This article provides tips on investing for beginners in the stock market. Read it carefully, it can make you a lot of money. You have money left over and you want to invest it or set aside a portion each month. Of course, your goal is to grow this money. First I will dwell on managed investing and then on self investing. Following are some alternative investment options.
My first advice is not to invest yourself but to outsource it to a trusted bank. It may cost you around 1% of your portfolio per year but at the bank they do know what they are doing. And most importantly, they invest there without emotion. More on this later.
Managed investing is an umbrella term for investment strategies in which an investor invests money in an investment portfolio managed by a professional asset manager or mutual fund. This can be done either individually or through a collective investment fund. The investment manager or mutual fund will then make investment decisions on behalf of the investor and try to achieve the highest possible return with the lowest possible risk.
Monthly money transfers
To absorb fluctuations in the price a bit, I recommend depositing an amount into your investment account every month on the same date. For example, start with € 1,500 per month and build this down to € 1,000 per month after 5 years. After this you can further reduce your monthly investments. By staggering your deposits, you absorb fluctuations in the market and you are not disappointed when you have bought at the highest point. After all, you don’t want to lie awake over your portfolio. Before you know it, you only look at prices and sell and buy at the wrong times. After this, let your investments pay off or keep making monthly top-ups.
‘Investing for beginners: don’t invest yourself but invest under management.’
Reduction toward the future
Paying off into the future is important since the future money may not pay off for as long (unless you are investing for your (grand)children). On your shares, you receive annual dividends. This is nice in addition to any price increases. There is a lot involved in investing and in today’s computer-controlled investment landscape you almost always lose out. So investing for beginners should really be: investing under management for beginners. The only option is to set aside your money for a very long time in a well-diversified portfolio. A mix of stocks and bonds with a 70/30 ratio is fine. More stocks are allowed, but your basket of stocks will then be able to fluctuate harder. If you are investing for the long term then your investments can make a nice return this way. With this option, you have a clear plan. Stick to this plan. Agree goals with yourself when you stop. For example, when you double up or around your retirement date, reduce your risk by buying fewer shares and more bonds, or cash out.
Self money investing
Are you stubborn anyway and expect to make more returns yourself? Do you want to set your own course, make your own choices and show your masculinity (femininity)? Then choose self investing. Buying shares costs money (often a few euros) so you will first be in the loss, keep this in mind. Also if you buy shares in other currencies, you have to deal with exchange rate differences. You must not forget this either. Also note that investing can be very addictive and before you know it, you spend a lot of time investing. Your hourly wage is very low when converted!
Fundamental analysis, technical analysis, money management and psychology
If you want to invest yourself, you should pay attention to the following analyses:
1. Fundamental analysis: what are we going to do? Which industries/funds? What is the state of the economy and the industry you want to invest in? What is a growth market and what do you see as changes for the coming years? For example, think about robotization and electric cars.
Technical analysis: when are we going to do it? Never buy at the peaks but buy when everyone else is selling. Are there major global uncertainties such as wars and changes in monetary policy?
Money management: how much are we going to do? Buy in stages, for example, a portion each month. By doing this, you spread out your purchases so you are less dependent on peaks and troughs. Buy stocks (fixed values) with money you can spare.
4. Psychology: discipline! Have guts and do what you have to do! Taking losses is not fun but sometimes it is necessary. Cash in your losses and take your gains. Keep in mind that you are “playing” with money.
If you have decided that you are going to buy, say, €1,000 or €1,500 worth of stocks each month, it is good to decide what you are going to do. Someone like Warren Buffet sells as little as possible, he holds it for the long term. My advice is to buy in increments. For example, if you buy shares monthly or quarterly for €1,500 (I would not invest less than €500 to €1,000 per position given the buying and selling costs), a strategy is to sell 1/3 of your position at 30% return, 1/3 at doubling and hold the remaining 1/3 for at least 10-15 years. By doing so, you do grab your return which you can put back into other interesting stocks (you are cashing out which is also definitely a mental boost) but you don’t miss the known boat on an extreme rise in a particular stock as Tesla, Apple and Amazon have shown in the past.
When to buy which stocks
Buy stocks you believe in but when buying pay attention to price movements in the market and price movements of the stock itself. It is a good idea to diversify. You do this by investing in an ETF. An ETF is a basket of stocks in a particular industry or in a particular index such as the DAX or Nasdaq. For ETFs, for example, you can visit Morningstar, Lyxor and iShares. You purchase ETFs from your investment bank. Another very useful Web site for quotes and stock news is investing.com and finance.yahoo.com. If you’re really trading and want to know how many shares of a particular stock are being traded, you can check out Equiduct’s marketviewer.
Where can you buy stocks?
There are several ways to buy stocks. A few examples are:
- Through a broker: This is probably the most popular way to buy stocks. A broker is an intermediary or bank that helps you buy and sell stocks. You can choose a broker that suits you, such as an online broker or a traditional broker.
- Through a mutual fund: A mutual fund is a collective investment product that allows you to invest in a diverse portfolio of stocks. This can be either actively or passively managed.
- Direct purchase from the company: Some companies offer the opportunity to buy shares directly through a direct stock placement or initial public offering (IPO).
- Stock Exchange: Shares can also be purchased on the stock exchange, where buyers and sellers interact directly.
It is advisable to research which method suits you best, and what costs and fees apply to the specific method before deciding to buy shares.
Purchase and selling costs
Stock buying and selling fees are costs associated with buying and selling stocks. These costs can vary depending on how you buy or sell shares, such as through a broker or an exchange.
