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Investing,Personal Finance,Portfolio Management,Shares

Buying Shares for Beginners

10 Sep , 2014  

Nikhil (Nik) Sreedhar
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Nikhil (Nik) Sreedhar

Founder at ProAdviser
Nikhil's dream job is to be an exotic car salesman. His favourite colour is orange and it shows as he is the 23 year old entrepreneur behind ProAdviser. You should follow him, he gets lonely.
Nikhil (Nik) Sreedhar
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Are you new to stock market investing and trading in Australia? Just the thought can seem daunting to many.  So before you invest, educate yourself about the basics of buying shares. What are your reasons for investing in the stock market? Making money is probably at, or near the top of the reasons list.  Maybe you want to increase your retirement funds or finance a child’s college education.  What are your reasons for stock market investing?

Know Your Risk Tolerance Level

If you have $25k to invest, how much of it should you invest in shares?  Are you prepared to risk the entire $25k and if not, what portion are you willing to risk?

Which Shares and How to Buy Them?

There are three basic types of shares:

  1. Individual Shares are listed on the Australian Securities Exchange (ASX).  You will need a stockbroker in order to purchase individual shares.
  2. Managed Funds can be bought directly from the fund manager; they do not require the services of a stockbroker.
  3. A Whole Portfolio is comprised of a selection of asset classes from various sources.
  • There are four basic ways to buy shares:
  1. Initial Public Offering (IPO) happens when a company lists on the share market.  Investors buy shares at a set price published in the Company Prospectus.
  2. Off Market shares are purchased through a transfer of ownership such as between family members.
  3. Capital Raisings occurs when a company sells shares to raise additional funds.
  4. On Market is the purchase of individual shares that are being publicly traded in the stock market.
  • Stockbroker Choices
  1. The Internet has changed the process of Stock market investing considerably.  You or your stockbroker completes a trade transaction electronically.
  2. Online / Discount Stockbroker – This is a “no frills” system.  The online stockbroker takes your order by phone, or you can enter the trade on your computer.
  3. Full-Service Stockbroker offers investment advice and completes trade transactions.  The investor pays a brokerage fee.

Three Investment Strategies

Generally, there are three primary investment strategies a stock market investor might use to select company shares for purchase.

  1. Technical Analysis may be used when the investor has a short investment time-frame and uses charts to evaluate stock options.
  2. Fundamental Analysis involves studying a company’s books to determine whether to purchase shares in that company.
  3. Stock Tips are among the most commonly used investment strategies.

Placing An Order

How you purchase and sell stocks depends on whether you are using online or full-service broker services.

  1. Online orders require you to access your account, check the available balance, and enter the trade details.  Choose between buying your share(s) “At Market” or “At Limit”. When all required data is entered, the Brokerage is calculated and displayed. State your name in the “Order Placed By” section, and preview your order before completing the transaction.
  2. Full-Service Broker handles all transactions for you based on your investment interests.

Settlement

You have three (T+3) business days after the trade is completed to “settle” – either pay for shares bought, or receive money for shares sold. For online trades, there must be sufficient settlement funds in your online broker’s bank account when placing the trade.  A full-service stock broker may require you to provide a cheque prior to placing the trade for you. Upon order completion, you will be given a 10-digit number identifying you as a unique shareholder in a specific company.  You may choose to have a Security holder Reference Number (SRN) for each company in which you hold shares.  Or, you may opt for a Holder Identification Number (HIN) and your shares will be held with your stockbroker.

Regular Portfolio Monitoring

Monitor your portfolio online whether you are using a full-service or online brokerage.  Plan to check your portfolio at least once a week.

Selling Your Shares

This process is very similar to buying shares.  Notify the broker of your SRN or HIN number so your shares can be located.  Determine the exact price at which you want to sell your shares.

The Next Step

Being a stock market investor is challenging and exciting but there is much to learn before making that first investment.  To help you on your investing journey it is wise to seek an experienced financial planner that specialises in share investments. They can teach you the ins and outs of making money on the share market.

 

By Nikhil Sreedhar
Nikhil - Profile PicNikhil is the CEO of ProAdviser. He is an experienced financial services professional with a particular interest investing in small businesses, shares and property.  ProAdviser is a specialist professional adviser marketplace that connects consumers to leading financial planners, broker, accountants and lawyers. It is completely automated, efficient and highly effective. To get started simply click on “Ask An Adviser”  

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