How to Make Money off Stocks in Australia – Forbes Advisor Australia
Seasoned investors know that a time-tested investing practice called diversification is key to reducing risk and potentially boosting returns over time. Think of it as the investing equivalent of not putting all of your eggs in one basket.
Although most investors gravitate toward two investment types—individual stocks or stock funds, such as mutual funds or exchange-traded funds (ETFs)—experts typically recommend the latter to maximise your diversification.
While you can buy an array of individual stocks to emulate the diversification you find automatically in funds, it can take time, a fair amount of investing savvy and a sizeable cash commitment to do that successfully. An individual share of a single stock, for instance, can cost hundreds of dollars.
Funds, on the other hand, let you buy exposure to hundreds (or thousands) of individual investments with a single share. While everyone wants to throw all of their money into the next Google (GOOGL) or Amazon (AMZN), the simple fact is that most investors, including the professionals, don’t have a strong track record of predicting which companies will deliver outsize returns.
That’s why experts recommend most people invest in funds that passively track major indexes, like the ASX200. This positions you to benefit from the approximate 10% average annual returns of the stock market as easily (and cheaply) as possible.