The Australian Share Market

The share market based in Australia is called the Australian Securities Exchange (ASX) and comprises of over 2,200 individually listed companies.

These companies are divided into the following 11 sectors:

  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Consumer Staples
  • Health Care
  • Financials
  • Information Technology
  • Communication Services
  • Utilities

These can be broken down even further into industry groups, industries and sub-industries. There are a range of different types of shares you can buy on the ASX, and I will explain some of the more popular options in further detail below.

Individual Companies

As stated earlier, there are over 2,000 publicly listed companies on the ASX. This means that the public can invest in these companies and become shareholders. Being a shareholder means that you own a part, or share, of the company. These companies range from large, well performing companies such as BHP and the big four banks (CBA, NAB, ANZ & Westpac) to small companies just starting out on their journey. The large, well-known companies are what you could call “Blue Chip” meaning they are relatively safe compared to the smaller companies as they have good track records. The smaller companies are only just starting out and have more chances of failing, hence why they are slightly riskier to invest in.

Indices and Exchange Traded Funds

Indices are a measurement of the performance of a group of shares. For example, one index is the S&P/ASX 200 index, which tracks the top 200 shares on the ASX. Another index is the S&P 500, which tracks the top 500 US shares. These indices allow investors to view the performance of the broader market, or even specific sectors.

There are funds called “Exchange Traded Funds” or ETF’s, which track these indices, and allow investors to invest in a whole index or sector. The main companies that have these funds in Australia are Vanguard, Blackrock (iShares) and Betashares. ETF’s may track the ASX top 200, the top 100 global companies, the most ethical companies in the world, and even some commodities, plus plenty more. These have become an extremely popular way to invest as they offer low fees and good diversification in just one trade. ETFs are a great way to avoid keeping all your eggs in one basket and lower the risk more than if you were to buy individual companies. ETF’s are one of my favourite investments and have performed really well for me over the last few years. I will do more of a deep dive into these next week on the blog.

Managed Funds

Managed funds are slightly different to ETFs in that they are actively managed. This is where a fund manager will be in charge and will be selecting stocks, they think will outperform the market. These funds will have a higher management fee as it requires more research and time from the fund manager. There is also no guarantee that they will beat the market, but that is always their aim. Listed Investment Companies (LIC’s) are a type of managed fund that is quite popular. They often pay good dividends that are franked, meaning you pay less tax on the profit as the company pays some, or all, of the tax for you. These types of funds can provide a great passive income for investors and are often a good choice for those looking to self-fund their retirement. Vanguard also has a range of managed funds, which you can see on their website.

Some examples of LIC’s include:

ARG- Argo Investments Ltd

MGG- Magellan Global Trust

MLT- Milton Corporation Ltd

WAM- WAM Capital Limited

Buying and Selling Shares

The ASX is open from 10:00-16:00 (AEST) on business days. These are the only times when you can place trades on the ASX. You can place buy and sell orders on the ASX through a broker. This may be an online brokerage platform, or through a full service broker or financial planner. I use an online brokerage platform to trade on the ASX have listed some options below.

Some online brokers available:

  • ANZ Share Trading
  • Commsec
  • NAB Trade
  • WestPac Trading
  • Self Wealth
  • Pearler
  • Superhero
  • Open Trader
  • Vanguard Personal Investor

Most brokers will be free to sign up and will only charge a fixed fee each time you buy and sell shares. Before signing up it is important to read the Product Disclosure Statement (PDS) so you know what you are signing up for.

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