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Home loan guide / Investing

6 Ways To Get Into Investing As a Beginner

6 min read

By Tic:Toc

Wanting to try your hand at first-time investing? From shares to managed funds, we’ve got the basics covered in this handy Beginner’s Guide to Investing.

The earlier you invest, the better off you’ll be in the long run.The sooner you start, the more time your money has to compound (generate earnings from previous earnings) and grow.

So, if you’re starting to think about investing your money, step 1 is to not become overwhelmed. You could begin by looking at your investment options either through shares, property, savings or your Tazo collection. It’s not as complicated as you may think to get started investing on your own.

Let’s look at some of the ways you can do it. This guide covers the most popular options, so you can decide which ticks the right boxes for you.

Savings – for the short-term investor

How they work

Savings are the simplest form of investment. Saving involves regularly putting money aside in a savings account that pays interest.

Saving is usually for smaller, short-term goals such as saving for a car, home deposit or holiday. It’s also particularly useful for emergencies that may crop up such as car repairs, hospital bills or other unexpected expenses.

The pros & cons

Saving is a low-risk way to make money that is always available if you need it (i.e. emergencies). On the flipside, the returns are low compared with investing and because interest rates are variable, your profits will rise and fall with your interest rate.

Where to start

Whatever you’re saving for, the key is to start early. The sooner you start, the more you’ll have down the track. Get into the habit of saving and set yourself a savings goal.

You can reach that goal faster by automating your savings deposits and choosing a savings account offering higher interest in return for limited access to your money (i.e. a term deposit).

Handy resources

Check out these simple ways to help your savings grow: https://moneysmart.gov.au/saving

Shares – for go-getters who want to beat the market

How they work

Buying a share (or stock, security, or equity), means you’re buying a ‘part’ of a company. You buy a share in a company when you believe the value of that company will grow, which means your investment will grow in value too.

The most common way to buy and sell shares is on the share market using a broker, but you can do it yourself online too. It can be very rewarding keeping an eye on the market, reviewing financial statements and financial news, and picking your shares in the businesses you believe in.

The pros & cons

There’s potential to make a steady income from dividends on your shares, but there’s a lot of risk too – share prices for a company can fall dramatically, all the way down to zero.

One way to reduce your exposure to risk is to diversify, buying shares in a range of sectors including both high and low risk shares.

Where to start

If you’re prepared to do the research and think you could be a successful share go-getter, try the ASX's free online shares course or check out this useful link below.

Handy resources

Here's a quick video about shares and how they work:

Managed funds – have a professional to make the decisions

How they work

If you would prefer a professional to manage your investments, then managed funds are the way to go. Your money will be pooled together with other investors and your fund manager will invest on your behalf in specific asset classes, such as shares, bonds and property.

By investing in a managed fund, you’ll get a number of units, which represent a portion of the fund’s value. And then you’ll hopefully receive regular payments (called distributions) based on the profit received by the investments.

The pros & cons

The benefits of managed funds include convenience and reduced risk through advanced portfolio management. They can also give you access to investments that might otherwise be out of reach.

The downside to all this? You’ll pay a pretty little penny for the service of a professional to manage your money, which will eat into the profits you make.

Where to start

If the convenience and peace of mind of having your portfolio professionally managed outweighs the cost you will incur, then managed funds may be your thing. But, as you would with any service provider, you should shop around carefully for the right fund manager.

Handy resources

This video gives a quick rundown on managed funds:

ETFs – for those who want a little of both worlds

How they work

Exchange Traded funds (ETFs) are funds bought and sold on a stock exchange that combine a little of managed funds and a little of share trading. Each ETF owns the underlying assets (shares, bonds, currency) on the reference index that it’s seeking to track (e.g. SX200 Australian share index) and divides ownership of those assets into shares.

The pros & cons

On the plus side, ETFs offer simplicity, transparency, cost-effectiveness and risk diversification, with your investment spread over a number of market sectors.

On the downside, because you are ultimately investing in stocks, you are not immune to market volatility and you can still incur losses, especially if you invest in an ETF which focuses on a particular market or sector.

Where to start

Exchange Traded Funds (ETFs) are one of the fastest growing categories of investment products in the world. If you’re keen to learn more on how to start investing this way, you can check out this ETF 101 Guide and take a free course. Once you feel confident with the basics start by setting up your own brokerage account.

Handy resources

Check out this quick guide on ETFs:

Micro-investing – for the tech-savvy beginner

How it works

If you’re a new investor with not a lot of savings, a micro-investing app like Raiz could be the perfect way to get started. By linking a debit card, the app rounds-up ‘spare change’ from your purchases ($4.70 coffee becomes $5) and allocates it to your investable pool. You can also set recurring daily, weekly or monthly amounts to be added to your pool in addition to the allocated spare change.

Using the ‘Modern Portfolio Theory’, you’ll select a risk tolerance (conservative to aggressive) and their investing strategy and algorithm will invest your spare change across multiple asset classes and securities via low-cost ETFs; all for just $1 a month, or 0.25% a year for accounts with more than $5000 invested.

The pros & cons

We’re not talking big numbers here, which means you can’t expect big earnings. But it’s an easy and relatively low-risk way to get started. Just make sure that fees don’t swallow your profits if you have a larger investment account.

Where to start

If you like the idea of making every little bit count, check out the Raiz app, or find out more and check out the micro-investing video below.

Handy resources

Here's a quick introduction to Raiz:

Property investment – for the bricks and mortar investor

How it works

Property investment is when you buy a property with the aim of earning a return on your investment, either from rental income or the future resale of the property.

While considered a less volatile form of investment, property investment is a substantial financial commitment and needs to be approached with care and planning.

The pros & cons

Property investment can be very rewarding, through rental income, capital growth, and tax advantages, but there are also pitfalls for the unwary.

Rental income may not be guaranteed, interest rates could rise on your loan, or the property’s value could go down.

So it’s important to do your research and have an investment strategy based on sound information and advice.

Where to start

Once you have a property in mind, do your homework and be sure the odds are in your favour to achieve your expected outcome. Ideally, seek expert advice so the numbers are accurately crunched.

It can also be good to diversify your investments across different property types and markets to minimise your exposure to risk.

In the meantime, check out our Home Loan Guide about property investment to get some handy tips.

Handy resources

Get 7 handy tips from researching and buying your first investment property here.

We get it! Getting started on your home loan and property investment journey sounds like hard work but there are many ways to be savvy and up the dividends towards your deposit. If you’re keen to start your property investment journey, check out our guide on what to look for in an investment property.

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