I’ve got the money, but how do I actually start investing it?

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“If you have high-interest debts like credit cards or personal loans, pay these off first because those interest savings will be hard to beat with taxed investment earnings.”

A general rule of thumb is to have at least three months of expenses in savings as an emergency fund before starting to invest.

Additionally, people who are saving for a large expense like a house or long holiday should be cautious about investing that pool of money.

“It can be tempting to invest your savings to help things along, but share markets are highly unpredictable in the short term. You don’t want that dream house, car, or holiday ruined because something happened on the other side of the world,” Cardozo says.

“You should aim to be invested for at least five years to help defend against share market volatility.”

94 per cent of Australians aged 24 to 39 are saving money, says CommSec.  Les Hewitt

How much money do I need to start investing?

Investors can technically begin investing with their spare change through round-up investment apps like Raiz and Spaceship.

Investors who use the apps can choose a round-up amount, like $5. Then, when they make a purchase – for example a $3.50 coffee – the difference between the purchase amount and the round-up is invested, in this instance the $1.50.

However, that may not be the right option for people planning to invest large sums of money, financial literacy advocate and Unf*ck Your Finances author Melissa Browne says.

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“You want to ensure that any brokerage you’re paying for each investment isn’t eaten up by fees. The ASX suggests [a starting investment sum of] $2000 but, with lower fees inside apps, you might consider $500,” she says.

And if investors are planning to invest with a significant sum of money, it could be worth speaking to a professional, adds Fitzpatricks Private Wealth senior financial adviser Gianna Thomson.

“This is when paying for financial advice will become more valuable,” she says.

The average advised client has $785,205 in funds under administration, according to The Adviser Ratings 2022 Financial Advice Landscape Report released in April.

Investing in the stock market online has never been easier. Istock

How do I pick an investment platform?

The three main areas where platforms will differ is in the types of investments offered, the fees they charge and whether the investments are held in the investor’s name.

For example, some simple platforms that target investors who are new to the sharemarket, like CommSec Pocket and Spaceship, offer only exchange-traded funds (ETFs), while others like Stake will charge higher fees to trade Australian than US shares.

“For some, having everything in one place and using their bank’s share trading platform [like CommSec or NABTrade] makes life easy and secure for them,” Cardozo says.

“However, thanks to the ease of apps and technology, there are a range of modern competitors that offer simplicity with a friendlier vibe and cheaper trades.”

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When it comes to the investment ownership structure, some platforms have CHESS (Clearing House Electronic Subregister System) sponsorship, which means investments made are held in the investors’ name. It means investors can move investments from one broker, or platform, to another.

Major online brokers like Commsec and NABTrade offer CHESS-sponsored shares.

However, other platforms don’t have CHESS sponsorship, which means those platforms own the investments on the investor’s behalf.

Platforms generally offer non-CHESS sponsored shares in bids to reduce trading costs and potentially offer a larger selection of investable assets.

However, one concern is that if those platforms offering a non-CHESS or custodial model, go under, investors’ ownership of the shares isn’t clear-cut.

The other option is to engage with a financial adviser, who will help you decide what you want to invest in, and execute trades on your behalf.

Financial advisers generally help clients with decisions around retirement planning, investments, superannuation, tax and budgeting. The idea is that an adviser will be more or less responsible for every aspect of their clients’ financial health.

It’s up to the client how hands-on their adviser is, and they can choose to simply accept advice and carry out their own trades if that’s what they’d prefer.

Investors may also choose to engage with a full-service stockbroker, who will offer advice on buying and selling shares and tailor investment plans to your needs. Full-service brokers include Bell Potter, UBS and Morgan Stanley Wealth Management.

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Fees for engaging a financial adviser range from $800 to $12,000, but clients receiving ongoing advice are paying a median fee of $3529 per year, according to the latest Adviser Ratings report.

Additionally, getting an initial statement of advice as a new client cost $2671 on average in 2019.

Advisers may also charge fees to implement the advice (for example, opening accounts and making trades), fees for reviewing clients’ financial plans and investment platform fees. They may also charge fixed hourly rates to answer questions not included in ongoing advice services.

And they may charge percentage fees based on the total value of the assets in a portfolio, or take fees based on how well the investments they make on clients’ behalf perform.

Full-service stockbrokers tend to charge brokerage fees ranging from $70 to $200 per trade. However sometimes it is based on a percentage of the transaction and other times it can be a fixed fee. Generally the larger the transaction, the lower the percentage fee, so full-service stockbrokers are generally considered a better option for people investing with more money.

