How to Invest in the Stock Market in Australia?

What is Stock Market Investing?

Investing in the stock market involves buying financial securities – primarily stocks or bonds – with the aim of making a profit in the medium or long term. These securities are traded on financial markets, where buyers and sellers meet.

Investing in the stock market allows you to become a shareholder in a company (via shares) or a creditor (via bonds). In return, the investor may receive income (dividends or interest) and hope for a capital gain when reselling the securities. This type of investment is therefore a way to grow your savings by taking advantage of the development of companies and the economy.

Unlike speculation, which relies on short-term operations that are often riskier, investing in the stock market is a long-term strategy. It requires a good understanding of how the markets work, accepting a degree of risk, and diversifying investments to limit exposure to losses.

What are the different accounts for investing in the stock market in Australia?

To invest in the stock market, it is essential to have a dedicated account that will hold your financial assets (shares, bonds, ETFs, etc.) and serve as the platform for your trading operations. In Australia, several types of investment accounts are available, each with specific tax treatments, contribution rules, and investment goals:

Here is a comparative table, with an additional "Investor Profile" column to help you choose the right account based on your objectives and level of experience:

Once you have opened your investment account, you will need to choose a financial intermediary to place your stock market orders. Here are the main options:

• A financial advisor: For personalised advice, comprehensive wealth management strategies, and a human relationship with a licensed expert.
• An online broker: Ideal for independent investors looking for access to a wide range of products at competitive fees.
• A robo-advisor: For automated portfolio management based on your risk profile, with low entry thresholds and minimal management required.
• A derivative broker (CFD broker): For active investors interested in short-term trading with leverage, across markets such as forex, commodities, and stock indices.

What to Invest in on the Stock Market?

The stock market offers a wide range of financial products allowing you to diversify your portfolio according to your goals, risk appetite, and investment horizon. Here are the main types of assets in which it is possible to invest:

Stock Trading

Shares represent a portion of a company's capital. By purchasing a share, you become a shareholder and may receive dividends (a portion of the profits) and hope for a capital gain upon resale if the price increases. Shares are investments with high potential returns, but also with high risk, as their value depends on many factors (company results, economic situation, geopolitics, etc.).

The best stocks to invest in on the Stock Exchange depend on your goals and investment style. Thus, you won’t invest in the same stocks whether you are looking for a regular return or a significant capital gain.

• For a regular return: focus on the most stable stocks such as Astrazeneca, or McDonald's.
• For significant capital gains potential: focus on growth stocks such as Tesla, NVidia, Apple or Airbus.

Our Opinion

Shares are suitable for investors willing to accept market volatility in exchange for the prospect of higher long-term gains. Sectoral and geographical diversification is essential to limit risks.

ETF (trackers)

ETFs (Exchange Traded Funds) are index funds listed on the stock exchange. They replicate the performance of an index (such as the S&P/ASX 200, the S&P 500 or the MSCI World) by investing in all the securities that make it up. ETFs are traded like shares, in real time, and allow for broad diversification at a lower cost.

Our opinion

ETFs are particularly well-suited to beginner or intermediate investors looking to easily gain exposure to a market or sector, without having to choose each stock individually. It is an excellent tool for long-term passive management.

Managed Investment Funds

Managed funds are collective investments actively managed by professionals. They pool the savings of multiple investors to create a diversified portfolio, according to a defined strategy (shares, bonds, mixed, thematic, geographic, etc.). Unlike ETFs, their valuation is done once a day, and their fees are generally higher.

Our opinion

Managed Funds are designed for investors who prefer to delegate the management of their portfolio to experts. They are well suited to those who wish to benefit from a structured management framework, at the cost of a return often lower than ETFs, due to fees.

Obligations

Bonds are debt securities issued by governments or corporations. When you buy a bond, you lend money to the issuer, who promises to repay you at maturity, with the payment of regular interest (coupon). Bonds are generally less risky than stocks, but offer a more moderate return.

Our opinion

Bonds are an essential component of a balanced portfolio, especially for cautious investors or those close to retirement. They help stabilise overall performance and ensure regular income.

How to invest in the stock market when you are a beginner?

More and more young people are getting into stock market investing today, but there is no age limit to starting in this field. However, as a beginner investor, it is necessary to take some precautions before getting started.

