A beginner’s guide to entering the stock market, because we all deserve to know how it works

IMAGE VIA @linneklund/instagram


Stocks for all.

Since its inception, finance bros and hedge fund managers have played the stock market like a fiddle, making it easy for Wall Street firms to exploit honest workers for a profit.

As economic journalist Doug Henwood put it, “The reason the stock market has done so well for all these years is precisely because the working class hasn’t.” I’d flip that narrative a little and suggest that the reason the working class hasn’t done well is because the stock market wasn’t designed with our success in mind.

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In fact, the finance sector sustains itself by gatekeeping information (and sometimes pretending to know more than it does). In The Wolf of Wall Street, Matthew McConaughey’s character, Mark Hanna, (based on a real broker of the same name who worked at the most famous and infamous firms on Wall Street in the ’80s) said that “Nobody – and I don’t care if you’re Warren Buffet or Jimmy Buffet – nobody knows if a stock’s going up, down or fucking sideways, least of all stockbrokers, but we have to pretend we know.”

Beyond just alienating the working class, the finance sector and big banking, in general, are seen as a boys’ club. Globally, women represented only 12 per cent of CFOs in large-cap firms (firms with a market value of over $10 billion) in 2018. There’s any number of reasons as to why financial firms are dominated by men, but if I had to condense it to just one, it’d be that conversations about money are aimed towards men – with women often being ignored completely.

Is our view of finance gendered because more men work in the field? Or do more men work in finance because our view of it is gendered? Either way, men aren’t born knowing about the stock market, it’s something that’s learned. And today, we – the girls, gays and theys – are going to be learning about it together because investing is, indeed, hot girl shit.

Investing 101

Until recently, I’d known nothing about stocks, or the imaginary and arbitrary values we assign to them. But my interest was piqued with the GameStop saga, when amateur investors made history by disrupting Wall Street and crippling hedge fund managers in a Robin Hood-like turn of events.

A group of Redditors collectively worked to drive up the value of GameStock shares by 1,700 per cent, turning everyday people into millionaires overnight and proving that the little guys can manipulate the market, too.

Obviously, the story of GameStock is a unique one. But it made me realise that when ordinary people are mobilised and given access to this kind of information, investing and app-based share trading has the power to change lives.

Having already amassed an impressive net worth of $100,000 at just 26-years-old, Sydney-based Aleks Nikolic (@brokegirlwealth) is the perfect example of this. Her journey to financial freedom is profoundly inspiring and while she recognises that we all start our financial journeys at different places, her Instagram page is dedicated to helping other women better understand budgeting, investing and building wealth.

On this, Aleks acknowledges that choice is what liberates women. “Having the choice to stay home, having the choice to work, or having the choice to leave violent situations [is everything]. I think that above all, money is the key to that choice and for so many, it locks people into situations they would rather not be in. Understanding how money works and utilising it to your advantage is, in my opinion, the most powerful tool for independence.”

While the internet and new financial technologies are helping to level the playing field between amateurs and Wall Street firms, Aleks adds that “You still need to know what you’re looking for – which is where I think creators like myself can be helpful. Not to tell people what to do, but to point them in the direction of those resources and information and present it in a way that is palatable without being condescending.”

In her quest to improve the financial literacy of others she kindly answered my questions on all things investing. So reader, take notes!

Can you explain how investing in shares can be a long-term solution to building wealth? Isn’t our money safer as cash in the bank?

Did you know that, in the long term, cash can be a riskier asset than shares? This is because interest rates for cash have not outpaced inflation. What you could buy for $100 in 2000 is not equivalent to what you can buy for that money in 2021.

Investing – whether in real estate, shares or other assets – is intended to make sure your money is keeping up with (if not beating) inflation. Low cost, diversified ETFs or index funds have averaged 8 per cent per annum returns while our savings accounts are barely getting 1 per cent.

But don’t put all your money in the stock market just yet! In the short term, the risk is flipped and the stock market is riskier. The best answer to this problem is to save for the short-term (generally one to three years) and invest for the long term (at least five, if not more).

How do stocks and shares differ?

Same, same but different. Shares are generally used to describe owning [parts of] a particular company while stocks can include owning index funds, ETFs, bonds or other assets that can be bought and sold on the stock market.

