Shares
How to research and invest in shares Show
7 minutes
The right shares can help you grow your wealth. So take your time, watch for economic and market changes, and diversify across different sectors. Like any investment, there is risk involved. So be clear about your financial goals and strategy, and get financial advice if you need it. Stay up-to-date with economic and market changesEconomic and market changes can impact a company's earnings. The more reliable the information you have, the better your decisions will be. Stay up-to-date with factual sources such as:
Look at topics like:
Find shares to buyTake your time. Experienced investors often spend months checking out shares before buying.
Blue chip companies
If you want to choose your own shares, a good place to start is the S&P/ASX 50. This is a list of Australia's top 50 companies — known as 'blue chip' companies. These are well-established, stable companies that suit an investor looking for steady returns with less risk.
Speculative companies
'Speculative companies' do not have a long market history, and are not in Australia's top 100 companies. You may get a large return — or a large loss. These suit a more experienced investor prepared to risk capital in the hope of getting higher returns.
Emerging market companies
Some companies listed on Australian exchanges have business operations or assets outside Australia. It pays to check where a company operates, so you can assess the risk of investing. Consider issues like language, distance and currency. There could be different standards of regulation, risk management, internal controls or auditing. Your investment may have less protection than under Australian law. More established markets include the United States, Hong Kong, Japan and New Zealand. Less established markets include other parts of Asia and the Pacific, Central and South America, Africa, Eastern Europe and The Middle East. Companies operating in these areas are known as 'emerging market companies'.
Capital growth or income
Work out what you want from your shares. Do you want regular income or just capital growth? If you want regular income, consider companies with a track record of paying high dividends. These tend to be larger companies on the Australian Securities Exchange (ASX). Smaller companies often focus on growth. So they are more likely to reinvest profits in the business, rather than paying dividends to shareholders.
Buy what you know
Start with an industry or business sector you know. This gives you a better chance of recognising if a company is strong or weak.
See if the company you work for has an employee share scheme. This could give you access to discount shares. Look at the ASX list of companies or Cboe for a breakdown of sectors. Make a list of companies you're interested in. Then check:
Market sectors
Each sector of the market has its own pros and cons. Generally:
Australian shares
To decide if investing in Australian shares is right for you, consider the following: Pros:
Cons:
International shares
If you're thinking about buying international shares, consider these pros and cons. Pros:
Cons:
Research and compare companiesThe value of your investment depends on the health of the business. Here's how to go about researching a company.
Annual reports
Start with the company's annual report. Get the current and last year's reports from their website so you can compare progress. An annual report is like a report card for a business. It tells you:
Key things to look for in annual reports are:
Company alerts
Stay current by subscribing to alerts from:
Research reports
Your broker may give you access to research reports on companies of interest.
Compare companies in the same industry
Comparing a company to its competitors is one way of assessing its value. No single measure will give you the answer, so use a range of sources. Here are some basic comparisons you can make:
Diversify your portfolioOne of the best ways to protect your portfolio is to diversify. That is, to spread your investments between different industry sectors. By diversifying, you take advantage of each company's strengths. And you are better protected if one industry has a bad year. If a company fails, you lose only part of your investment, not your whole portfolio. See diversification for ways to spread your investments and lower your risk. |