One of the key things you’ll typically hear from stock market analysts and experts is that it pays to start investing in shares as early as possible. Of course, when you are limited for funds, this may be easier said than done. However, investing is all about taking a long-term approach, leveraging the benefits of compounding growth.
This means that even a small sum of capital set aside for investing in shares can potentially add up to quite a sizeable investment across one’s lifetime. That’s without necessarily finding the next CSL (ASX: CSL) or Commonwealth Bank (ASX: CBA), which would only increase your returns exponentially.
When buying a security for the first time, the ASX prohibits the settlement of transactions that will establish a holding of less than $500 based on the closing price of that stock. This is referred to as a ‘marketable parcel’. The minimum order size when investing in shares that you do not already hold through your SelfWealth trading account is also $500, excluding brokerage, which provides a buffer for intra-day share price movements and settlement.
Here are three ways you can start investing in shares with just $500, plus brokerage.
Dividend-paying ASX shares
The ASX is home to a long list of stocks, including many blue-chip favourites that started as small local companies and have become global giants. Although no stock is ever free from risk, companies that have an established record of delivering profits and paying dividends are typically less volatile than their junior peers.
Since buying shares in a company means that you are effectively a part-owner, you may take a greater interest in exercising your judgement to find a stock that you think could offer long-term upside. Furthermore, if you are confident in the trajectory of a company’s earnings growth and future dividends, you may elect to participate in the company’s dividend reinvestment plan. This means that even with a small initial investment as little as $500, over the long-term, dividend proceeds converted into additional shares could help compound the size of your holding.
Investing in ETFs
While it might be tempting to put a small amount of capital towards a more speculative stock where the potential returns are higher, you also contend with significantly greater risk by doing so. Therefore, if you are just starting out with your first investment, it’s best to avoid these type of investments and opt for something more stable and oriented towards a long-term outlook.
With this in mind, you may want to consider investing in ETFs, which track an index and allow you to gain exposure to a diversified pool of shares and also receive all earnings as dividends. Just like you would with any individual stock purchase, ETFs can be bought through your trading account. Fees are typically lower than that of managed funds, meaning they won’t eat into your potential gains.
ETFs can provide exposure beyond Australian shores to various geographies, including the US stock market, as well as other regions like Japan, Hong Kong, Europe and more. You can also invest in specific sectors like technology shares, commodities like gold and oil, or ‘against’ the market altogether by betting on a drop in key indexes.
There are also unique ETFs out there too, like the SelfWealth SMSF Leaders ETF (ASX: SELF), which is an index-based fund constructed using leading SMSF portfolios from around the country. SelfWealth members pay no brokerage fees to buy units in ‘SELF’ when using their SelfWealth trading account, potentially stretching your $600 that little bit further. Before making any investment decisions, please consult the PDS found at etf.selfwealth.com.au.
Investing in LICs
LICs, or listed-investment companies, are publicly traded companies that actively invest across a wide array of asset classes. This may predominantly include shares, be it local or international stocks, but it can also include bonds, property, commodities, private businesses and more.
Investing in an LIC means that you are buying shares in that company, not the underlying assets or any units that track an index like you would with ETFs. Demand for shares in the company will dictate movements in the share price of the LIC. It also means that any dividend proceeds are subject to the declaration of the company’s board of directors.
The fees associated with managing an LIC, including its performance, are often higher than that of ETFs. However, LICs provide broad exposure through one trading instrument. Their liquidity, diversification and the expertise of the professionals who run them can be appealing to investors who are looking to make their first investment with $500 plus brokerage.
Taking a long-term approach
Naturally, if you can set aside a portion of your savings each month towards investing in shares, then entering the stock market with a larger initial investment will help spread your brokerage costs over a larger cost base. You can even take advantage of that time by researching which shares you’d like to buy.
However, if you want to start investing in shares as soon as possible, then you can do so with as little as $500. Whether it is investing in quality dividend-paying ASX shares, ETFs or LICs, there are several options that can help you begin eyeing long-term returns.
The key takeaway is that beginning early is a savvy strategy, while starting with a small purchase can still harness the benefits of compounding growth over the long-run, especially if you invest regularly and also reinvest your dividend proceeds.
SelfWealth Ltd ACN 52 154 324 428 (“SelfWealth”) (Australian Financial Services Licence Number 421789). The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website are of a general nature only and should not be relied upon in place of appropriate professional advice.
Disclaimer for the SelfWealth SMSF Leaders ETF
The SelfWealth SMSF Leaders ETF (the Fund) is issued by ETFS Management (AUS) Limited, the Responsible Entity of the Fund. (AFSL No 466778). SelfWealth Limited (AFSL No 421789) is the appointed distributor of the Fund. Except for their respective roles with respect to the Fund, ETFS Management (AUS) Limited and SelfWealth Limited are unrelated companies. The PDS for the SelfWealth SMSF Leaders ETF contains all of the details of the offer. Before making any decision to make or hold any investment in the Fund you should consider the PDS in full.
The information provided does not take into account your investment objectives, financial situation or particular needs. You should consider your own investment objectives, financial situation and particular needs before acting upon any information provided and consider seeking advice from a financial advisor if necessary. You should not base an investment decision simply on past performance. Past performance is not an indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.