If you want to make your savings grow over the long term, there are many financial opportunities to earn more and faster. With the rise of the Internet, the opportunities to invest your money have multiplied and some of them have become more easily accessible, even with small amounts of capital. Investing in the stock market is one such option that paves the digital road. However, it must be said that the idea of investing one’s money in financial products worries more than one saver. The financial markets are often associated with a kind of huge casino where buying a share is like betting your money on a roulette wheel. Trading, speculating or investing in the stock market is far from being a game of chance
Our guide could be called “Investing in the Stock Market for Dummies”. We will present you with all our advice and points of vigilance that you should pay attention to before breaking your savings account to try your luck. Should you invest on the stock market? Yes, but under certain conditions
Definition of the framework
Our guide focuses on the concept of investing in the stock market online, leaving aside physical fund managers and scalping / day trading platforms where the risks are far too great. We focus on medium and long-term investments where volatility has less direct impact on an investment strategy. Any site that offers Forex or binary options trading (such as broker CFDs) is excluded from this review.
Learning to invest in the stock market means that traders are trained to know where and how to buy or sell securities on the financial markets. From these order placements they can earn income in the form of dividends and/or bonds through the sale of shares in listed companies in which they own shares. They can also benefit from capital gains generated by a stock exchange transaction following the sale of a financial instrument under favourable market conditions.
What to invest in on the stock market?
This is perhaps the issue that most frightens apprentice investors. When it comes to long-term stock market investments, there are three main models available for investing on the stock market: life insurance, the ordinary securities account (CTO) and the Share Savings Plan (PEA).
The insurance contract is a classic investment that is less frightening for savers. It is seen as a safe investment. However, it is based on products traded on stock exchanges such as euro funds. Life insurance offers fairly low entry fees with a certain flexibility in payments. Depending on the intermediary, management fees are more or less competitive (arbitration, transfer). The risk is measured, even with an offensive approach. Returns are rather constant. Ideal investment for a beginner.
The PEA / the PEA – SME
This is an opportunity reserved for English residents only. It is only possible to open one PEA / PEA – SME per person. The PEA is capped at €150k of contribution to the account, the PEA – SME at €75k, which means that all capital gains and profits can exceed this amount. These two formulas open the door to a whole range of shares in English and European listed companies and to certain eligible international trackers. The management of a PEA / PEA – SME is rather reserved for intermediary investors with some time to devote to the management of their assets.
The Ordinary Title Account
The CTO is an opportunity to be seized for all experienced traders as it requires a solid knowledge of the mechanisms of the stock markets and the products associated with them. You also need to have time to devote to your regular trading account in order to make the most of it. There is currently no limit on the number of CTOs that can be opened per person, nor is there a ceiling on the amount of funds that can be contributed. It includes all securities, stocks, bonds and investment funds in the world
The financial instruments that an online trader encounters in a medium and long-term investment strategy are active funds, passive funds (or trackers), live securities (shares purchased directly) and index funds (or warrants). The main objective of these products is to succeed in selling them at a higher unit price than the purchase price. Like any stock market item, their prices can vary enormously over a short period of time. A long-term vision is essential.
The basic rules for investing your money well on the stock market
Experienced traders tend to recall these concepts which are the foundations of how to invest in the stock market at the beginning: Reason, Measure, Humility and Mental / Discipline. Investing your money in the stock market with the best chances of success requires the respect of these basic rules.
This means that it is essential to diversify the assets in one’s portfolio as much as possible. The main reason for this is the popular saying: you shouldn’t put all your eggs in one basket. If one of your investments ever collapses, it represents only part of your initial capital. This notion is valid for stock market investments as well as for optimising your savings. Investing in the stock market is only one option among others to make your available money grow.
Define your risk budget carefully and stick to it. Only invest money you don’t need. For example, don’t touch your precautionary savings to go on the stock market. Set realistic goals that are in line with your capital, your trading knowledge and your investment strategy.
Don’t be too presumptuous and don’t wait for the super miracle move that will bring you huge winnings. It is important to define a financial strategy and to follow it progressively according to the DCA method: Dollar Cost Average. This is a method that aims at smoothing your payments according to a pre-established programme to increase the available capital. It is often advisable to do this over a period of between 6 and 12 months in order to reach the first defined investment threshold. Then consolidate your funds with regular, monthly or quarterly payments, if possible.
The Mind / Discipline
It is vital to understand what you will be facing as a stock market investor. Specialists call this the psychology of the trader. It is imperative to keep a cool head in all circumstances in order to limit the financial risks of a disastrous decision following an event on the financial markets. Selling in a disaster when your share price falls sharply. Buying unreasonably a stock that is experiencing a runaway rise.
On the contrary, we must look at things in the opposite direction: strengthening one’s capital when the market is low / lightening it when prices are high. A serene and detached vision ensures future profits. Monitoring your portfolio regularly allows you to meet your objectives. Above all, do not be afraid to close an order:
- to take the profits that were expected
- to stop losses that could jeopardize the overall health of the portfolio
These basic rules work individually and make sense together. They are the safeguards to avoid falling into the trap of the Stock Exchange – Casino. Some analysts even go so far as to say that you don’t play on the stock market. There is no question of a 50/50 bet. Of course financial instruments are volatile, but it is possible to secure one’s positions and funds by following a strong financial trajectory, in order to reduce the chances of personal bankruptcy. You have to accept to lose in order to win later on
This last point is not part of the fundamental rules for securing a future on the stock market. It is more to be seen as a reminder of common sense. Some CFD brokers would tend to present online trading as the miraculous Eldorado where even the ignorant can make a fortune.
Of course, this is not the case. You need to inform yourself before, during and after you invest your money. It is important to understand the mechanics of the financial sector and its instruments. It is imperative for your financial health to be aware of the risks involved. You can gather information from an expert and keep up to date with the latest financial news on a regular basis
Everyone agrees on the notion of risks linked to trading. They are very real. However, it is possible to limit their scope with the most solid knowledge and skills possible. Beginner, intermediate and advanced levels are equally concerned by the need for information.
How much to invest on the stock market?
There are no established answers to the question “How much to invest in the stock market?” As we have stated in the basic rule of the Measure, you should not invest money that you might need. The most suitable answer would surely be “the passive amount of money you have available at the time of your investment”.
Whether it’s a life insurance contract or the opening of a Compte Titre Ordinaire or a PEA / PEA – SME, the initial payment is now quite low. From €100 (or even €30 on some online banks) for a share account and €300 for a life insurance policy, the number of suitors explodes.
Obviously, the more funds you have available at the outset, the easier it is to diversify your portfolio and make significant investments. By following the DCA rule, a progressive top-up can make up for a limited amount of initial capital to achieve good final results.
Free management, profiled or under mandate?
This triple format has long been reserved for life insurance. The aim is to offer policyholders a greater or lesser degree of freedom in the management of their investment
Free management, as its name suggests, allows you to freely choose the financial products that make up your life insurance. It requires good knowledge and regular monitoring to ensure maximum security for your investment.
Profiled management is increasingly being offered by life insurance companies. In simple words, it is the promotion of pre-established packages of financial products with a defined level of risk. The lowest level favours euro funds which are a safe bet. The highest level offers a broader mix with potentially more volatile equities and bonds. The subscriber has not looked precisely for the components of his life insurance. He follows an investment path.
Management under mandate offers the opportunity to delegate its authority to a financial expert who takes care of managing your contract on your behalf. When the mandate is signed, an investment profile is defined. Often on 4 levels: defensive or prudent, balanced, dynamic and offensive. From the least risky to the most risky. The manager follows your general directive and makes the most of it.
We were saying that this triple format had long been exclusive to life insurance. However, with the emergence of new services and services provided by online banks, a new type of CTO, PEA / PEA – SME management system has emerged based on the same model
Beginners are strongly advised to choose management under mandate, which, while generating higher management fees, has the major advantage of leaving expert hands in control of your capital. Profits may be smaller but still present. The more competent the investor feels, the more he can move towards free management.
Stock market investment or real estate investment?
This is a question that comes up very often when we talk about investment. Real estate investment – in stone – has always been popular in UK. It seems to represent a refuge value and a symbol of wealth through a palpable heritage. However, investing on the stock market has some really interesting advantages:
- it is much more affordable. As mentioned above, it is now possible to take out a life insurance policy or open an ordinary securities account with a small amount of capital
- the risks are not as great as one would like to think. The diversification and reasonable management of its asset portfolio present fewer external risks than a property at the mercy of a tenant and intrinsic management costs (co-ownership, taxation, etc.)
- investing on the stock market online can take much less time than finding a property and managing it: appointments with the notary, promoter, rental visit, etc.
- it is much less complex to manage a stock market portfolio than to fully monitor the tax and legal aspects of a property. Moreover, with discretionary management, this complexity is reduced to almost zero. It is much less expensive than property management by an agency or a notary
- the stock market investment finally proves to be more profitable in the long term. It is unlikely that your asset portfolio will deteriorate completely. Where a property deteriorates over the years due to a lack of capital regularly reinvested for maintenance
A better application to invest in the stock market?
Online banking has enabled a redistribution of the cards with its more direct and popularised approach. This paved the way for more competitive rates in the face of institutional banks that monopolised the sector.
Here is our selection of the best applications to invest in the stock market – with an excellent return/brokerage fee ratio
If you enjoyed this page, read our article on how to invest in gold.