Shares

Many people think of the share market as complicated or risky, but at its core, investing in shares is actually a very simple idea. When you buy a share, you are buying a small piece of a company. Companies like Commonwealth Bank, Rio Tinto, and Woolworths are listed on the Australian Securities Exchange (ASX). When you purchase shares in one of these businesses—even a single share—you become a part owner of that company. If the business grows and becomes more valuable, the value of your share may increase as well.

There are more than 2,000 companies listed on the ASX, ranging from small startups to some of the largest businesses in Australia. Shares are bought and sold through a broker, which is usually an online trading platform that allows investors to access the stock market.

Making money from shares

Investors make money from shares in two ways. The first is through capital growth. This means buying shares at one price and later selling them at a higher price. For example, if you purchase a share for $50 and later sell it for $80, you have made a capital gain. Of course, the opposite can also happen. If the share price falls and you sell below the purchase price, you will incur a loss. This is why share investing always involves some level of risk.

The second way investors earn money is through dividends. Dividends are payments companies make to shareholders from their profits. Many large companies distribute dividends once or twice a year as a way of sharing earnings with their investors.

Some investors focus on capital growth, while others prefer dividend income. Many portfolios include a mix of both.

Why Shares Can Be Powerful

Savings accounts are safe and useful for emergency funds, but they rarely produce strong long-term growth. Interest rates on bank accounts often struggle to keep up with inflation, meaning the real value of money can slowly decline over time. Shares offer the potential for higher long-term returns because investors benefit from the growth of businesses and the broader economy. Over many decades, share markets have historically produced higher average returns than cash savings. However, this higher potential return comes with greater volatility. Share prices move up and down regularly, sometimes dramatically in the short term.

Start With Education

Before investing in shares, it is important to spend time educating yourself about how markets work. Understanding the broader economy—such as interest rates, government policy, inflation, and exchange rates—can help you understand why companies perform well or poorly. A good starting point is investing in industries you already understand. For example, if you work in technology, healthcare, retail, or mining, you may already have insight into how businesses in that sector operate. Knowing the industry can make it easier to evaluate whether a company has strong future prospects.

Start Small and Learn

Many investors worry that they need large sums of money to begin investing. In reality, you can start relatively small. Traditionally, brokers required a minimum investment of around $500 to buy shares. Some modern investment platforms allow even smaller amounts when investing in ETFs (exchange-traded funds). Starting small can be beneficial because it allows you to learn how markets behave without risking large amounts of money. Over time, you can increase your investment as your knowledge and confidence grow.

Be Aware of Fees

When buying or selling shares, investors pay a brokerage fee. This fee is charged for executing the trade. One important thing to understand is that fees matter more when you invest smaller amounts. For example, a $5 fee on a $500 investment represents a larger percentage of your money than the same fee on a $5,000 investment. Over time, minimising unnecessary fees can significantly improve long-term returns.

Choosing Which Shares to Buy

One of the most interesting aspects of share investing is researching companies. Investors often look at several factors when evaluating a potential investment.

For example:

• Will the company’s products or services still be in demand in the future?

• Does the business have strong growth opportunities?

• Who are the company’s competitors?

• Is the company financially stable?

Information about companies can often be found in annual reports, financial statements, and company announcements released to the stock exchange. It’s also important to remember that cheap shares are not necessarily good value. A low share price does not mean a company is a good investment. Sometimes companies are cheap for a reason—because their business is struggling. Likewise, rapidly rising share prices can also be risky if expectations become unrealistic.

Managing risk

Because shares can fluctuate, investors need to think about risk management. One strategy is to diversify investments across multiple companies or industries. Another is to set limits on how much loss you are willing to tolerate on any individual investment. Some investors choose to sell a share if its price falls a certain percentage below the purchase price. This helps prevent one poor investment from causing significant damage to a portfolio.

A long-term strategy

Share investing is ultimately about owning pieces of businesses that grow over time. As companies expand, increase profits, and create value, shareholders can benefit through rising share prices and dividend payments. While markets can move up and down in the short term, patient investors who educate themselves, invest carefully, and focus on long-term growth can use shares as a powerful tool for building wealth. The key is to start learning, start small, and remember that investing is a long-term journey, not a quick win.