiders, it’s mysterious, unpredictable and hella deep, but it can be navigated.
If you’re a first-time investor that’s keen to take a dive, here are some things to keep in mind before putting on that scuba gear.
You need capitol
It should be pretty obvious by this stage, but yes, you need money to make money on the stock market. But there is recommended minimum buy-in.
The ASX (Australian Stock Exchange) recommends you start investing with at least $2,000, while most investors will give a figure around $2,500.
This gives you an idea of the kind of money we’re talking about. It’s not exactly chump change, which is why the next point is so important.
Again, we’re not re-inventing the wheel here, investing is like anything in life – if you’re not prepared, there’s a good chance you’ll fall on your ass.
If you’re the type of person that likes to wing it:
Ask yourself how long you want to put your money into the market for, how much you’re going to invest and if you’ll make regular contributions. Once you know the answers to these questions, you can start planning your investment strategy.
Do plenty of research before dropping any cash. Sites like this will help you get your head around how the whole thing functions.
You can even play ASX trading games that simulate real market conditions without spending anything at all.
Know the risk
Shares are considered a very risky investment, so if you’re not prepared to see your money take a hit from time to time, maybe stick with the more ~vanilla~ investments like high interest savings accounts.
Not to say that you can’t safely invest in the market if you do your research, but remember this; even the most skilled investor is only right 48% of the time, on average.
If you’re looking for a helping hand, a good place to start is Stockspot, as they’ll diversify your investment in a fund that matches your desired outcome.
If you want to make more money faster, they’ll invest aggressively, but of course, that means more risk. It’s usually better to play the long game.
There are fees involved
Every time you buy or sell shares, you have to pay what is called a brokerage fee, which is essentially a fancy admin fee for processing the transaction.
If this fee is $20 and you’re investing $500, it makes up %4 of your total investment, but if you’re buying $5000, it’s only 0.4% of your investment.
What I’m getting at is if you’re investing smaller amounts, the company will need to perform very well for you to turn a profit, particularly if 4% of your investment is brokerage.
What to look for
When deciding who to throw your money at, it’s going to depend on what you want to get out of your investment.
If you want to play it safe, look at big, well known companies with a good track record. If you’re feeling a little riskier, you can put your money behind a smaller company that looks set to take off.
Research their opportunities for growth, their competitors and whether or not their goods and services will be in demand in the future.
What this all boils down to is risk and preparedness. Know what you’re getting into and the cost of the risk you’re taking. If you’ve got luck on your side, you might just do alright.
Ready to go? Here’s some ways you can invest with under $5,000.