First Time Investor? Here’s What You Need to Know

Investing means putting your money to work with the aim of growing it over time. However, it involves some risk.

What are shares (stocks)?

When you buy shares, you own a small part of a company. If the company performs well, your shares may increase in value. Some companies also pay dividends, which are a portion of profits paid to shareholders.

You can earn money from:

• Capital growth: selling shares for more than you paid

• Dividends: income paid to you as a shareholder

Keep in mind, share prices can also go down.

What are ETFs?

An ETF (exchange traded fund) is a fund made up of many different investments, such as shares. Buying an ETF gives you exposure to a range of companies instead of just one. For example, it could track the biggest companies in Australia or companies around the world, so you don’t have to pick the individual stocks.

Benefits of ETFs:

• Diversification: spreads your risk across many assets

• Lower cost and simple: often cheaper and easier than buying lots of individual shares

• Accessible: individuals can start with small amounts of money

What is compound growth?

Compound growth happens when your investment earns returns, and those returns also start earning. Over time, this can create a snowball effect:

• If the value of your shares or ETF goes up over time, that growth becomes the new base for future growth.

• If you receive dividends or distributions and reinvest them, you increase the amount you have invested, which can earn more returns.

What to think about before you invest

• Time frame: consider how long you are investing for and how this matches the level of risk for your selected assets.

• Risk: investing can grow your money, but there is also a chance of loss.

• Diversify: putting your money in various places to reduce the risk of loss.

• Start small: individuals do not need a lot to begin.

• Watch fees: they can reduce your returns.

Summary

Shares, ETFs and compound growth are three building blocks many investors use. Shares give you ownership in companies. ETFs let you spread your money across many investments. Compound growth helps make returns grow faster over time.

Understanding these concepts, along with your personal goals and risk comfort level, forms a key part of becoming informed about how investing works.