Choosing shares to buy

There are thousands of companies listed on the Australian Securities Exchange – and thousands more overseas. Choosing which ones to buy is an important decision that’s worth taking time over.

What are shares?

A share is part ownership in a company.

You can buy and sell shares directly on a stock exchange, through a broker. This can be a full-service broker or adviser. Or simply an online broker. In Australia, most shares trade on the Australian Securities Exchange (ASX). The ASX provides a list of ASX participant brokers.

You can also buy shares overseas on exchanges like the New York Stock Exchange and Nasdaq in the US, the London Stock Exchange in the UK and the Tokyo Stock Exchange in Japan.

Learn more about buying and selling shares.

Shares are not an appropriate investment for everyone. It’s important to consider your investing time frame and risk tolerance. Learn more about developing an investment plan, and how to seek financial advice.

How do shares make you money?

As a part owner of a company, you're entitled to a share of its profits – now and in the future. This potential to share in profits is what gives a share its value.

Companies can pay out some of their profits to shareholders as dividends. Not all companies make profits or pay dividends.

Australian company dividends often come with franking credits which reflect tax already paid by the company to make sure you are not taxed twice.

If a company’s profits grow — or are expected to grow — its value usually increases. Investors may pay more for its shares, and the share price rises. This is called capital growth.

• If you buy a share for $10 and sell it for $15, the $5 difference is a capital gain.
• If you sell for less than you paid, you make a capital loss.

In the 2026 Federal Budget, delivered Tuesday 12th May, the government announced changes to the application of capital gains tax, subject to final legislation. Please make sure you take these changes into account when considering future investments. Visit the Australian Taxation Office (ATO) for more information.  

Ways to choose shares

People pick shares in many different ways and for many different reasons. Three broad approaches are growth, value and income. Investors might aim for a mix.

Growth investing - buying shares in companies that are expected to grow earnings over time. This can suit people who are willing to forgo income now in return for the prospect of higher earnings in future.

Value investing – buying shares that appear undervalued compared to what the company is worth. Investors expect the market to recognise this value over time.

Income investing - buying companies with predictable earnings and dividends. This can suit people who want a regular stream of income, like retirees.

Risks of investing in shares

All shares carry risk. Prices move up and down based on company results, interest rates, news events and global markets. Prices can move quickly.

Some risks of investing in shares are:

• Losing money – the share price can fall below what you paid, and if you need to sell the shares at that point, you may lock in a loss.
• Lower or no income – companies can reduce or stop dividends at any time.
• Company failure – if a company goes broke, shareholders are generally paid last – after staff, lenders and suppliers. You may get nothing back.

Spreading your money across different companies and industries can reduce the impact if one investment performs poorly.

Share market sectors

Shares are grouped by the sector the company works in. The Australian Stock Exchange (ASX) lists 11 sectors, each further broken into industry groups:

• Financials – including banks, insurers and fund managers
• Communication services – including telcos and media
• Consumer discretionary – including non-essential goods and services like cars, holidays and eating out
• Consumer staples – including essentials like food and household goods
• Energy – including oil, gas and coal
• Health care – including medicines, medical devices and hospitals
• Industrials – including construction, transport and engineering
• Information technology – including software, hardware and data centres
• Materials – including mining and chemicals
• Real estate – including property owners and developers
• Utilities – including electricity, gas and water

An index tracks the price of a defined group of shares – like a sector or a whole market.

Australia’s best-known index is the S&P/ASX 200, which tracks the 200 largest companies on the ASX. See the full list of Australian indices on the ASX indices page.

Research and compare shares

Researching shares helps you understand what you are buying.

Listed companies are generally required to keep shareholders up to date by publishing:

• Financial results – a summary of how the business is going, usually sent out twice a year in Australia.
• Annual reports – a comprehensive report on how the company is performing and how it is being managed.
• ASX announcements – public updates about any changes.

For Australian companies, these are published on the ASX website.

Key numbers to watch include:

• Revenue and profit – is the company earning money? Is it growing?
• Debt – how much does the company owe? Can it cover its interest payments?
• Cash flow – is cash coming in from the business’s operations, not just from borrowing or shareholders?
• Dividend history – has the company paid dividends? What is the dividend outlook?

Don't forget diversification

One of the best ways to protect your portfolio is to diversify. This means spreading your money across different investments, so you are not relying on any single one.

You can diversify by:

• Company – own shares in several different companies
• Sector – include companies from different parts of the economy
• Country – include some shares listed overseas, not only in Australia
• Asset type – mix shares with other investments like bonds or cash

Learn more about diversification.

Finding the right investments can be challenging. If you need some help to build a diversified portfolio, talk to a financial adviser.