How To Invest In The ASX

The Australian Securities Exchange (ASX) is our country’s main share trading service, listing more than 2,000 companies from Australia and globally. The ASX is essentially a marketplace for buying and selling shares—companies do so to raise capital, while investors (like you) do so in the interests of making a profit if and when a company’s value and revenue increases.

People have been listing and buying shares in Australia since the 1850s, and eventually six independent exchanges were established in each capital city. In 1987, these six exchanges were incorporated under legislation in the Australian Parliament to create the Australian Stock Exchange.

In 2006, it evolved again through a merger with derivatives exchange the Sydney Futures Exchange, which came with a name change to the Australian Securities Exchange.

You may have heard of the S&P/ASX 200 index, which tracks the combined price rise and falls of the top 200 listed companies (by market capitalisation) traded on the ASX. Indices give investors a benchmark to gauge the market’s performance.

Related: AI Stocks on the ASX

The ASX is a great strategy for making money because it allows you to own a part of various businesses and benefit from a company’s growth and profits.

Finance industry professional and founder of the educational resource Fierce Girl Finance, Belinda White, said the ASX offers a wide range of companies to choose to invest in—from small startups through to huge, bluechip companies.

“All investments need to be chosen based on how well they fit your goals, time horizon and risk profile,” White said.

In comparison to investing in property, exchange-traded products like shares and ETFs can be bought and sold quickly, White added.

“They can also increase in value as well as pay dividends, depending on the investment,” she said.

“Of course, they can always go down in value as well, so they tend to suit investors with a longer time horizon, for example, five years or more.”

Two key ways the ASX provides access to shares for investors is via individual shares and ETFs.

Via individual shares

You can invest directly in companies of your choice (via a broker or online platform). The decision to own individual shares will depend on your investment goals and your knowledge of the market. For instance, you may want to invest in specific sectors, or believe the returns from owning certain stocks will be more favourable than an ETF.

You can trade shares in any of the companies listed on the ASX, but you might also decide to buy individual shares as part of:

• An IPO (initial public offering) where you’d gain access to a prospectus with information about the company’s operations, finances and risks;
• A crowd-sourced funding (CSF) offering from a startup seeking to finance their business (this isn’t the same as crowd funding sites like GoFundMe); or
• An employee share scheme, where you get a chance to invest in the company where you work.

There’s no easy answer when it comes to deciding exactly which companies to invest in, how many shares of a stock to buy, or how many different types of stocks to own. This is a reason to seek independent advice through a financial advisor or broker.

Via an ETF

You can get exposure to shares listed on the ASX indirectly by pooling your money with other investors via an exchange-traded fund (ETF). It’s also a great way of diversifying your investment, which is generally considered less risky.

An exchange-traded fund combines investor funds to invest in a group of shares —generally they track an index, such as the S&P/ASX 200. There are many different ETF products available that use different indexes as their benchmark.

ETFs are traded products on the ASX, which means you can buy and sell your stake in an ETF in the same way you buy or sell shares.

If you’re wondering how difficult it is to start trading on the ASX, you’ll be relieved to know it’s reasonably easy.

The actual transactions (buy and sell orders) need to go through a third-party ASX participant broker. That could mean a professional broker, online broking platform, or a fund manager:

• If you want to invest in individual shares or ETFs, you need to decide whether you want to do so through a full service broker or an online broker platform or app.
• You could also choose to invest via a managed fund, where your fund manager will decide what to invest in and make the share trades.

How much you can afford to invest may influence which method of investing you choose.

White said prospective ASX investors should do their research and be sure they understand the risks before going ahead, and speak with a financial advisor or broker if they have doubts.

“If you have a sum of money that you don’t need for your general living expenses, and aren’t likely to need for a while, then you might consider investing in the ASX,” she said.

“The minimum trade directly on the exchange is $500, but there are also micro-investing apps that allow even smaller investments.”

Why choose a fund manager?

Similar to an ETF, a managed fund is an indirect way to invest in shares by pooling your money with others across a diversified portfolio. Unlike an ETF, managed fund products aren’t traded on the ASX—they simply include shares.

A managed fund is overseen by a professional fund manager who makes decisions about the mix of shares and other assets to buy and sell: a fund might invest solely in shares or multiple asset types. You may pay a higher fee for this expertise and active management of your investment.

Why Use a broker?

Engaging a professional broker who is up-to-date with market movements and can provide advice on what kind of securities to buy, and when to buy and sell, can offer peace of mind for inexperienced investors. You’ll be charged fees for trades so it’s important to think about your investing strategy—for instance, whether to invest a lump sum or smaller amounts over time. Be sure to ask prospective brokers/advisors exactly what services they provide, how they charge for their services, and how often they review your investment approach.

Why Use a Share Trading Platform?

If you’re more confident in your knowledge of the market, and want control over your investment decisions, you may decide to use an online platform that lets you buy and manage your own shares. Online platforms don’t provide tailored investment advice, they merely facilitate the transactions, typically at a lower fee than a broker. To get started buying shares through broking platforms, you’ll need to create an online account which may require fairly in-depth identity verification processes or setting up a cash account with your bank.

What Makes the ASX Go Up or Down?

The ASX 200 moves up or down in accordance with breaking news, company announcements and government policy. While those price movements may not be extreme, finance professionals and serious investors are always looking for trends and indicators of what might happen next.

Anticipating stock market changes means paying attention to broad economic conditions and interest rates, major political moves and social trends, and the performance of individual companies listed on the ASX. Belinda White said that company valuations are based on current performance as well as future potential.

“Some companies, such as tech companies, aren’t making a profit today, but people expect it to in future, and so they invest on that basis,” she said.

“Similarly, there are companies like banks, with a long track of making profits, and which can be expected to in future—but at a fairly consistent rate.

“Company performance depends on many things like the economic environment, the sector they operate in, the quality of management, and how much competition they have. These are the types of things that analysts will look at when deciding how much they think a company is worth.”

The changeable nature of stock prices is another reason to be clear about your reason for investing. For instance, White said retiree investors seeking an income would be attracted by companies that pay dividends, while long-term investors may favour companies that will be worth more later on.

“Investors need to accept that the value of their investments can rise or fall at any time,” she said.

“Panicking and selling investments because they have fallen may mean they lock in the hypothetical loss—because it’s not a loss until you sell.

“Generally, because of their volatility, exchange-traded products are more suited to investors with longer time horizons, as they have years to smooth out the ups and downs.”