Australian Stock Market 101

One of the first things that you should learn about when considering the Australian stock market is a mutual fund. This is basically a single account into which you can deposit your money, but that money is then distributed by a broker into a number of various stocks. You could have your whole amount divided into ten different stocks, for example, but you will still see the value of your account as a single dollar amount, which is found by adding the value of each stock together and displaying what you have earned overall. You can also find a more comprehensive breakdown if you would like.

Can You Pick Your Stocks?

If you want to do so, you may be able to work with your broker to pick out a few of your stocks. You may even be able to decide how you want to distribute your money, as far as percentages of the total are concerned. However, most people leave this work to the brokers, who are trained to do it and who have a lot of experience. The brokers spend every working hour watching stocks, so they can usually assemble mutual funds that are going to grow over time.

Slow Growth and Safety

The downside of a mutual fund is that it usually grows very slowly. This is because some of the stocks are always losing and others are always winning. If you only have your money in the winning stocks, which are trending upward, you would make more. However, there is also the chance that you would pick the wrong stocks and lose it all. A mutual fund spreads the money out so that you never see full growth, but you see consistent growth over a period of years.

Of course, the upside to all of this is that mutual funds are usually considered to be rather safe. The odds that you are going to lose all of your money are very slim unless the stock market crashes. Would you rather see 30 percent gains one day and 40 percent losses the next or 10 percent gains over the course of a year? If you need money quickly, mutual funds are probably not for you. If you are interested in long-term investing and creating wealth, though, these are generally considered to be one of the best ways to do it, paying back far more than a bank account.

Get our newsletter and our in-depth investor case studies all for free!