How to start investing: A beginner’s guide

Investing is one of the most powerful tools you can use to build wealth over time. Whether you’re aiming for financial independence, saving for retirement, or just want your money to work harder, understanding how to start investing is the first step.

This guide is tailored for beginners in Australia and aims to walk you through the foundations of investing, from understanding the basics to choosing your strategy and buying your first shares on the ASX.

What is investing?

At its core, investing means putting your money into assets with the expectation that they will grow in value or generate income over time. Unlike saving, which typically involves depositing money into a bank account, investing introduces a level of risk—but also the potential for higher returns.

Why should you invest?

There are several compelling reasons to consider investing rather than keeping all your money in a savings account:

• Higher potential returns: Over the long term, investments such as shares and property have generally delivered stronger returns than traditional savings accounts, making them a powerful tool for building wealth.
• Combat inflation: If the returns from your savings account are lower than the general rise in living costs, your money may gradually lose purchasing power — which is why many people turn to investing for better long-term growth.
• Compound growth: By reinvesting your earnings—whether from interest, dividends, or capital gains—your investment can grow at an accelerating pace, as you begin to earn returns on both your original capital and the returns it generates.

Before you start: financial readiness

Eliminate high-interest debt

Before investing, it’s wise to pay off any high-interest debt, such as credit cards. The interest you pay on debt can easily outweigh the returns from most investments.

Build an emergency fund

Unexpected expenses can derail your financial plans. A high-interest savings account with enough to cover three to six months of expenses provides a safety net and ensures you won’t be forced to sell investments at a loss.

Understanding the basics of shares

What is a share?

A share represents a unit of ownership in a company. When you buy shares, you become a shareholder and own a piece of that business. For example, if you buy shares in Commonwealth Bank of Australia (ASX: CBA) or Woolworths (ASX: WOW), you effectively own part of those companies.

How do you make money from shares?

Investors earn money in two primary ways:

• Capital gains: Selling a share for more than you paid.
• Dividends: Profit distributions made by companies to shareholders, typically paid twice a year.

Is investing riskier than saving?

Yes—and no. While savings accounts and term deposits are generally safer and offer predictable returns, their earning potential is limited. Investing carries risks, but it also offers the possibility of much greater long-term rewards.

Types of investments

Diversifying your investments is a key strategy for managing risk while maximising your potential returns. Most portfolios are built using a mix of the four main asset classes:

1. Cash

Includes savings accounts and high-interest deposit accounts. These are low-risk investments that offer stability, but typically provide modest returns and limited protection against inflation.

2. Fixed interest

This category covers term deposits, government bonds, and corporate bonds. These investments deliver consistent income and are generally considered more secure than shares, though their growth potential is limited.

3. Shares (equities)

Shares represent ownership in a company and are considered growth assets. They offer the potential for higher returns over time but come with greater volatility, making them more suitable for long-term investors comfortable with market fluctuations.

4. Property

Investing in real estate—residential, commercial, or industrial—can offer both rental income and capital growth. While property is a popular investment option, it tends to be less liquid than other assets and may require a longer commitment.

Getting started with the ASX

The Australian Securities Exchange (ASX) is where investors buy and sell shares and other securities. Over 2,000 companies are listed on the ASX, offering a vast range of options for new investors.

How to buy shares

You can’t buy shares directly—you need a broker to facilitate the transaction. Brokers range from full-service, offering personalised advice, to online platforms, which allow self-directed trading at lower fees.

Steps to start investing

Starting your investment journey may feel overwhelming at first, but breaking it down into clear steps can make the process much more approachable. Here’s a five-step guide to help you get started confidently.

Step 1: Set your investment goals

Before you invest a single dollar, take the time to reflect on your financial intentions. Defining your goals will help shape your strategy and keep you focused—especially when markets fluctuate.

Ask yourself:

• Why am I investing—what am I working toward?
• What is my tolerance for risk?
• Do I want regular income (e.g. dividends) or long-term growth?
• How long can I keep my money invested?

Clear goals help shape your strategy and prevent emotional decisions. In other words, having clear goals helps shape your investment strategy and reduces the likelihood of making impulsive decisions driven by short-term market movements.

