Are you looking to put your money on the stock exchange to increase your earnings over the long term via the shares? Stock market investment does not require trading skills, but you can lose money if you do not pay attention. Are you wondering about the best ways to invest in stock exchange as a novice? Right here, we reveal the key information you need to invest intelligently in the stock market.
Why investing in stock exchange can be advantageous
Putting your money on the stock exchange can offer a variety of benefits, but also be aware of the risks before you start.
The benefits of investing in the stock exchange
Investing in the stock exchange can generate high returns over the long term. A recent study shows that the average annual yield of shares over 50 years is around 7-8 %. The stock exchange also allows you to diversify your assets, thereby reducing risks. You can take advantage of capital gains and dividends on your shares. For example, companies like Procter & Gamble have a history of regular dividend payments for over 130 years.
Risks inherent in stock exchanges
Investing in the stock exchange is risky. Market volatility can lead to losses, especially in times of economic crisis. In 2020, for example, the VOCID-19 pandemic caused a significant fall in global financial markets. Risks include market, liquidity and credit risks.
Understanding market cycles
Financial markets alternate between growth (bull market) and recession (bear market). Knowing these cycles can help make informed investment choices. For example, the bull market that followed the 2008 financial crisis lasted more than 10 years.
The different financial assets available
Here are the main types of assets available on the stock market and select those that best match your investor profile.
Actions: What is an action and how does it work?
A share represents a share of ownership in a publicly traded company. By owning shares, you become co-owner of the business in proportion to your number of shares. Shares can generate income through dividends and potential capital gains. For example, buying an Apple share means becoming co-owner of a small part of the business and enjoying its economic success.
Bonds: a more stable investment
Bonds are debt instruments issued by companies or States. They are generally less risky than shares and offer regular income in the form of interest. In 2021, the average yield on 10-year government bonds was 1.5%.
ETF and index funds
ETFs (Exchange Traded Funds) are publicly traded index funds. They make it easy to diversify its portfolio by following a specific stock index. For example, an ETF that follows the S&P 500 allows you to invest in the 500 largest U.S. companies.
Other types of assets: raw materials, derivatives, and REIT
Other options include raw materials (such as gold), derivatives for specific strategies, and Real Estate Investment Trusts (REIT) to invest in real estate. In 2020, despite market fluctuations, gold rose by almost 25%.
Steps to start investing in stock exchange
Here are the essential steps to embark on stock exchange investment in a structured way.
Choose a financial intermediary
You will need an intermediary to buy and sell shares. This can be a bank, online broker or specialized trading platform. Online brokers such as Degiro or Interactive Brokers offer very competitive brokerage fees.
Open a securities account or PEA
Opening an ordinary securities account or an Equity Savings Plan (ESP) is essential for investing on a stock exchange. The EAP offers tax benefits after five years of detention. For example, realized earnings are exempt from income tax beyond five years.
Understanding the types of exchanges
Familiarize yourself with different types of orders, such as market orders, limited price orders or triggering threshold orders to better manage your transactions. For example, a limited price order allows you to set a maximum price for the purchase of a share.
Why choose management under mandate
For those who lack time or confidence, under-mandate management enables professionals to manage their portfolios. Companies like Yomoni or Nalo offer this type of service.
Develop a strong investment strategy
Having a well-defined investment strategy is crucial to success on the stock exchange. Here's how to put this in place.
Define your financial goals
Determine your financial goals, whether they relate to the preparation of retirement, the purchase of real estate or simply the growth of your savings. These objectives will guide your investment choices. For example, if your goal is retirement, you can invest in long-term growth actions.
Assess your risk tolerance
Your risk tolerance should guide your investment decisions. If you are careful, choose less volatile assets such as bonds. If you accept more risks, target growth actions. A recent study has shown that young investors are more likely to take high risks.
Diversify portfolio
Diversification is essential to minimize risks. Invest in different sectors, types of assets and regions to avoid putting all your eggs in the same basket. For example, allocate 40% in shares, 30% in bonds, 20% in ETFs and 10% in REITs.
To get started and avoid common mistakes, discover our full guide onTrading: Understanding the foundations for starting in financial markets.
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To start on the stock exchange in complete serenity, discover also our tips in this article onhow to make money easily.
Use financial analysis tools
Use technical and fundamental analytical tools to assess buying or selling opportunities. Financial ratios such as the Price Learning Ratio also provide valuable insights. For example, a low RIP may indicate an undervalued action.
Practice with a virtual wallet
Before committing real money, getting familiar with the stock exchange through virtual wallets can be clever.
The benefits of virtual portfolios
Virtual portfolios simulate risk-free transactions. This is a great way for a beginner to understand how markets work and test his investment strategies. For example, the TradingView platform offers a free demo account to train.
How to use a virtual wallet
Find a platform offering virtual portfolios, create an account, and start simulating your investments. Follow the financial news to analyze the results of your decisions. Platforms such as Boursorama or eToro offer this service.
FAQ on investment in stock exchange for beginners
Do you still have any questions about stock exchange investment? Here are the answers to the most frequent questions.
How much to invest to start?
There is no minimum amount to invest in the stock exchange, but it is generally recommended that it not exceed 10% of its total capital at the beginning. In 2020, a survey revealed that 24% of new investors start with less than €1,000.
How to choose your actions?
Select stable business actions, with good growth prospects and sound financial health. Don't forget to also examine past performance and dividend policy. For example, companies such as Johnson & Johnson or Coca-Cola are often considered safe values.
Can we invest on a stock exchange with a small budget?
Yes, investing with a small budget is possible thanks to ETFs or progressive investment (Dollar Cost Averaging). This allows the average purchase cost of securities to be smoothed over the long term. Platforms like Robinhood allow those who wish to invest with just a few euros.
What are the ways to avoid common mistakes?
Diversify your portfolio, do not follow trends without analysis, do not give in to panic, and above all, never invest money that you cannot afford to lose. For example, the 2008 crash showed that diversified investors have better resisted the crisis.