Investing in the stock market: Here is some advice for beginners

The stock market is an important financial resource that many can utilize to make wise investments, however it does require a level of understanding. Here's what you need to start.

Stock Market advice
© Luis Alvarez/Getty Images
Stock Market advice

One of your New Year's resolutions is to invest in the stock market to make money, but you don't know much about it? Here are a few tips to get you started.

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Every new year brings a new opportunity to make money, and in 2024, investing in the stock market could well be one of the most profitable financial strategies. This form of investment is very easy to carry out via online banks or low-cost trading platforms. You don't need to be an expert or have a lot of money to win.

How do I get started in the stock market?

To get started in the stock market, you need to think about your objectives. The first step is to define your risk profile and investment objectives, to determine the right amount to invest according to your financial capacity and the duration of your investment. The amount depends of course on your income and available funds, but it is generally recommended to invest around £8500 for a direct investment and £85 for an investment in an ETF, an investment fund made up of shares in several companies.

The second step in investing in the stock market is to open access to investment funds. Most online banks offer this service. Next, you'll need to build up your portfolio of investment funds, either with the help of a partner (collective management) or on your own (direct purchase). After several weeks, remember to rebalance your portfolio to invest in the most promising funds. Monthly is the best frequency.

Investing in the stock market: buying shares directly or relying on collective management

There are two possible options when starting in the stock market: buying shares directly or relying on collective management. As opposed to the latter, which involves placing your trust in a fund manager, the first option requires you to choose the shares you wish to acquire yourself. It's best to invest in stocks with a solid reputation and a long-term perspective. Buying directly means following the economic news of the companies in your portfolio.

While this option may be more advantageous, it is also more risky, which is why beginners are advised to prefer collective management at first. In fact, it allows you to acquire a greater diversity of stocks than an individual investor would be able to achieve.

Investing via this method means putting money into a portfolio of securities shared by several investment funds and managed by a professional whom you choose, such as the geographical area of your investments and the asset class.

ETFs: An easy solution for stock market beginners

Of the three types of investment funds in which you can invest under collective management, ETFs are the most suitable solution for beginners. Exchange Traded Funds, or trackers, enable you to build up a diversified portfolio with low costs and an affordable entry ticket. They are therefore an economical and easy-to-manage option.

Investing: does the stock market pay off?

Investing in the stock market can potentially bring profits, but it also involves risks. The stock market is a place where investors buy and sell shares in a company in the hope of making a profit. Returns can vary according to factors such as economic performance, market conditions, economic news and individual company performance.

It is important to note that stock market investments are subject to fluctuations and inherent risks. Stocks can rise in value, generating profits, but they can also fall, resulting in losses. The key to successful stock market investing often lies in portfolio diversification, in-depth research and an understanding of the financial markets.

It is advisable to consult a financial advisor before making any investment decisions, to develop a strategy tailored to your financial objectives, risk tolerance and investment horizon.

How much should I invest in the stock market for the first time?

How much to invest in the stock market for the first time depends on several factors, such as your financial situation, your risk tolerance, your financial objectives and your comfort level with investing. Never invest more than you can afford to lose. The stock market involves risk, and it's important to invest only the money you don't need in the short term. Avoid putting all your eggs in one basket. Diversify your portfolio by investing in different stocks or asset classes to reduce risk. Some brokers may charge fees and commissions. Make sure you understand these costs and include them in your investment plan.

If you're new to investing, start with a smaller amount. This will allow you to familiarize yourself with the investment process without taking on a lot of risk. Consider the possibility of regularly investing fixed amounts over time (periodic investment system). This helps to smooth out market fluctuations. Before you invest, make sure you understand the basics of stock market investing. Learn about the different investment strategies, types of assets and factors that influence the financial markets.

Investing in the stock market on a small budget

Investing in the stock market on a small budget is entirely possible, and many people start with modest amounts. Before you start investing, make sure you have a well-defined, long-term budget. Only invest money you can afford to lose without compromising your basic financial needs. Some stocks are more affordable than others. You can look for low-cost stocks, often called 'cheap stocks' or 'penny stocks'. However, be aware that these stocks can be more volatile and carry higher risks.

Index funds are baskets of stocks that track a specific market index, such as the S&P 500. They offer instant diversification and can be a more accessible option for investors on a small budget. Some brokers allow investors to buy fractions of shares, which means you can invest in expensive stocks with a smaller amount. Practice periodic investing by regularly investing fixed amounts. This allows you to smooth out market fluctuations and accumulate shares over time. Choose brokerage platforms with low or zero fees, especially if you're investing small amounts. Fees can have a significant impact on returns, especially on a small budget.

This article has been translated from Femme Actuelle.

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