Three types of investment platforms to choose from

  • If you want to get started with a small amount of money and without too much fuss there are several microinvesting apps on the market you can try. These include Raiz, Spaceship and CommSec Pocket. 
  • For people who want to be more hands-off and let the market do the work rather than stock picking, roboadvisers like Stockspot will have clients fill in questionnaires to fill in their investor profiles, before using algorithms to pull together ETF portfolios based on that client’s profile. 
  • If you’re comfortable investing bigger amounts and picking your own investments without guidance, you could try using an online investment or trading platform. CommBank, NAB and Westpac all have their own investment platforms – CommSec, NABTrade and Westpac Share Trading, while major broker CMC Markets recently acquired ANZ’s platform. Saxo Markets, IG Markets and Selfwealth are some other larger investment brokers. Stake and Superhero are also popular investment platforms allowing access to Australian and US shares.
  • You can find a list of brokers in Australia here.

What about fees for different online platforms?

Some platforms and brokers will charge percentage-based fees, while others will charge brokerage fees to trade shares.

For example, CommSec users making online trades with a linked investment account will pay $10 for trades up to $1000, $19.95 for trades between $1000 and $10,000 and $29.95 for trades between $10,000 and $25,000.

Once users start making trades of more than $25,000, they’ll be charged 0.12 per cent fees.

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Its sister product, CommSec Pocket, only offers a small selection of ETFs (we’ll come to that shortly). However, it’s cheaper to use for smaller trades, with trades of up to $1000 incurring $2 fees, before switching to a 0.2 per cent fee for larger trades.

Others still, such as Spaceship and Raiz, charge monthly fees. Spaceship charges $2.50 per month while Raiz charges between $3.50 and $4.50.

Raiz also applies a 0.275 per cent fee on standard portfolios over $15,000, and on custom portfolios over $20,000.

Some platforms, such as eToro, charge inactivity fees for accounts that have been inactive for more than a year. eToro levies a US$10 fee for every month of inactivity after one year.

When investing in products such as ETFs or managed funds, investors will often pay indirect fees for the management of that fund, Cardozo says.

“They are taken from the investment returns by the company managing the underlying shares,” he says.

“There is nothing wrong with this, as they are providing a handy service, but just double-check you are comparing ‘net’ returns when looking at different options.”

What are ETFs and how do I invest in them?

One effective, yet simple, way to get exposure to the sharemarket is to invest in ETFs – exchange-traded funds.

An ETF is an investment product that allows investors access to a bundle of shares that generally track an index or theme.

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For example, investment manager BlackRock offers an ETF named iShares Core S&P/ASX 200 ETF, or IOZ. This ETF tracks the ASX200, and provides exposure to the 200 largest listed companies in Australia that make up the index.

Similarly, ETF Securities offers an ETF that offers broad exposure to companies working in the battery technology and lithium space, with a ticker code of ACDC.

Aussie ETFs are expected to manage $180 billion by the end of 2022.  Yerevan Dilanchian.

The broad appeal behind investing in ETFs is that as they offer access to a broad range of shares: if one company were to fail, the broader ETF would still be more or less OK.

ETFs are simple to invest in, and most investment platforms offer ETFs. They can be purchased and sold during the trading hours of the exchange, using the same process by which you’d buy or sell equities.

However, as with any investment, they’re not without risk. For example, an ETF that tracks a particular theme may not do well if that industry goes through a difficult period.

Investors also need to make sure they understand what their preferred ETFs actually invest in.

Russia’s invasion of Ukraine raised questions around ETFs that tracked companies in emerging markets, including Russia.

What you need to remember about ETFs

  • ETFs are a popular way for investors to gain instant diversification across one index or theme without needing to spend a lot of time and money making trades.
  • Make sure you understand what investments the ETF holds. For example, some investors had a shock when they realised their emerging markets ETFs had exposure to Russian companies. Thematic ETFs like environmental or fintech ETFs also require scrutiny, with some of these funds using loose definitions to include companies that may not fit the bill, but are generating larger returns. 
  • Be careful of relying on just one ETF. If it’s exposed to one particular theme and that sector struggles, so too will your investment portfolio.

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Why fees can make or break your investment

It’s worth understanding the impact investment fees can have on a portfolio.

Hosts of the EquityMates podcast, Alec Renehan and Bryce Leske give an example in their book Get Started Investing.

Take an investor putting $100 into a fund that charges 1 per cent in fees. If that fund made 10 per cent, the investor has added $10 to their $100, leaving them with $110. When that fund takes its 1 per cent fee, that will be $1.10 from the $110 so the investor will end up with $108.90.

One year later, the fund makes another 10 per cent, adding $10.89. The investor now has $119.79. The fund takes a 1 per cent fee, or $1.19. The investor now has $118.60.

Over time, it adds up. In fact, someone who put $1000 into a product charging no fees and returning 10 per cent a year would, 40 years later, have $45,259.

If they were charged a 1 per cent fee, they’d have $30,277 and if they were paying a 2 per cent fee, they’d have $20,172.

“That difference in Year 40 is a big reason why minimising the fees is so important. Over the long term, it can make a massive difference,” Leske and Renehan say.

“Basically, whatever you pay in fees you need to make up in additional investing returns. If you’re going to get similar returns from two different choices [then] the better choice is the one with lower fees.”