Investing in Australian Shares

Shares are one of the best-known ways Australians can invest for long-term growth. When you buy shares, you are buying a small ownership stake in a company. If the company performs well, the value of your shares may rise and you may also receive a share of the company’s profits through dividends.

In Australia, shares are commonly bought and sold through the Australian Securities Exchange, better known as the ASX. The ASX includes large household names such as banks, miners, retailers, healthcare companies and infrastructure businesses, as well as smaller companies that may be growing quickly but carry higher risk.

Shares can be rewarding, but they are not risk free. Prices can rise and fall sharply, individual companies can disappoint, and markets can move for reasons that have little to do with one company’s performance. For beginners, the goal is not to guess the next hot stock. It is to understand how shares work, what role they can play in a portfolio, and how to manage risk sensibly.

What Is a Share?

A share represents part ownership of a company. If you own shares in a listed company, you may benefit in two main ways: capital growth and dividends. Capital growth occurs when the share price rises above the price you paid. Dividends are payments made to shareholders from company profits, although not all companies pay them.

Shareholders may also have voting rights on certain company matters. In practice, many small investors do not attend annual general meetings or vote on every resolution, but ownership still gives you a legal interest in the company.

ASIC Moneysmart describes shares as a higher-risk investment that can offer capital growth and, in some cases, income through dividends. Shares are generally more suited to longer time frames because market prices can be volatile in the short term.

The Australian Share Market

The Australian share market is relatively small by global standards, but it includes many important sectors. Financials and resources have historically been major parts of the ASX, which means Australian investors often have strong exposure to banks, insurers, mining companies and energy producers.

This can be both a strength and a weakness. Australian banks and major miners have produced strong dividends for many investors over time, but concentrating too heavily in a small number of sectors can increase risk. If the banking sector struggles, commodity prices fall, or regulation changes, a portfolio focused too heavily on a few familiar Australian companies may be hit hard.

The ASX offers a useful start investing section for people learning how the Australian market works.

How Australians Buy and Sell Shares

Most Australians buy and sell shares through an online broker. This might be a bank-owned platform, an independent share trading platform or a full-service broker. Online brokers are usually cheaper, but they expect you to make your own decisions. Full-service brokers may provide advice, but they typically cost more.

When you buy or sell shares, you usually pay brokerage. This is a transaction fee charged by the broker. Brokerage matters because frequent trading can eat into returns, especially when investing smaller amounts.

ASIC Moneysmart explains the main ways to buy and sell shares, including online brokers and full-service brokers.

Investing Versus Trading

Investing and trading are often talked about together, but they are different activities. An investor usually buys shares with the aim of holding them for years, benefiting from business growth, dividends and compounding over time. A trader tries to profit from shorter-term price movements, sometimes over days, hours or even minutes.

Trading can sound exciting, but it is difficult to do consistently well. Short-term prices are affected by news, market sentiment, interest rates, global events and the behaviour of other traders. Frequent trading also increases costs and can create tax complexity.

For most beginners, long-term investing is usually a more realistic starting point than active trading. That does not mean every share should be held forever. It simply means the decision to buy should be based on the quality and value of the business, not just a quick price chart or a hot tip from someone who recently discovered a microphone.

Capital Growth

Capital growth is the increase in the value of your shares over time. If you buy shares for $10 each and later sell them for $15 each, the $5 difference is a capital gain before costs and tax. Capital growth can come from rising profits, stronger market confidence, successful expansion, takeover interest or broader economic conditions.

The important point is that capital growth is never guaranteed. A company can grow slowly, lose money, face stronger competition or disappoint investors. Share prices can also fall even when a company is still profitable, especially if the market expected better results.

Dividends and Income

Some Australian companies pay dividends to shareholders. Dividends are usually paid from company profits, although companies can reduce, pause or cancel dividends when conditions change. Mature companies such as banks, insurers, utilities and infrastructure businesses are often more likely to pay dividends than younger growth companies.

Dividends can be attractive for investors seeking income, but a high dividend yield is not automatically a bargain. Sometimes a yield looks high because the share price has fallen sharply, which may signal that the market expects future dividends to be cut.

Franking Credits

One feature of Australian share investing is the franking credit system. When an Australian company pays tax on its profits and then pays a franked dividend, the shareholder may receive a credit for tax already paid by the company. This system is designed to reduce double taxation of company profits.

Franking credits can be valuable, especially for some Australian resident investors, but the rules can be technical. Your personal tax position, the type of dividend, holding period rules and eligibility requirements can all matter. The Australian Taxation Office provides official information on franking credits for individuals.

Why Invest in Individual Shares?

Investing in individual shares gives you direct control over which companies you own. You can choose businesses you understand, focus on sectors you believe have long-term potential, and build a portfolio that reflects your own research and preferences.

Individual shares can also provide strong returns when you choose well. A successful company can grow profits, increase dividends and become much more valuable over time. For some investors, following individual companies is also more engaging than using broader diversified products.

The trade-off is that individual shares require more research and carry more company-specific risk. If one company performs badly, your portfolio can suffer. This is why many investors avoid putting too much money into a single stock, no matter how confident they feel.

The Main Risks of Individual Shares

• Market risk: The overall share market can fall because of recessions, interest rates, inflation, global events or investor fear.
• Company risk: A business can lose customers, mismanage debt, face legal problems, report weak profits or make poor strategic decisions.
• Sector risk: Companies in the same industry can be affected by the same pressures, such as falling commodity prices or tighter regulation.
• Liquidity risk: Some smaller companies are harder to buy and sell without affecting the price.
• Concentration risk: Holding only a few shares can make your portfolio highly dependent on the fortunes of those companies.
• Behavioural risk: Investors can panic during downturns, chase fads, overtrade or become too attached to a favourite stock.