• The simplest solution is to entrust the management of your investments to a third party whose profession it is, such as a financial advisor or software specially developed for this purpose, such as a robo-advisor.
• It is also possible to make your own investments in the stock market, but in this case, it is preferable to take the time to educate yourself and take an interest in how the markets work before you start investing your money.
• Since an investor does not become profitable overnight, it is also preferable to not invest money in the stock market that you may need to live on or to meet unforeseen expenses.
• Similarly, it is necessary to put in place a precise investment strategy, ideally in the long term, setting achievable goals and taking risk into account.

When to Invest in the Stock Market?

While it is possible to make investments in the stock market at any time, it is necessary to know how to identify good opportunities before buying stocks. To know if it's the right time to buy a stock or stocks on the stock market, you need to ask yourself these simple questions:

• What is the current economic situation? Is there growth, or are we in a period of crisis?
• What level of risk are you willing to take? An investor with a high-risk appetite will frequently find interesting opportunities in the stock markets, while a cautious investor will prefer to wait before investing.
• What is a listed stock really worth? The intrinsic value of companies listed on the stock exchange must be defined in order to know if it is the right time to acquire their shares.
• When does the company pay its dividends? Finally, if you have opted for a yield strategy with shares that allow you to receive a dividend, you must hold these shares no later than the day before the ex-dividend date.

Why Invest in the Stock Market?

Investing in the stock market offers numerous advantages for growing your wealth, protecting your capital against inflation, and diversifying your income streams. Here are the main reasons to invest in the financial markets:

• Grow your savings over the long term: Historically, stock markets have generated attractive returns over several decades. Regular, long-term investment allows you to benefit from the growth of companies and the economy.
• Protect your capital against inflation: Uninvested savings lose value over time. By aiming for a return higher than inflation, the stock market allows you to maintain, or even increase, the purchasing power of your capital.
• Generate passive income: Some stocks pay regular dividends. Bonds pay coupons, offering a stable income to the investor.
• Diversify your assets: The stock market can complement real estate investments or secure savings products.
• Good diversification reduces exposure to a single type of asset or risk.
• Easily access global markets: With online brokers and ETFs, it is possible to invest in thousands of companies around the world. This allows you to position yourself in different sectors, geographic areas, and levels of economic development.

Good to know

The stock market is a powerful tool for investors ready to take a long-term view. Well managed, a stock portfolio can become a lever for sustainable growth and a pillar of your wealth strategy.

Which broker to choose for investing in the Stock Market in Australia?

To invest in the stock market, it is essential to go through an authorised financial intermediary, called a broker. They transmit your buy and sell orders on the markets. The choice of broker directly influences your investment experience, the fees you pay, the products accessible and the tools at your disposal.

Here are the main categories of brokers available in Australia, with their characteristics:

Expert Opinion:

• An independent investor looking to diversify at a lower cost will favour an online broker.
• An active trader will opt for a CFD broker, being aware of the risks.
• A beginner or long-term saver will prefer automated management with a robo-advisor.
• Finally, a cautious profile or someone attached to their bank will use a bank broker, despite higher fees.

How Much Money Do You Need to Invest in the Stock Market?

The amount of money needed to invest in the stock market will depend on various factors, particularly your personal financial situation. Here are the rules to follow if you want to get started:

• Invest a portion of your savings in the stock market: It's important not to put all of your savings into your stock market investments. You should keep some of your savings to use in case of need. Ideally, if you can, keep 20% of your capital in a secured investment or a classic savings vehicle and invest 80% in the stock market.
• Invest in the stock market with a small budget: It is entirely possible to invest in the stock market with a small budget. It is not necessary to have a large amount of capital to start building a stock portfolio. $500 to $1,000 will be enough to create the basics of it, and you can then reinvest your income from dividends or capital gains to buy new securities.
• Don't put all your eggs in one basket: While the stock market is attractive in terms of return and investment, it is necessary to properly allocate the money you invest in the stock market by ensuring that your portfolio is diversified. For example, you can invest a portion in stocks, another portion in one or more funds, and another portion in bonds.

