If you've got some savings to invest, this is what you need to start - ABC Everyday (2024)

Looking to invest your savings?

It can seem like a scary prospect, but it's never too late to learn the basics.

Here's how you can take the first few steps.

Before you throw money around

Finance educator Kate Campbell suggests having three to six months of your essential living costs put aside before investing. (However, she says if you're young and healthy without any dependants, you may be OK with having a little less than that.)

And you'll want to first pay off any major debts, put aside money for emergencies and make sure you're up to date with your mortgage (if you have one).

That way, if something happens to your main source of income, you won't be forced to sell your investments at a bad time in the market, which could cause you to lose money.

It's also important to do a bit of research — whether that's through podcasts, websites, books or just talking to friends and family.

"It is good to learn a bit of the basics before you have a go because you don't want to [make a bad investment and] scare yourself off for life," Ms Campbell says.

Takebaby steps with micro-investing apps

One way to get comfortable with investing in shares is through micro-investing apps.

These allow you to invest small amounts of money, and generally come with low minimum investments.

Some apps have no minimum deposit rules at all, so you could start by adding $2 to your account a week, and move on to higher amounts when you've got the hang of it.

Others are designed to round up your spare change — so if you buy a coffee for $3.50, that extra 50 cents will be automatically invested through the app.

Although these apps are convenient, the fees can be relatively high, especially if you're investing larger amounts – and finance educator Jason Yu doesn't recommend micro-investing large amounts in the long-term.

However, he says they're a "good starting off point".

"It's good to get those toes in the water. So then when you have to make those bigger investment choices, they'll at least have some familiarity, and you'll have more confidence."

Your next move: opening a brokerage account

While micro-investing apps are a great place to get started, Ms Campbell would encourage budding finance gurus not to stop there.

She recommends using the apps as a way "to learn more and get interested in investing", but her next step would be buying parcels of exchange traded fundsand shares directly from a brokerage account.

You can open a brokerage account, also known as a "share trading account", online. It'll allow you to buy and sell shares.

You can also go to a full-service broker who will offer more support and advice, but will charge additional fees.

There's a ton of share trading accounts out there to choose from, so you might like to use comparison websites to pick the right one for you.

You'll want to consider what markets the provider offers: whether it'll only let you invest in Australian businesses, or international ones, too. If you are keen to invest overseas, check what exchange rate fees the broker charges.

Brokerage fees can be a set amount per trade, or they can be a percentage of the shares you are trading. These will add up, so do your research.

Most importantly, make sure to choose a broker that is legitimate. There's a list of brokers on the ASX website or you could a consider speaking to a financial adviser.

Remember that opening a brokerage account is a step-up from micro-investing, with the minimum trade usually setaround $500, plus brokerage.

You can find brokers through the ASX website, use comparison sites like Canstar or have a look at MoneySmart for more information.

Keep it simple: exchange traded funds

Once your brokerage account is up and running, the next step is to decide what you'd like to invest in.

A great place to start can be exchange traded funds, or ETFs.

An ETF is a type of managed fund that will invest your money in a range of companies.

As Ms Campbell explains, ETFs are a simple way to diversify your portfolio without having to research and choose stocks in individual companies yourself.

It can also leave you better off, as most individual investors who pick their own stocks underperform the market.

"So if I want to invest in the ASX top 200 companies, I can just buy units in an exchange traded fund and they do all the work for me. And they buy and sell those underlying companies," she says.

"Instead of having to go 'Oh, do I want to buy CBA, do I want to buy AfterPay or do I want BHP,' I can just buy some units in this exchange traded fund. And that buys all of them for me, which is quite a good way to do it."

This means that rather than paying the brokerage fees to invest in each individual company, you just pay one fee for the whole ETF.

ETFs do have a management fee. But generally these are low for the larger funds, such as those that track the ASX200 index. Investment fees will affect your returns, so try to minimise them as much as possible.

Like all investments, ETFs do come with risks, as you're exposed to the ups and downs of your portfolio. For example, if you invested in the top 200 Australian companies, and the Australian share market went down in value, the value of your ETF would go down, too.

But Mr Yu says if you want to invest, you need to be prepared for ups and downs, as most long-term investors aim to keep their money invested for a minimum of five years.

"You're going to need at least five to 10years to feel the average return," he says.

"You'll want that time, otherwise it's speculative. If you're just waiting a year hoping it'll go up, you might be lucky, you might make quick money, but you might lose some serious money too."

Should you just stick with saving?

Ms Campbell says if you're saving to buy a house within the next five years or putting money aside for something in the near future, you might want stick with a savings account rather than risking your deposit on shares.

But if you’re not, Mr Yu says investing is a good thing to try.

"I think regardless of whether interest rates are low or not, whether the market's crashed or not, even if you're someone that doesn't have a finance background, it's really good to start," he says.

"Investing is like cooking or gardening – it's just one of those skills you need in life."

This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circ*mstances.