How to Invest for absolute beginners (in Australia)

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  1. Shaping your future
  2. Scrap the misconceptions
  3. Micro-Investing — What is it?

If you’ve stumbled across this article, then there's a high chance (if you haven't already) that you’re considering investing some of that hard-earned cash of yours. If that’s correct, then you’ve certainly stumbled… or clicked into the right place!

Starting out your investment journey can be one hell of an intimidating ride- What do I choose? Where do I look? What do I even look for? How do I even get started? Screw this, I’m out, investing can go to hell… These are the questions (and regrettably statements) I remember thinking to myself when I first started out. And although it is true that it’s impossible to learn all there is to know about investing in just one day, the light at the end of the tunnel is closer than you think — once you understand the fundamental principles of investing, it is a hell of a lot less intimidating, that I promise you.

That’s the whole point of this article, to break down the unnecessary complexities and misconceptions about investing and offer my (non-financial advice) insights into what I found to be the best way to enter the world of investing, baby steps at a time.

To guide our conversation about the nuances of investing, there are two areas I want to delve into, which are perhaps the foundations of investing. So what are these? Well, see for yourself:

  • Understanding, the ‘why’ behind investing
  • Establishing the habits of an investor, the ‘how’ behind investing

I’ll also mention some of the platforms I used to begin my investment journey, which as we’ll see are extremely easy to use and not intimidating in the slightest, yet really drive home the two principles above.

So, without further ado, let's invest in learning about investing!

1. Understand the power of investing

There are many different ways to invest your money and just as many reasons why people choose to invest in the first place. For the sake of this article, we will focus on investments in shares and the stock market since this is perhaps the most common, or at least a well known, investing method.

Why do we invest?

Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labour in the future. Another important reason is to mitigate or overcome the effects of inflation. Since prices across the board continue to rise each year — at the supermarket, at the fuel pump or your local coffee shop, this means the money in your pocket (or these days, your bank account) is losing value. The only way you can outrun inflation is to earn a higher rate of interest on your money than the rate of inflation.

This is where investing comes in. Investing can help grow your wealth through compound returns. With compound returns, the idea is that by leaving your money invested — or reinvesting any money your investment pays you over time — you could start to earn returns on both your initial investment and also on any returns made along the way. These returns add up over time, meaning you can earn a hell of a lot higher interest rate on your invested money when compared to leaving it in your bank account. In fact, in its most simplest form, investing is essentially making your money work for you to make more money.

“You can make a lot more money a lot faster by sending your money to work for you every day, rather than just sending yourself to work every day”

So investing in shares can help us grow our wealth, so does that mean we should all do it purely for the sake of it?

…No.

Shaping your future

We all have different goals, hopes and desires, so you should look at investing as a tool that can help shape your life trajectory into the kind of future that you want. What one person views as an ideal future, could be starkly different to what someone else considers an ideal future, so it’s important to map out what it is that really brings the most amount of joy and happiness into your life — then look at your investments as fuel to maximising whatever it is that may be.

For some, this could be something simple like achieving a specific goal — such as buying a new car, a new house, or having enough money for retirement. For others, an ideal future may mean having greater flexibility in life. For example, if you’re earning a regular income from your investments, you could potentially afford to spend less time working, and more time on your hobbies or with your friends and family. You could have more flexibility over where you choose to live, greater opportunity to support causes you care about, or start a business … the list goes on!

This is arguably the most powerful thing about investing — the ability to give you more time to focus on the things you love doing.

Scrap the misconceptions

Misconception: There’s too much to learn, I’ll never be able to get started

What I find truly amazing about investing is just how having knowledge of some very basic concepts can (in the long run) earn you hundreds and hundreds of thousands of dollars. Concepts such as compound interest, dollar-cost averaging, or even questions such as whether you should pay off your student debt before you invest or not (don’t worry if some of these terms are unfamiliar, I will write separate articles discussing these topics in the detail they deserve), are all topics that can be easily approached and understood by an everyday person. But the potentially massive financial benefits that you can reap from simply taking the time to learn the basics about investing as early as possible are incredible. Each new topic you learn more about causes you to ever so slightly adjust, or question some of your financial habits or tendencies, and these small changes accumulated over time, lead to large improvements that can produce life-changing results in the long run.