Which low-risk investments are good for beginners?

I wouldn’t say any investment is ‘low risk’ but an easy way (and the way I started) was with Raiz and Spaceship. Their minimum deposit is $5 and for Spaceship, there are no fees till you have a balance of $5,000 so this can be a good way to start learning. Raiz and Spaceship pre-select the index funds or stocks into a pre-made portfolio, which you can select, based on your tolerance for volatility (the value of your investment going up and down).

What are the fundamentals that you need to know before parting with your cash and putting it towards a stock?

For beginners, I would recommend looking at index-tracking ETFs before investing in a single stock. For those, fees and performance can be helpful indicators to compare different ETFs and the instant diversification can really help you reduce the risk of investing.

How do you actually purchase a stock? What platforms and apps are available to us in Australia?

You can purchase a stock three ways:

  1. Via a brokerage like Pearler, Commsec Pocket or Selfwealth
  2. Via an app where you buy units in portfolios like Raiz and Spaceship
  3. Via a roboadvisor like Stockspot.

They each come with their own advantages, disadvantages, fees and benefits, so compare them to find the one that is right for you!

On fintech platforms, what is Commsec Pocket and how does it differ from regular Commsec?

Pocket is a mini brokerage. They only have seven ETFs to choose from, a minimum investment of $50 (instead of $500 like Commsec) and a $2 brokerage fee.

What is the purpose of a stockbroker and can you purchase stocks without one?

Traditionally, you required a stockbroker to purchase stocks on your behalf. Today, you can use any number of brokerages to transact for you. Just be wary of their brokerage fees because they differ depending on the broker. My rule of thumb is that fees should be less than 1 per cent of what you’re putting in (so $10 for every $1000 parcel)

What is the difference between going through a broker, a brokerage, directly with a fund or via a fintech investing platform?

Many things – features, prices, and even the actual stocks that are available to you. Fintech apps like Raiz usually have a pre-made portfolio to choose from, where a brokerage gives you everything that is available to buy on the stock exchange. A broker might have access to sophisticated, complex investment options but they often come with a price tag.

How does compound interest work?

It’s the best and worst tool. Say you have $1000 and you invest it in an ETF. Assuming a compound interest rate of 8 per cent (i.e. your investment goes up 8 per cent each year), after 10 years you would have $2,259.

The exciting part is that $1,159 is pure compounding interest. You didn’t put another dime in. The same would be true for $1000 of credit card debt with the same interest rate. After 10 years, you’re now in $2,259 worth of debt. Ouch.

What is capital gains tax and how is it calculated?

Capital gains tax isn’t a separate tax. It is a means of calculating how much you owe when you sell an asset that has gone up in value. Let’s say Gemma buys her $1000 in ETFs in our earlier example. Ten years have passed and those ETFs are now worth $2,259. If Gemma sells, her ‘capital gain’ is $1,259. Because she has held the asset for more than 12 months, Gemma gets a 50 per cent ‘discount’ on that increase.

As a result, Gemma adds $629.50 to her taxable income for that financial year unless Gemma has any fees that are tax-deductible on that gain. If she sold within 12 months, no discount applies and she adds the full ‘gain’ to her taxable income.

How does crypto-currency differ from other stocks and how can you purchase crypto in Australia?

Cryptocurrencies aren’t stocks and they don’t trade on the stock exchange. You really need to understand the projects you’re investing in with crypto as not all crypto is the same. It is unregulated at the moment so there are plenty of coins that might not have any real value beyond ‘marketing’.

Any last general advice?

  • Get your house in order. There is no use investing if you have no idea how much money you have set aside or no emergency fund. Sort out superannuation! This is your biggest investment in life!
  • Don’t be overwhelmed. There are so many options, but you don’t have to explore them all to begin with. Find resources you can understand and start building up your knowledge and go from there.
  • Start small and be consistent. It doesn’t matter how much you begin with as long as you’re building a habit.

As the adage goes, the best time to invest was yesterday. The second best time is today. So do your research and remember that even ‘small’ investments, like that of $500 to $1,000, can have a huge impact on your financial positioning in a decade’s time. Rather than working hard for your money, isn’t it time to start making your money work harder for you?

To learn more, follow Aleks on Instagram at @brokegirlwealth.

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