5 tips to start investing in stocks on a budget

Posted: 31 March 2022 4:45 pm
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If you've ever thought about investing, now is the time to start.

Sponsored by Pearler – the app helping everyday Australians invest in ASX shares on your own HIN, add US shares or micro-invest in 8 simple funds tracking popular ETFs. Set & forget with round-ups and regular deposits. Pearler Investments Pty Ltd is a Corporate Authorised Representative (No. 1281540) of Sanlam Private Wealth (AFSL 337927).

One of the biggest financial misconceptions is that you need to be rich to start investing. This could not be further from the truth, with a host of new providers making it easier than ever to start investing with less.

But before you begin make sure you have a plan, especially if you are on a budget. You should know your goals and long-term objectives and try to align your risk profile to your financial aims.

By understanding your budget, your long-term goals and the level of risk you need to take to achieve your objectives, you will be set up for financial success.

To help you get started, here are 5 tips to investing on a budget:

  1. Micro-investing
  2. Invest based on your values
  3. Diversify your investments
  4. Just get started
  5. Keep learning

1. Micro-investing

Perhaps the easiest way for those starting out is through micro-investing. This involves making regular small deposits or rounding up your purchases to the nearest dollar and investing that money into the market. One example is Pearler's just-launched Micro feature that allows you to invest in a selection of funds that track thematic ETFs with as little as $5.

Micro-investing seeks to overcome one of the biggest challenges that particularly younger investors face, which is finding $500 per trade. Given you want to invest in a diversified portfolio made up of at least 15 shares, you can see how it quickly adds up.

This is why micro-investing often appeals to younger investors.

As a recent Finder survey found, 28% of millennials and 27% of generation Z Australians have said they have or would invest in shares because of how accessible it has become through mobile apps, compared with just 4% of baby boomers.

While it has its limitations and you probably won't become a millionaire, it's certainly a great way to get started. With the provider giving you a basket of stocks pre-made, you can start buying into a well-diversified portfolio for just a few dollars.

In the case of Pearler, you'll have 8 funds to choose from (more than most micro investment apps) with 3 being ESG focused.

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View, add and manage funds when you subscribe to Pearler Micro. Image: Supplied

2. You can invest in your values

Another misconception in the investing community is you need to "sell out" in order to make a buck.

This again couldn't be further from the truth. The environmental, social, governance (ESG) movement is becoming increasingly popular, with the business community following suit.

Getting started investing and growing your wealth doesn't mean you need to sell out and stop living your values. Through a raft of ethically based ETF, share and micro-investing options, now more than ever you can start investing ethically.

3. Don't put all your eggs into one basket

This rule is one for everyone, but especially for newer investors on a budget: never put all your eggs in one basket – regardless of how confident in the idea you are.

Instead, you should take out a basket approach when investing, buying a range of different shares from a variety of sectors and countries to ensure that your portfolio is protected from eventual market cycles.

Adding to this is never invest what you can't afford to lose. Unfortunately in investing there's no free lunch and investing in the share market means taking on more risk. While historically it has been a great way to build wealth, past performance is no guarantee of future returns.

Instead, you could keep a separate savings account for other goals: less reward, but also less risk.

While investing regularly is a great way to build your wealth, it needs to be done in a controlled way.

4. Everybody starts somewhere

In good news, the high barriers to entry that used to stop people from stepping into the market are being knocked down by companies and services that have made it their mission to make investment options available for everyone, including beginners and those who have just small amounts of money to put to work.

This means even those on a budget can start investing.

For those starting out, they could target a broker who has features like fractional investing, round-ups and auto-invest schedules (all available in the Pearler app).

Combined, these allow investors to participate in a process known as dollar cost average, which is when an investor decides that they will buy periodically regardless of the price.

When it comes to wealth creation, this is one of the most effective strategies out there. This is because constantly buying over a long period allows for time in the market over timing the market, meaning you will take advantage of compound interest.

It might not sound that important or exciting, but slowly adding to your trading account and letting the market compound can make a profound difference to your nest egg.

5. Grow your knowledge

There's no point starting your investment journey only to constantly interrupt the wonders of compounding due to a lack of knowledge of how markets work or why you should hold during uncertain times.

While it's arguably a major impact on modern day life, most of us do not learn finance or investing during school.

To help with this, some platforms including Pearler have minor accounts where parents can supervise their kids as they start trading, as well as knowledge centres to help them learn.


Get started with Pearler

Sponsored by Pearler – the app helping everyday Australians invest in ASX shares on your own HIN, add US shares or micro-invest in 8 simple funds tracking popular ETFs. Set & forget with round-ups and regular deposits. Pearler Investments Pty Ltd is a Corporate Authorised Representative (No. 1281540) of Sanlam Private Wealth (AFSL 337927).

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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