Step 2: Choose an investment strategy

There’s no universal strategy that suits everyone. Your ideal approach depends on your financial situation, goals, and risk appetite. Here are some common strategies to consider:

• Value investing: Seeking out undervalued companies with strong fundamentals and long-term growth potential.
• Growth investing: Investing in businesses that are expected to grow rapidly, even if their current earnings are low.
• Dividend investing: Prioritising companies that pay consistent dividends, ideal for those looking for regular income.
• Ethical or ESG Investing: Choosing companies that align with your values in terms of environmental, social, and governance practices.

Step 3: Open a brokerage account

To buy or sell shares, you’ll need a brokerage account. When choosing a broker, compare:

• Fees and commissions
• User interface and platform functionality
• Educational resources and research tools
• Access to domestic and international markets

Online brokers are often the most accessible option for beginners, especially those that offer intuitive platforms and supportive learning materials.

Step 4: Research ASX Shares

Start your research with industries and businesses you already understand. Look into a company’s:

• Annual and half-year financial reports
• Balance sheets and income statements
• Market trends and sector outlook

Competitive positioning

Ask critical questions, such as:

• Will this company’s products or services remain relevant in the future?
• Are there opportunities for sustainable growth?
• Who are the key competitors, and how strong is the company’s market position?

This kind of fundamental analysis helps you make more informed investment decisions.

Step 5: Start small and diversify

Start with an amount you’re comfortable investing. Build a diversified portfolio by spreading investments across different companies, sectors, and asset types. This helps manage risk and avoid major losses if one area underperforms.

Defensive vs growth investments

Defensive investments

• Focus on preserving capital and generating steady income.
• Include cash, term deposits, and bonds.
• Less risky but limited growth.

Growth investments

• Aim for capital appreciation and potential income.
• Include shares and property.
• Offer higher returns but also come with more volatility.

Understanding market indices

Indices like the S&P/ASX 200 track the performance of top companies on the ASX. Many investors choose to invest in Exchange-Traded Funds (ETFs) that follow these indices, providing broad exposure with a single investment.

Managed investments

Not ready to choose individual shares on your own? Managed investment products can be a great alternative, offering convenience and professional expertise.

ETFs (Exchange-Traded Funds)

ETFs are investment funds that trade on the stock exchange just like shares. They typically track a specific index, sector, commodity, or theme. ETFs allow you to gain broad exposure to a market or industry with a single purchase, making them an efficient and cost-effective way to diversify.

Managed funds

These are professionally managed portfolios made up of a mix of assets—like shares, bonds, and property. A fund manager makes investment decisions on your behalf, based on a defined strategy. Managed funds are well suited to investors who prefer a hands-off approach or want access to a broader set of assets than they might pick individually.

Both options offer diversification and suit investors seeking simplicity or professional management.

Ask the right questions before you invest

Before putting your money into any investment, it’s important to take a step back and reflect on your personal circumstances. Asking yourself the right questions can help you understand what kind of investor you are and what strategy suits you best:

• What are my short- and long-term financial goals? Are you saving for a home, building wealth for retirement, or planning for a specific milestone?
• Am I comfortable with market fluctuations? Can you handle the emotional ups and downs of market swings, or do you prefer more stability?
• Do I need liquidity (easy access to cash)? How important is it for you to be able to access your funds quickly if needed?
• Do I want income, growth, or both? Are you looking for regular payments (like dividends), long-term capital growth, or a combination?
• Can I accept that investments may lose value? Every investment carries some risk. Are you prepared for the possibility of temporary or permanent losses?

Taking the time to answer these questions helps define your investment profile, shape your strategy, and ensure your decisions align with your financial goals and comfort with risk.

Final words: save vs invest: What’s the difference?

While both saving and investing are important parts of a healthy financial strategy, they serve different purposes.

Saving is low risk and best suited for short-term goals or unexpected expenses. It offers safety and easy access to your money, making it ideal for emergency funds or upcoming purchases.

Investing, on the other hand, involves higher risk but also the potential for significantly greater returns over the long term. It’s designed to help your money grow and build wealth over years or decades.

The key is balance: save for security, invest for growth.

Final thoughts: Building wealth takes time

Investing isn’t about overnight success—it’s about consistency, education, and a long-term mindset. Markets can rise and fall, but with patience and discipline, your investments have the power to grow over time.

The earlier you start, the more time you give your money to benefit from compound growth and the long-term upward trend of the markets. Every small step you take today brings you closer to financial freedom tomorrow.

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