Investing in the Stock Market with a small budget: our tips

If you are a beginner investor and want to invest small amounts in the Stock Market, you have two solutions:

• Invest your current savings: This is possible from $500 AUD
• Invest a small amount each month: You can also freely make deposits into your stock investment accounts, such as a securities account, to gradually fund it.

What is the taxation on income from stock market investments in Australia?

Income generated from stock market investments – capital gains, dividends, and interest – is subject to taxation in Australia. The Australian taxation system has specific rules depending on the type of income and the investment vehicle used. Here’s an overview of the key tax principles for investors:

1. Capital Gains Tax (CGT)

In Australia, profits made from selling shares, ETFs, or other financial assets are subject to Capital Gains Tax (CGT). CGT is not a separate tax but forms part of your overall income tax.

Key points:

• Short-term gains (assets held for less than 12 months) are taxed at your marginal income tax rate.
• Long-term gains (assets held for 12 months or more) are eligible for a 50% CGT discount for individuals. This means only half of the gain is added to your taxable income.

Example:

If you earn a $10,000 capital gain after holding shares for over a year, only $5,000 will be taxed at your marginal tax rate.

2. Taxation of Dividends

Dividends received from Australian companies can be either franked or unfranked:

• Franked dividends come with a franking credit that reflects the company tax already paid by the company. Investors can use these credits to offset their income tax liability, and may even receive a refund if their tax rate is lower than the company tax rate.
• Unfranked dividends do not carry a tax credit and are taxed at your marginal income tax rate.

Important

Franking credits are particularly valuable for retirees and lower-income investors who can receive tax refunds.

3. Taxation by Account Type

4. Treatment of Investment Losses

If you incur a capital loss (selling an asset for less than its purchase price), you can:

• Offset it against capital gains made in the same financial year.
• Carry it forward indefinitely to offset against future capital gains (but not against other types of income).

5. Special Case: Dividends and Franking Credits

When receiving franked dividends:

• You must declare the grossed-up dividend (dividend amount + franking credit) as income.
• You then receive a tax offset for the amount of the franking credit, which reduces your overall tax payable.

Example

If you receive a $700 dividend with a $300 franking credit, you declare $1,000 as income and claim a $300 tax offset.

Our 5 Tips for Successful Stock Market Investing

Now that you know the basic rules of stock market investing, here are five simple tips to follow to quickly become a profitable investor:

• Set achievable goals: every self-respecting investor should set financial goals for their different investments. These goals will depend on the purpose of the investment. Is it to prepare for retirement, finance a purchase, or a specific project? A motivating goal will be an engine that allows you to devote yourself to your investment with passion.
• Learn about the stock markets: good knowledge about the stock markets and how they work is essential if you want to make profitable investments. So take some time each week to inform and educate yourself. There are many online training modules allowing you to learn analysis methods, and you can also consult targeted financial news feeds.
• Prioritise a long-term investment horizon: unless you are an expert in the financial markets and want to speculate in the short term to generate maximum profits in a short time, it is more prudent to invest with a long investment horizon. Speculation presents many risks that you can avoid with progressive investment.
• Know your risk tolerance: you must define as precisely as possible the level of losses and variability of your capital that you are willing to assume. Remember here that the higher the potential return of an asset or market, the higher its level of risk will be. A strong aversion to risk should direct you to the least risky instruments such as bonds or certain secured funds. If you have a high tolerance for risk, you can try riskier investments such as shares or https://hellosafe.fr/investissement/crypto-monnaie/prometteuses.
• Don't let your emotions take over: finally, investing in the stock market is an activity that can generate a whole host of emotions such as stress, infatuation, or fear. A good investor should not let these feelings cause them to make bad decisions and should always keep their initial strategy in mind and stick to it.

Looking to invest in the stock market independently? Join a quality online broker without delay and start placing your orders on the market.

All our guides on stock market investment

P. Laurore

Finance expert

Co-founder of HelloSafe and holder of a Master's degree in finance, Pauline has recognised expertise in personal finance, which she uses to help users better understand and optimise their financial choices. At HelloSafe, Pauline plays a key role in designing clear, educational content on savings, investments and personal finance. Passionate about financial education, Pauline strives, with every piece of content she oversees, to provide reliable, transparent and unbiased information for independent and informed financial management. To this end, she has tested over 100 trading platforms to help internet users make the right choices.