How to invest in the stock market
If you’re interested in investing in the share market, you’ve got a myriad of options available to you. For the uninitiated, researching into how to invest this may lead to becoming paralysed by the sheer choice of options available. To help remove some of the confusion, below is an overview of the different ways that you can invest in the share market and buy shares today. No one method is ‘better’ than another. However, different styles and methodologies will suit different people. Some people like to be more hands on and exert more control over the direction of their investments, while others are either too busy or don’t have the confidence to make all the decisions themselves.
The traditional method of buying shares is through a share broker. While there are many different types of share brokers, you can generally put them into two categories – full service and discount. A full service share broker will help you design your portfolio and pick the right shares. They might even call you if it’s a good time to sell or if they see opportunities that might suit you. However with this increased level of service, they are typically more expensive to use. On the other hand, discount brokers will provide you with the platform to buy shares, but the service usually stops there. It’s up to you to decide what shares to buy.
A popular way of investing for those who are time poor or have limited knowledge is through managed funds. You can divide fund managers into two main categories – passive and active. A passive fund manager tends to buy shares and sit on them. They may buy the whole market, for example, one of each of the top 100, and only change their portfolio when a share drops out of the top 100. This method tends to be cost effective, but it is limited. On the other hand, an active fund manager buys and sells shares regularly according to a pre-set criteria that they have developed. This method becomes what the fund manager is known for and how they differentiate themselves in the market. For example, some will buy shares if they think they are cheap whereas others will buy shares because they believe the company has strong prospects. You select a fund manager based on which method sits best with you.
You may not realise it, but there is a high chance you’re investing in the share market already though your super fund. If you check your statement you’ll be able to see where your money is invested. Your superannuation will give you options on where to invest and some will even give you options of what shares to pick or what fund managers you may like to use.
What way is best for me?
If you’re not sure if you should invest in shares, speak to a professional who can help you create an overall financial strategy. If you’ve already decided you want to invest in the share market, the only way to work out which method is best is to research your options and consider your level of knowledge, the time you have available, the level of control you’re after and how much you’re willing spend.