Misconception: I need to be rich in order to invest

WRONG! You definitely don’t need to be Elon Musk or Jeff Bezos to start investing in shares. In fact, a number of ‘micro-investing’ platforms have surfaced these days (more on that later) that allow you to get started investing using only your spare change! Better yet, these platforms help establish the habits of an investor, which we are about to learn more about in the next section.

2. Establish the habits of an investor

When it comes to investing in shares, time and consistency are your biggest allies. The challenge for investors is to maintain regular investments over an extended period of time, even during periods where the market may be underperforming.

Most people often fail to realise how quickly they can develop a sizeable investment account simply by making modest but regular investments and letting the magic of compounding perform its miracle. I have written about this in my previous article: How to Get a Head Start on Your Financial Journey, but here’s another illustration of compounding interest at work to really drive the point home.

Let’s say you open an investment account and deposit an initial $5,000 investment and leave it there for 10 years, no further deposits, no withdrawals, completely untouched. Historically, the stock market achieves an annual return of 8–10% . So assuming we earn an annual return of 8% on our initial $5,000 investment, after 10 years, the value of your investment account would be $10,795. That’s more than double your initial investment, not a bad performance!

But now let’s consider what would have happened if you had just made one ever-so small adjustment. Instead of only depositing your initial $5,000 investment, you instead contribute an additional $50 every month into your account. Now if we look at the performance of your investment account (still only assuming an annual return of 8%), after 10 years, the value of your account would be $19,487 — that's almost double the account size that you’d have had without making any additional contributions.

If you follow this approach again but instead increase those monthly contributions up to $100 per month (instead of $50), then the 10-year account total would jump to over $28,178…and all from an initial investment of just $5,000, supplemented by very modest additional contributions on a regular basis.

This just shows you the power of regular investments and its compounding effect over many years.

That may be all well and good, but let’s be real — not all of us have $5,000 that we can just casually throw into the stock market, nor would we be comfortable doing so if we’re only just starting out on our investment journey.

So then, how do we still work towards developing the right habits of an investor, but without the large up front costs?

Micro-investing to the rescue!

Micro-Investing — What is it?

If you’ve looked into investing your money before, you’ve likely run into high costs. That’s because it can take a lot to start investing in traditional ways, with most stock brokerage companies (CommSec, SelfWealth, CMC etc.) requiring a minimum amount of $500 to invest in any given stock for the first time.

This is where micro-investing comes into play. Micro-investing is, well, micro… and works with smaller investment amounts, usually accessed and managed entirely through an App. Micro-investing eliminates the minimum amount requirement and instead allows recurring investments of any amount, lump sum deposits, and even allows you to round up your purchases to invest your spare change. For example, if you use your everyday bank card to buy a large coffee for $4.50, it would be rounded up to $5 and the 50 cents would then be invested. Depending on how frequently you transact and how the market treats you, over time you may find that you have accumulated a sizeable investment portfolio.

  • The drawback

The one major drawback about micro-investing that you need to be aware of — is that you typically can only invest in exchange traded funds (ETFs) or a select number of portfolios options(created by the micro-investing company) that contain fractions of many different companies. Essentially, instead of buying a single stock from a single company, you buy a single stock that contains pieces (or fractions) of several different companies (sometimes hundreds). Although this may restrict your ability to purchase individual stocks from a particular company, the benefit is that it diversifies your investment across a larger number of companies, hence reduces the risk of your investment losing money (I’ll reserve discussions about investing in ETFs and index funds for another time).

  • Gets you Into the Habit

The habit of regularly investing even small amounts of money into micro-investments is definitely a habit worth cultivating, and a habit that will pay off handsomely for you in the long run. That’s because once you’ve experienced first hand how simple it is to put your money aside, you’re likely to keep on doing it, using that as a way to further build up your financial security.

  • Convenient and easy

Micro-investment is made incredibly easy through the Apps they operate on. Setting up is easy and takes only minutes and from there you can track and manage your portfolio straight away.

