Getting involved in the stock market for the first time can be intimidating but, as the saying goes, the best time to start investing is now.

And despite the common misconception, you don’t need to have a lot of money to get started. Small amounts eventually add up and with the power of compounding over several years, you’ll find yourself in a good position. Here’s your super quick guide to entering the market with just $500.

First, the three main types of shares you’ll likely be investing in on the Australian Stock Exchange (ASX).

Individual company shares 

The ASX is home to more than 2000 listed companies of all sizes, from up-and-coming start-ups to blue chip companies that have been around for ages. Buying shares in a company means you own a tiny portion of that company and you are known as a shareholder.

ETFs

If you’re only investing $500, you may not want to put all your eggs in one basket by investing in a single company. The easiest way to get diversification in your portfolio is by investing in exchange traded funds (ETFs). These are bought just like shares for a single company but they allow you to gain exposure to a diversified “basket” of shares. You can choose ETFs that track geographical indexes (such as Asia) or themes (such as ethical companies or lithium miners). ETFs also carry a small fee.

LICs

Listed-investment companies (LICs) are publicly traded companies that actively invest in a variety of asset classes. Alongside shares, they may also invest in bonds, property, commodities and private businesses. When you invest in an LIC, you’re buying shares in that company rather than the underlying assets or any units that track an index like with ETFs. The fees are usually higher than those of ETFs, but it’s a good way to get broad exposure with a single transaction.

Now, what’s the best way to get your $500 into the ASX? There are plenty of clever low-cost brokerage platforms out there that will allow you to start with smaller amounts. Low-cost is the operative word here, as fees will eat into your $500 very quickly.

Micro-investing platforms

Micro investing is a good way to start with smaller amounts, as you won’t pay fees for individual trades, though most platforms charge a fixed fee. Most micro-investing platforms allow you to invest in diversified portfolios or fractional shares (usually in ETFs), so they’re less volatile than individual stocks.

The most popular micro-investing platforms in Australia at the moment are Raiz, Spaceship Voyager and CommSec Pocket.

Raiz (formerly Acorns) is famous for its round-up style of investing, but you can also invest lump sums when you have the cash. It offers a range of standard portfolios and custom portfolios for you to choose from. Spaceship Voyager offers a similar product but without the roundup and with just three portfolios. CommSec Pocket allows you to invest as little as $50 at a time in units from seven ETFs.

If you’re investing just $500, it’s important to be aware of the fees. Raiz will charge you $3.50 per month ($42 per year) on a balance under $15,000, which is 8.4 per cent of your investment over a year. Spaceship Voyager will charge you $2.50 per month ($30 per year), which is 6 per cent of your portfolio in a year. When you trade through CommSec Pocket, you’ll pay $2 for a purchase of $500 – which is just 0.4 per cent of your investment.

Full brokerage platform apps

If you already understand the stock market and you’d rather have access to the full ASX and be able to make your own decisions, you may want to consider a brokerage platform.

The cheapest brokerage app available in Australia at the moment is Stake, which offers a flat $3 fee for any trades on the ASX. However, if you refer three friends, or transfer shares you already own onto their platform, they’ll give you free trades for a year.

I recently switched to Stake from CommSec, which I had been using for several years, where I was paying $10 for trades up to $1000 and $19.95 for trades up to $10,000. If you’re only investing $500, $10 is 2 per cent of your investment, which is a lot.

That said, you get what you pay for and I find Stake to have lower functionality and fewer resources available than CommSec, which was good when I was learning.

If you want to try Stake, use my referral code and add money to your account within 24 hours and get an additional $10 to add to your first trade.

Volatility is high at the moment, making it an interesting time to start investing, but it’s also a great time to learn.

Before you jump in, do your research and try to understand what your personal risk appetite, long-term goals and interests are. There are so many good books, podcasts, webinars, forums and websites available to help you understand how to make the share market work for you.

Do you want to see more investing information from us? Let us know what you’re interested in down below.

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