What a New Investor Needs to Know

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New Investor: Ksenia has a deposit in the bank, but the interest seems too low to her. She is thinking of withdrawing money from the deposit and investing it in the stock market. We figure out whether it is worth investing all your savings in securities, how to enter the stock exchange and where to start if you still want to take a risk.

Why invest and is it right for me?

You can really earn more on investments than on bank deposits, but at the same time there is a chance of losing everything. Interest on deposits is known in advance, and even if the bank’s license is revoked , the state will return the money to depositors – within 1.4 million rubles.

There is no such insurance on the exchange, you can lose everything. Moreover, the fall in the value of securities occurs much more often than bank failures.

Therefore, before entering the stock exchange, it is necessary to prepare a financial airbag. Part of the savings – at least 3-6 of your monthly income – should be left on a deposit or savings account in a bank. And only when the reserve for a rainy day is made, and there is still free money left and you are ready to risk it, you can think about investing.

Bonds: what are they and how to make money on them

The main thing to remember is that profit is not blind luck, as in a casino, but the result of well-thought-out actions. Not a game, but a job.

I want to try. Where to begin?

The modern exchange is electronic, you can trade via the Internet without getting up from the couch. But first, you need to determine a few important things for yourself.

Things New Investor Needs to Know

1. Estimate how much money you are willing to invest

Theoretically, you can start with any amount, even with 1000 dollars. But such a volume does not compensate for the commissions that will have to be paid for operations, nor the time spent on trading. It is worth starting investments if you are ready to risk several tens of thousands of dollars. It is better to imagine in advance a situation in which you will lose all this money. If you understand that this is not a disaster for your budget, you can try.

2. Consider how much time you are willing to spend

If you are ready to undergo training, immerse yourself in the topic, constantly monitor the situation in the stock market, you can try to trade on your own. Then you will need a  broker who will become your intermediary to access the exchange. You will make your own decisions about buying and selling, and the broker will carry out your orders.

If you do not intend to spend a lot of time and effort on investing, then it is better to consider one of the forms of trust management. Then the investment of your funds will be handled by professionals.

You can conclude an individual agreement with  a trustee , transfer money to him – and he will decide for you when and what assets to buy and when to sell. Its goal is to invest your savings with the maximum return for the level of risk you choose.

Another option is  to invest in mutual funds (mutual funds) . These are ready-made sets of various securities or other assets, such as shares of Russian mining companies. The funds of the mutual fund are managed (buy and sell assets, change their composition) by the management company.

You can choose a suitable fund and buy its shares either from the management company itself or through a broker on the stock exchange. If the company invests well, the price of the shares will rise and you will make a profit. If it falls, you will incur losses.

3.Choose a strategy and assets

A strategy is a set of investment parameters that determine your style of behavior on the stock exchange: what instruments you choose, what profitability you expect and what losses you are ready for, for how long you plan to invest and how often you are ready to make transactions.

In the simplest version of the strategy, you choose:

  • assets;
  • investment period;
  • maximum loss.

Let’s say assets are government bonds , shares of pharmaceutical, oil and gas companies and banks, as well as shares of a fund that invests in precious metals. The period is 1 year, the amount of losses allowed for you is 20%. That is, if the assets fall in price by 20%, then you immediately sell them, even if the year has not yet passed.

When choosing a trust management, you also need to decide on a strategy. Only in this case will you choose from offers that are already on the market, or discuss an individual strategy with your manager.

4. Find an intermediary company

When you decide on a strategy, you can start choosing a mediator. The most important thing is to make sure that the broker, trustee or management company of the mutual fund has a license from the Bank.

If you have chosen to invest on your own, you have to go through the following path:

  1. conclude an agreement with a broker;
  2. open and fund a brokerage account;
  3. install a special program for trading;
  4. start buying and selling.

If you have chosen the path of trust management, then it will be enough to conclude an agreement and transfer the money to the trustee or management company of the mutual fund.

Common mistakes: what not to do

  • You can’t invest everything you have in stocks

First, create a financial airbag – set aside 3-6 salaries on a bank deposit. And only then proceed to exchange trading. Invest the amount that you are willing to accept losing.

  • Don’t act randomly – get trained

If you decide to trade on the stock exchange on your own, be sure to take training . Most brokers run courses for beginner investors. Trading programs often have a demo mode: you can try your hand at it without the risk of losing money.

  • Don’t get emotional

If you act impulsively, you can make many mistakes. A novice investor should not react sharply to the slightest price movement on the stock exchange. But you need to act decisively if the price changes significantly.

Set a limit on the losses that you are willing to bear: for example, if assets have fallen in price by 20%, you need to sell and, as they say on the stock exchange, fix losses. The desire to wait – suddenly the price will rebound – will be great, but there is no need to succumb to it. Otherwise, you can lose even more.

  • Don’t put all your eggs in one basket

It is better to buy securities of companies from different industries in order to diversify risks. For example, if you only invest in oil companies, then the risks of losses will be very high. Since, say, when oil prices fall, the shares of all companies in the oil and gas sector usually become cheaper. If you buy securities of companies in various sectors of the economy, say, the chemical industry, engineering, telecommunications, this will help you reduce the risk of losing your money.

  • Do not believe promises to earn 500% per day

Only charlatans can guarantee anything in the stock market. A responsible intermediary should warn you of the risks. The situation on the exchange is changeable, and only you are responsible for the decisions made.

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