  • Fees — A word of warning

Although micro-investing apps don't charge brokerage fees each time you make a trade like traditional broker accounts do, they do still need to earn a profit from somewhere. Typically, this comes from either paying a monthly subscription fee or in the form of a transaction fee applied to each trade. For lower amounts, this transaction fee may seem tiny, but if you were to scale up your investments, then a fee of even just 0.5% quickly adds up.

Therefore, a word of caution to anyone who may be considering depositing significant amounts of money into micro-investing apps, since the fees could exceed traditional brokerage accounts. But personally, by the time you were considering increasing your investments to amounts where transaction fees would be of concern, I’m sure you would have developed a sufficient appetite for investment, at which point you may opt to transfer your balance from micro-investing platforms into more traditional brokerage accounts.

Micro-Investment Platforms I’ve Used

Now that we’ve talked about what micro-investing is, here are two super easy-to-use and convenient micro-investing apps that I used to start out my investing journey.

Spaceship

Spaceship is a micro-investing platform that has gained popularity in Australia over the past few years. It’s a mobile app that allows users to deposit lump sums or set up recurring weekly, fortnightly, or monthly payments into a choice of three diverse portfolios, giving you the option to choose a portfolio that aligns with your interests.

Spaceship Portfolio Options

Users can track the progress of their portfolio through the mobile app and link their portfolio to an external bank account to deposit and withdraw money.

Fees:
Spaceship is completely free for investment accounts with balances under $100 AUD. Once your account has exceeded that amount, you will be charged a flat monthly fee of $2.50 (AUD) to use their services. That’s irregardless of whether you hold $101 or $50,000 in your account. Because of this, Spaceship is one of the cheapest options out there… In fact it is actually the micro-investment app I used the most when I first started out.

Bonus Referal Reward

Because of that, if you register through this Spaceship link and sign up/enter using my code S8TB2GIJOK, you will get a free $10 after you invest your first $5 in your chosen portfolio. That’s $10 added to your pocket just for depositing an initial $5 investment (remember, you wont be charged any fees until you have at least $100 in your account either). Plus you will gain experience in investing, that’s a win-win if you ask me!

Raiz

Raiz is another interesting micro-investing app that allows Australians to invest their ‘spare change’ into the financial markets in a fully autonomous manner. By this, I mean there is ‘automatic round-up’ feature which allows you to invest your spare change without even thinking about it. The platform offers to round up the purchases made on the linked transaction account to the nearest dollar and invest your spare change.

Users have the option to invest in one of six different diversified portfolios of varying risk levels: conservative, moderately conservative, moderate, moderately aggressive and aggressive. Raiz has added the ’emerald’ portfolio option for those interested in socially responsible investments. On top of the default portfolios, Raiz does also give their users the option to create a customised portfolio of their liking (for a higher fee). This allows you to build your own personalised portfolio out of a selection of ETFs and cryptocurrencies.

One feature I love about Raiz is that you can set up multiple portfolios and invest small amounts regularly for your children/grandchildren. They also provide setup guidelines to help each child manage their own account and gain important saving skills, and I am all about promoting financial literacy so this is a big positive in my eyes!

Fees:
Like Spaceship, Raiz charges a monthly subscription fee for use of their services, but the amount varies depending on whether you opt to use a default investment portfolio versus a custom portfolio. The fees for each option are:

Default Portolios: $3.50/month for accounts with under $15,000 or 0.275% of balance for accounts with +$15,000.
Custom Portfolio: $4.50/month for accounts with under $20,000 or 0.275% of balance for accounts with +$20,000.

Bonus Referal Reward

If Raiz does sound like it would be a good match for you, make sure to sign up through this Raiz link and use invite code 8L7F4A to land yourself a free $5!

Next Steps

I hope you found some use to this article. If you are going to take your interest one step further and try out a micro-investment app, what will it be? Spaceship or Raiz? Let me know in the comments!

Have a splendid day!

Cheers,

Nathan

Disclaimer:
Investing always involves a level of risk. You aren’t guaranteed to make money, and it is possible to lose the money you start with. I am not a financial advisor, so none of what I say should be taken as financial advice. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.