Starting Out in Shares the ASX Way
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STARTING OUT IN
SHARES
THE ASX WAY
THIRD EDITION
This edition first published in 2015 by Wrightbooks, an imprint of John Wiley & Sons Australia, Ltd
42 McDougall St, Milton Qld 4064
Office also in Melbourne
© ASX Operations Pty Ltd 2015
The moral rights of the author have been asserted
National Library of Australia Cataloguing-in-Publication data:
All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.
Cover design by Wiley
Cover images by ASX Limited. Used with permission.
Disclaimer
The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.
Introduction
These days more people than ever before have an interest in the sharemarket. It is easier and cheaper to buy and sell shares, there is more information about the market and most of us have a stake in the performance of the market through our superannuation funds.
So, if you are reading this introduction, you too have probably decided that you want to know more about investing.
But where to start?
Starting Out in Shares the ASX Way is a good place to start because for more than 30 years the Australian Securities Exchange (ASX) has been educating people starting out in the world of investing.
You may not know:
• what a share is
• how the sharemarket operates
• how to buy and sell
• what you need to have ready before you get in touch with a stockbroker.
We will walk you through all this and a lot more as well.
People often get a bit overwhelmed about investing in the sharemarket because, for many, it is unfamiliar territory with unfamiliar language. We will try to avoid jargon as much as possible, but we will explain terms to you that you are likely to encounter when you step into the world of investing.
Part I of the book intends to get you thinking about why you want to invest, what your objectives are and the various choices you have. We go into detail about how to buy and sell shares and how the market operates. In Part II we get into the nitty-gritty of having a balanced portfolio and how to set up an investment strategy.
By the end of the book we hope you have a good overview of the basics of investing and can confidently take your next steps in your investment journey.
PART I
The basics of the sharemarket
Starting Out in Shares the ASX Way aims to explain what shares are and how to buy and sell them. The book is targeted at people who are new to share investment. Part I of the book compares the benefits of shares over other investments, how the sharemarket works and how to set yourself up for share investment.
CHAPTER 1
Getting ready to invest
When you turn your mind to the prospect of investing in the sharemarket there are a lot of different aspects to consider. Why do you want to invest in the market? What are your investment goals? Consider whether your objectives are sound and realistic and how you are going to achieve them. This leads to thinking about mapping out your investment strategy. Then there are the practicalities of actually investing – that is, of doing it.
Saving involves setting money aside in a safe place in the hope that you will accumulate an amount sufficient to cover your future financial requirements. You can improve your chances of success by reducing your living expenses and lowering your lifestyle expectations. People with a strong savings mentality are good at this. Following this strategy means that your money may be safe as there is little chance of losing it. However, there is little you can do to protect its buying power from the debilitating effect of inflation.
Investing, on the other hand, makes your money work for you. Investors look for opportunities to put their money to use so that it may grow and create greater wealth for them. They assess alternative investment opportunities in terms of the potential risk involved, weighing them against the potential return to be made from the investment.
Strategies that take both inflation and taxation into account will improve your success as an investor, as will diversifying your risk across a range of investments.
Your own personal circumstances, responsibilities and obligations will be major factors in determining your ability to invest and what you hope to achieve. You should consider the following:
