You have decided to start your stock investment journey. Well done ! It is probably one of the wisest decisions you have made in the last months. Your future self will thank you and be grateful for what you have done.
The first steps to investment might be daunting, hence this post to give you an insight of the world of stock market investing.
Choose a broker
That might be obvious for some of you, but you need to open a brokerage account. You therefore need to choose a broker. The next question now is which broker should I pick ?
In my opinion, the most important criterion would be the regulation status. Indeed, each broker, in order to be able to provide investment services, needs to be regulated by the national competent authority (could be the SEC in the US, FCA in the UK, Bafin in germany…). The regulation check can therefore be easily done by going into the national authority database on their website. The main risks if you decide to deal with an unregulated broker would be the lack of investor protection in case of disputes and fraudulent practices such as misappropriation of funds.
The second most important criterion would be the fees charged by the broker. One of the main sources of income for a broker is the commissions they receive, a percentage or a fixed fee for each security trade (buy or sell) executed on behalf of their clients. Therefore, if the fees are excessively high, that will reduce your investment returns, i.e. eat out your savings/potential profit. (Furthermore, online brokers tend to have lower fees than traditional brokers/banks.)
The third most important criterion would be the stock markets access. For a given broker, can you buy stocks from US companies ? European companies or emerging markets ? Indeed, a broker with very low fees but with whom you cannot buy US stocks will be worthless as you will not have access to the two largest stock exchange operators (NYSE and NASDAQ) by market capitalization1.
Finally, the last criterion would be the user-friendly design of the brokerage platform/mobile app. It has to be easy to use, clear and handy in order to enhance the client experience and make you invest more !
Which company stocks should I buy ?
You have opened your brokerage account and you are wondering now which stock should you buy. You will have the choice between an active style (stock-picking) or passive style (exclusively through ETFs). If you are a complete beginner and want a hassle-free investment style, ETFs are the perfect products for you.
What is an ETF ?
An ETF is an investment fund which is traded on stock exchanges (such as NYSE, Euronext…). An ETF is designed to track a group of stocks (usually indexes like S&P500, Nasdaq 100, EuroStoxx 50…) and are known for being convenient.
Indeed, if you want to invest in a diversified portfolio of stocks, but you don’t have enough money to buy shares of each individual company, you can buy shares of an ETF that represents a basket of stocks (basket of stocks can be the stocks which are in the S&P 500, Nasdaq 100, EuroStoxx50 or any others indexes). For instance, by owning a share of the iShares Nasdaq 100 UCITS ETF, you indirectly own a portion of all the 100 stocks which are in the Nasdaq 100. In other words, ETFs are a great way to instantly have a diversified portfolio just by buying a few shares of an ETF. This, therefore, helps reduce the risk associated with investing in a single stock.
1Largest stock exchange operators by Statista
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