A beginner's guide to getting into the share market

Investing can seem daunting for first-timers but understanding a few of the basics will get you on your way.

People love to talk about the share market. I often overhear conversations about it on public transport, in cafes and, even at the average backyard BBQ. It seems everyone has an opinion on it, but so many people don't truly understand what the 'the share market' actually is, how it works or why it does what it does.

If you don't know too much about shares, they can seem a bit like a mythical creature that either makes or loses you money, and it might not seem obvious why. It's important to know a few of the basic terms and characteristics of shares before you dip your toe into the water.

Basically, it's a very small ownership in a company. If you own one Woolworths share for example, you own a very small portion of that company.

This is arguably the most important part of it all because most people don't buy shares to look at them. (There wouldn't actually be much to see, anyway.)

There are two main ways to make money from shares: growth and income.

Growth: This can be referred to as 'growth' or 'capital growth'. It's essentially the concept that the overall value of the business you own shares in goes up, meaning the value of your share goes up too. So, when you eventually sell it, you will be selling it for a higher price than you bought it for.

Income: The second way you can earn money from shares is via dividends. When a business makes profit, it can either decide to reinvest the profits back into growing the business or distribute some of the profits to the shareholders. These are called dividends. This dividend is your little portion of profit from the company that you partially own.

The ideal scenario would be for a share to increase in value (growth) and pay you a regular dividend (income).

We often hear the news headlines about the millions of dollars being wiped from the share market, which can be really concerning if you take it at face value.

A share's price will change depending on a variety of reasons, including the business performance, different economic factors and the level of demand for that stock on any given day. If everyone was looking to buy the next Facebook share, that will drive the price of that share upwards relative to the high level of demand.

It's normal for share values to change on any given day. If your house was valued every day, I'm sure there would also be slight differences - we just don't get to see them.

Investing in shares can be a complex beast best left to professionals like stockbrokers, financial advisers and investment advisers. But if you want to start small and learn more, you definitely can.

One of the best (and most fun) ways to learn about the share market is via the share market game on the ASX website. This lets you test your skills on fake money before you start using the real thing.

There are also a number of other ways you can start investing in shares. You can invest directly through share trading platforms, through ETFs (exchange traded funds) that allow you to purchase a parcel of shares, or through other types of managed funds and unit trusts. What suits you will depend on your overall goal for the shares and the amount that you have to invest, and you should seek financial advice before you dive in.

It's important to do some research before you enter the share market. Whether you plan on going it alone or want to get a professional on your side, the more information you have about shares, the easier it will be for you to understand how they work and why they might be a good investment for you.

Disclaimer:This provides general information only, without taking into account your personal circumstances, objectives, financial situation or needs and is not intended as financial, tax, investment or other advice. You should consider the appropriateness of the information, having regard to these factors and speak to an adviser before making a decision about financial products or investments.

Cara Brett is a director and financial adviser of Bounce Financial, a financial advisory firm specifically working with Gen X and Gen Y. She believes that planning for the future doesn't mean your lifestyle has to suffer.

Disclaimer:
The information in this article is general information only and is not intended as financial, medical, health, nutritional, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist, or medical or health practitioner, in relation to your own circumstances and before acting on this information.