How to start investing in stocks
Beginner’s guide to European stock markets. Investing in stocks on the AEX, CAC or DAX is easy, and you can do it too. It might feel scary at first, because there is a risk of losing money. But with patience and some diversification, that risk becomes smaller. First tip: start small, and do not wait too long to make your first investment.
Please note: investing in stocks involves risks, and you can lose part or all of your investment.
Contents:
- Investment and return
- What to invest in
- Choosing a platform
- Risks
- Planning entry and exit
- Letting someone invest for you
When should you start investing?
The best time to start is now. Many people prefer to wait until they know more about it, because they are afraid of making a wrong move. But investing needs time to grow and give a return. Knowledge helps, but starting early is just as important.
As a beginner, you can start right away if you spread your investments well and have patience. It is important to know that you should not need the money you invest for a while. It is best to invest for at least five or even ten years.
Knowledge helps, but starting early is just as important.
How much money should you invest, and what can you expect?
You can make money by selling your investment later for a higher price (this is called capital gain) or by receiving a profit payment (this is called dividend). But when you buy an investment, you also pay transaction costs. After a dividend is paid out, the price often drops for a short time. So for both types of returns, you need some patience.
Stock markets like the CAC (France), DAX (Germany), or AEX (Netherlands) each have an average return of about 7 percent per year, including dividend. If you know how much you want to grow, you can use this percentage to estimate how much to invest. But be aware that the result is uncertain and make sure you can miss the money for a while.
Example:
If you invest 100 euro every month and make an average return of 7 percent per year, after 10 years you will have about 17,500 euro. Of this, you have put in 12,000 euro yourself.
The more money you invest and the longer you leave it, the more you can earn. But prices can also go down. So only invest money that you can miss for some time. That way, you avoid having to sell at a bad moment, for example if you suddenly need money.
How do I decide what to invest in?
Many young investors start with companies they know, like Coca Cola, Microsoft or L’Oréal. Whether this is a smart choice depends on a few things. First, it depends on your goal. Do you want quick returns, even if that means a higher chance of losing money? No one can predict which company will grow, but some sectors are known to be more active than others.
Types of shares
You can start by looking at a company’s market size. A young company that has grown fast is often more risky, because it depends more on its leaders or on certain trends. Older companies are usually more stable.
Even older companies can behave differently, depending on the sector. For example, pharmaceutical and tech stocks are often more aggressive. This means their prices can rise fast when there is good news. When the economy is strong, people spend more on things like new iPhones. This helps companies like Apple. It also often helps other tech companies like Amazon or Google.
But when things go wrong, their stock prices can fall just as fast. Other sectors, like food or supermarkets, are more defensive. Companies like Unilever, Nestlé or Coca-Cola are not likely to double in value during good times. But they also lose less value when the economy is weak. That makes their prices more stable.
Local or international
The same idea also applies to regions. If you only invest in one area, your results depend a lot on that area’s economy, politics and financial system. Many Europeans invest in the United States. That is fine, but be aware that you also take on currency risks (the dollar) and political risks.
You can also think about how active you want to be. Some professional investors try to beat the market average. To do this, you need to know when to buy and sell shares, and follow the stock market every day. Is the average return enough for you? Then you can choose ETFs. With one ETF you invest in a group of shares from an index, region or theme.
Open an account directly with eToro, a large European broker, or with Freedom24, which offers a range of one million stocks, ETFs and options. Investing involves risks. You can lose your investment.
ETFs: automatic investing in an index
Many people choose their own shares, but if you are just starting, ETFs are a good first step. With ETFs, you invest in all the companies of an index at once. For example, you can invest in the whole DAX index, or in the 250 largest companies in the world. Because each trade includes many companies, your costs stay low and your risk is spread. With just one AEX ETF, you are already investing in food (Ahold), finance (ING), and tech (ASML).
ETFs include many companies, and over time they usually give a positive return. If you send a fixed amount every month, you barely need to spend time on it after making your plan. You will be investing in companies you might not know much about. But that is okay. Even if you pick companies like Coca-Cola, ASML or Nestlé because you like them, you still cannot predict how they will perform.
ETFs include many companies, and over time they usually give a positive return.
Choosing an app or platform
When you start investing in stocks, you can often open an investment account with the bank where you already have a savings or payment account. This is a familiar option and opening an account is usually easy.
But be careful: banks are often more expensive. They usually charge higher transaction fees, or even monthly fees for the account. New online stock brokers are often cheaper. Their apps are also simpler to use. Good European options for young new investors include:
If you want to trade and invest all by yourself eToro is currently Europe’s online brokerage champion. You can trade in stocks, commodities, crypto and other currencies. Templates allow you to invest directly in a variety of sectors. Don’t invest unless you’re prepared to lose the money you invest.
At the online broker DEGIRO, you can personally invest worldwide in stocks, bonds, funds, ETFs, options, and futures. DEGIRO is the market leader in the Netherlands and is known for its low fees and high user convenience. Note that investing can result in the loss of your capital.
Invest in over 1 million stocks, ETFs, bonds, and other instruments across U.S., European, and Asian markets. Explore predefined selections of high-yield ETFs and bonds with potential dividend returns of up to 6% in EUR. Utilize in-house market research and weekly investment ideas.
What if the stock market goes down?
On average, investing gives a return. This comes from dividend, inflation, and the growth in value of listed companies. But not always. Sometimes the competition does better, or a whole sector or region struggles. Sometimes the value drops because investors prefer to invest elsewhere.
During these times, you can lose money. Usually, this drop is temporary and experts call it a “market correction.” With patience, many investments recover, but this is not a guarantee. In theory, a listed company can also go bankrupt, and you could lose your investment. This is rare, as these companies often play a big role in the economy or jobs. In tough times, they often receive support from governments.
Planning your entry and exit moments
With enough spreading across different companies, you can already reduce many risks. Some investors even use these moments to their advantage. Experienced investors often see a market dip as a good time to buy. After a drop, the market can grow faster than when things have been going well for a long time. But you need to be able to wait for that recovery.
If not, it is smart to reduce your investments on time. You can, for example, take out money step by step, or switch early to investments that are less sensitive to market changes. Like ETFs that also invest in government bonds. This helps you avoid the losses that can happen if you have to sell shares when the market is down.
With enough spreading, patience and a plan, investing is usually rewarded.
Outsource to an advisor
If you are unsure, you can let a financial adviser invest your money. They do not have insider knowledge of the market, but they can help with building a good spread. They read more financial reports, have more experience, and can better estimate where the chances and risks are.
Even investment advisers do not know how prices will move in advance.
Even if you invest in large, stable companies like Coca-Cola, ING or Siemens, prices can still fall sharply. That is why broad spreading is always smart. An adviser can help with that. Many investors like this kind of support, although the costs of advice can reduce your return.