The most common fees associated with purchasing shares are brokerage fees. These are fees charged by a broker for executing a buy order, which is done by a market maker. Brokerage fees can vary depending on the size of the purchase and the broker you use.
When selling shares, brokerage fees are often charged as well. In addition, there are often brokerage fees. These are costs that the stock exchange charges for processing the sell order.
There are also mutual funds that do not charge brokerage and exchange fees for buying and selling.
It is recommended that you consult the specific broker or mutual fund’s fees and charges before deciding whether to buy or sell shares.
A leveraged product is a financial instrument that allows one to take a larger position in an investment than the value of the available capital. This is achieved by using borrowed money. This allows the investor to achieve greater returns, but also to incur greater losses.
In the stock market, various forms of leverage products are available, such as:
- CFDs (contracts for difference): These are financial derivatives in which the investor speculates on the price movement of an underlying asset, such as stocks.
- Options: These are financial contracts in which the investor is given the right to buy or sell an asset at a set price at a specified date in the future.
- Turbos: These are financial derivatives based on the underlying value of a stock. Turbos allow investors to capitalize on price increases and decreases, with greater leverage than with common stocks.
It is important to emphasize that leveraged products are riskier than regular stocks because they use borrowed money. Investors should therefore inform themselves well about the risks and specifics of the leveraged product before deciding to invest in it.
Investing in crypto
Besides stocks, of course, there are other options for investing. One of these is investing in crypto currencies.
What is crypto currency?
Crypto currency, also called digital currency or virtual currency, is a form of electronic money. It is decentralized regulated and distributed through blockchain technology. Crypto currencies are not dependent on a central bank or authority, and are often used as an alternative to traditional currencies.
The best-known crypto currency is Bitcoin, which was introduced in 2009, but there are now hundreds of other crypto currencies, such as Ethereum, Ripple, Litecoin, and many more. Crypto currencies can be used for making online purchases, sending money to other users, and investment purpose.
The use of crypto currencies is still a new and volatile business, and there are still many unknowns and uncertainty about its future. The value of crypto currencies can fluctuate rapidly, and there are also risks involved in storing and securing them. It is important to be well informed and understand the risks before you decide to invest in crypto currencies.
This is how you can start investing in cryptocurrency:
- Research: Learn about the different types of cryptocurrencies and the potential risks and rewards associated with them.
- Make a budget: Determine how much you can invest and set a budget.
- Choose a wallet: Choose a secure wallet to store your cryptocurrency.
- Choose a platform: Choose a reliable platform to buy and sell your cryptocurrency.
- Buy cryptocurrency: Once you have a wallet and a platform, you can buy the cryptocurrency of your choice.
- Keep track of your investments: Keep track of your investments and monitor the market to make informed decisions about buying and selling.
- Understand the risks: Understand the risks involved in investing in cryptocurrency, as the market can be very volatile.
Investing in cryptocurrency involves risks, so it is important to do your homework and understand the market you are investing in before making any decisions.
Investing in real estate
In addition to stocks and crypto, there is, of course, real estate. Investing in real estate has been done for a long time and this is where investors have made good returns over the years. Here’s how to get started investing in real estate:
- Research: Learn about the different types of real estate investments and the potential risks and rewards involved.
- Make a budget: Determine how much you can invest and set a budget.
- Build a team: Gather a team of professionals, such as a broker, lawyer and accountant.
- Find a property: Search for properties that meet your investment criteria and budget.
- Analyze the deal: Carefully assess the property’s finances and potential return or cash flow.
- Make an offer: Once you have found a property that interests you, make an offer and negotiate the terms.
- Close the deal: Work with your team to complete the transaction once the offer is accepted.
- Manage the property: If you own the property, you must manage it, either by hiring a landlord or doing it yourself.
It is important to know that investing in real estate involves risk, so it is important to do your homework and understand the market you are investing in before making decisions. Real estate can sometimes stay the same in value for years or even decline, while at other times, within a few years, low interest rates and scarcity can cause prices to rise very sharply.
Afloating and a plan
Whichever way of investing you choose, speak for yourself amounts or which you will skim. By skimming, we mean transferring to your checking or savings account for consumption. You can also decide to reinvest profits and dividend payments again so your stock portfolio grows or simply use the money to consume. Make a plan in advance before you invest. For example, you can buy stocks and agree that you will cash 1/3 at a 30% return, 1/3 of your purchase at a doubling, and 1/3 you never sell again (or hold for at least 15 years).
Points to consider when investing for beginners
– Pay attention to price movements due to politics, numbers, FED, interest rates, events, oil…. What does it do? Price is the evidence.
– Market behavior repeats itself. Recognizable price movements and patterns. Buy on dips and sell on peaks.
– Prices move in trends; Look for solid moves up and down.
Still find investing too exciting? Then there are always other ways to invest your money. Pay close attention to what you are doing when you want to start investing and remember the famous slogan:
‘Past results are no guarantee of future results’.
A financial advisor
Perhaps, despite all the information on the Internet, you still want to talk to a financial advisor. A financial advisor, also called a financial planner or financial consultant, is a professional who helps individuals and organizations manage their finances. They offer advice and guidance on a wide range of financial matters, including investment planning, tax planning, retirement planning and estate planning. Financial advisors work with their clients to assess their current financial situation, set financial goals and develop a plan to achieve those goals. They may also recommend specific financial products or investments, such as stocks, bonds or funds, and help their clients implement the plan. Financial advisors can be independent or work for a financial services company. They are usually required to maintain certain qualifications and licenses, such as certification as a Certified Financial Planner (CFP).