The best way to get started in the stock market, according to a top Australian investor

Image: iStock/Wei Khaw
This article is sponsored by eToro.  »

The global stock market took quite a plunge during the coronavirus pandemic. Between February 12 and March 17 2020, the Dow Jones dropped by 8,314 points — a whopping 28%.

For some who have been considering investing in the stock market, this drop has been seen as an opportunity to dip their feet in while stocks are cheap. In fact, Google searches for “buy stocks” spiked dramatically in March.

Joseph Milazzo, a top popular Australian investor on trading platform Etoro says the basics of getting started on the market are incredibly simple. In concise terms, he says it’s just a matter of buying an index tracking ETF, setting up a dividend reinvestment plan, buying more every chance you get and not touching it for 20 years.

“Believe it or not, we are the lucky generation when it comes to investing,” Milazzo told Business Insider Australia. “We have the world at our fingertips and it has never been easier to invest. The big four banks have their brokerages or trading apps, there are dozens of investing or microinvesting platforms awaiting to cater to our needs.”

Of course, there’s more to the art of trading than the simple act of purchasing stocks and hoping they grow in value. As Milazzo puts it, “you’re not going to become Warren Buffett overnight,” but starting slow and building experience and knowledge as you go will put you on the right path.

Before you do decide to dive into the market, Milazzo asks that you consider three important points.

Work out your investing timeframe

Like most investments, the stock market should be looked at in the long term. How long you ultimately decide to invest is up to you, but Milazzo recommends setting retirement age as the end date. Of course, someone over 60 will have a much shorter investment timeframe compared to someone in their 20s, which will affect the way they play the market.

“That means (theoretically) that someone with a shorter time horizon should take less risk when compared to someone who will be in the market for 40yrs,” he said.

Only invest what you can afford

It’s important not to stretch your finances for the sake of investing, Milazzo says.

“People like to jump into investing without looking at their financial situation,” he said. “Things like bad debt are like reverse investing, where the longer you leave it, the more it will take from you over time.”

In other words, consider paying down debts, particularly bad debts, before you dive into the stock market.

Have a goal in mind

Having a financial goal in mind will not only remind you why you’re investing in the first place, it will also keep you accountable.

Whether it’s building generational wealth or saving for a house, having a goal will help you make important decisions down the track.

These points are essential for starting your investing journey, “as they address the why, when, and what,” Milazzo says. In terms of what to do first, he says starting small with low risk is a good way to get your feet wet.

“Things like index ETFs have low volatility year on year when compared to single stocks,” he said. “As you grow more confident through your experience and knowledge, you can start diving deeper into single stocks and analyse its performance to see where it’s headed.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.