Researching a Share Before You Buy

Before buying a share, it helps to understand what the company does, how it makes money, whether it is profitable, how much debt it carries and what could affect future earnings. You do not need to become a professional analyst, but you should know more than the company name and whether the logo looks confident.

Useful things to review include:

• The company’s annual report and recent market announcements.
• Revenue, profit, cash flow and debt levels.
• Dividend history and whether dividends appear sustainable.
• The industry outlook and major competitors.
• Management quality and track record.
• Valuation measures such as price-to-earnings ratio, dividend yield and earnings growth.

ASIC Moneysmart’s guide to choosing shares to buy is a helpful beginner resource for thinking through these issues.

Blue Chips, Growth Shares and Small Caps

Australian shares are often grouped into broad categories. Blue chip shares are large, established companies with long operating histories. They may be more stable than smaller companies, although they can still fall in value. Growth shares are companies expected to increase earnings quickly, often by reinvesting profits rather than paying large dividends.

Small cap shares are smaller listed companies. Some may grow strongly, but they can also be riskier, less liquid and more vulnerable to funding problems. Beginners often find it easier to start by studying larger, well-known businesses before moving into more speculative parts of the market.

Diversification

Diversification means spreading your money across different investments so that one bad result does not damage your entire portfolio. With individual shares, diversification can mean holding companies from different sectors, such as healthcare, financials, resources, consumer goods and infrastructure.

However, diversification is not just about owning many company names. If all of your shares depend on the same economic theme, such as mining demand or housing credit growth, you may be less diversified than you think.

Managed funds and ETFs can also help with diversification, but those are covered in more detail in our separate section on managed funds and ETFs.

Australian Shares Versus International Shares

Australian shares can be familiar, easy to access and useful for dividend income. However, Australia represents only a small part of the global share market. Many major technology, healthcare, consumer and industrial companies are listed overseas.

Investing only in Australian shares can leave a portfolio heavily exposed to local banks, miners and the Australian economy. Some investors choose to add international exposure through overseas shares, managed funds or ETFs. International investing introduces extra issues such as currency risk, foreign tax rules and different market regulations.

Tax Basics for Share Investors

Share investors may need to consider tax on dividends, capital gains and franking credits. If you sell shares for more than you paid, you may make a capital gain. If you sell for less, you may make a capital loss. Dividends generally need to be declared in your tax return.

Tax can become more complicated if you trade frequently, use borrowed money, receive foreign income or hold shares through a company, trust or self-managed super fund. The Australian Taxation Office provides official guidance on investing in shares.

Common Beginner Mistakes

• Buying based on tips: A confident opinion is not the same as research.
• Overconcentration: Putting too much money into one company or sector can increase risk.
• Ignoring fees and tax: Brokerage, spreads and tax can all affect returns.
• Chasing last year’s winner: A strong past return does not guarantee future performance.
• Selling in panic: Market downturns are uncomfortable, but emotional selling can lock in losses.
• Confusing a cheap price with good value: A $1 share is not necessarily cheaper than a $100 share. What matters is the value of the business compared with its price.

How Shares May Fit Into a Portfolio

Shares are usually considered growth assets. They can help build wealth over time, but they can also be volatile. This means they are generally better suited to longer time frames, where investors have more time to ride out market downturns.

A balanced portfolio may include shares alongside cash, bonds, property, commodities and managed investments. The right mix depends on your goals, risk tolerance, age, income needs and investment time frame. Someone saving for a short-term purchase may hold fewer shares, while someone investing for retirement decades away may accept more sharemarket exposure.

Watch: How the Sharemarket Works

This ASX video provides a beginner-friendly introduction to how the Australian sharemarket works and what investors should understand before getting started:

Related Resources

• Shares - Moneysmart
  ASIC’s main guide to share investing, including income, capital growth, risks and research.
• How to buy and sell shares - Moneysmart
  A practical introduction to using online brokers and full-service brokers in Australia.
• Choosing shares to buy - Moneysmart
  A beginner-friendly guide to researching shares before investing.
• Shares Course - ASX
  A free ASX course covering sharemarket basics, trading, research and key concepts for first-time investors.
• Risks and benefits of shares - ASX
  A useful overview of why people invest in shares and the risks they should understand before trading.
• Investing in shares - Australian Taxation Office
  Official information on tax issues for Australian share investors, including dividends, capital gains and record keeping.
• Franking credits for individuals - Australian Taxation Office
  Official guidance on franking credits and when individuals may be eligible for a refund.
• Share investing for absolute beginners - CommBank
  A simple introduction to share investing, risk and return, dividends and capital growth.

Important Note

This page provides general information only. It does not take into account your personal objectives, financial situation or needs. Shares can rise and fall in value, and individual companies can perform poorly or fail. Before making investment decisions, consider whether the information is appropriate for your circumstances and seek licensed financial advice if needed.

Choosing a Broker

Finder offers objective, feature and price-based comparisons between all Australian-based online brokers, as well as most major offline brokers as well. If you have yet to choose the broker that is right for you, this is a great place to start.

If you'd prefer to compare the services yourself, feel free to follow the links below. They represent a selection of popular online brokers in Australia. (listed in no particular order)

• Commonwealth Securities Limited
• CMC Markets
• Westpac Share Trading

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