How to invest in the stock market? The complete 7-step guide for beginners

A frugalist blog that does not explain how to invest in the stock market. It's like going to Belgium and not drinking a little Belgian beer😉 (in moderation of course). Here's a simple article: How to invest in the stock market? The complete beginner's guide in 7 steps

The aim of this article

⚠ This article is only my opinion! Investing carries a risk of losing money. My advice may only be taken for entertainment purposes.

Before we get into the nitty-gritty, there is one important thing to understand about investing in the stock market:

Stock Market Investment Time

IIt is very important to understand that stock market investments have a very good chance of becoming profitable in the long term!

In truth, It takes at least 10 years for the return to be significant. Some would even say 15 years 🕒

If you invest for the long term, looking at the last 10 years, My investments have an average annualized return of 7-12% per year1. (I will explain the deductions to consider later).

However, The results of past investments are not guaranteed for the future.

It's important to understand that this article won't make you rich quick. Investing in the stock market requires a time horizon of at least 10 years.

It’s time to reveal my stock market secrets 😉

Secrets to investing in the stock market 🤫

1st secret – Stock market variations are normal

A share is a purchase of part of the company! When I say buying, I really mean owning a financial part of a business!

There are financial movements and speculations that cause the stock market value of a stock to increase or decrease.

Many people worry about a small dip in the stock price. But in reality… all stocks go through periods of decline.

Here is the first secret! Above all, don't panic if you bought a stock and the value goes down 😉

Historically, the stock market constantly goes up and down. These are called stock market cycles. A common stock market yo-yo effect³.

⚠ Accepting a stock's price fluctuation doesn't mean it can't go bankrupt. Choosing the right stock is crucial to avoid financial losses.

2nd secret – Diversify

👉 The second secret is to diversify your stock purchases. In reality, The more diverse your investments are across different sectors, the less likely you are to lose your money.

For example, if you put all your money into just one or two stocks, it's risky. Because if those companies fail, you lose everything.

👉 By the way, it's the same principle when you only buy stocks in one economic sector.

For example, if you invest only in shares in the restaurant sector (example) and there is covid-19 which imposes a general lockdown. Your losses will be enormous.

On the other hand, if you have, for example, thirty or so stocks in very different sectors. In this case, your chances of losing your money are much lower.

⚠ This is called diversification.. The goal is to reduce the risks of losing everything on the stock market.

3rd secret – Objective: Growth Or dividends?

Shareholders do not all invest with the same objective. In reality, Investors buy shares according to 2 principles :

• 1 – Growth – The goal is to buy a stock today and hope that the stock's value increases the price later.

• 2 – High dividends – Buyers of high-dividend stocks seek to obtain income through dividends paid by companies.

Therefore, you need to position yourself according to your stock market objective: Should you receive high dividends every six months or favor stocks with high growth potential?

4th secret – Stocks or ETF's?

Whether your goal is growth or high dividends, Owning many shares takes time. You have to buy and sell at the right time, and that's rarely easy to determine. This is called active trading.

However, it is possible to invest passively via an ETF.

In reality, instead of buying and selling each stock one by one (this method requires a lot of time and commissions), it is possible to hold an ETF that groups together a set of stocks from a stock market strategy.

To give an example, if you want to keep only the 500 best US stocks, instead of buying and selling each of the 500 best US stocks, you can buy an S&P 500 ETF, which contains and updates the 500 best US stocks.

In summary, you have two options:

• Active investing = selecting your own stocks
• Passive investing = following the market based on the ETF you buy

Note that ETFs often have lower fees and require only 5 minutes of management time per month.

5th secret – Account for all costs!

We must not only consider the money invested, but also the costs to be taken into account. In fact, there is 4 main costs that can make you lose money in the stock market.

Your brokerage account fees

When you buy or sell an ETF or a stock, your brokerage account charges a commission. For this reason, choosing a reputable and cost-effective brokerage account is crucial. Every penny saved on commissions is a penny working for you in the stock market.

On the day I wrote these lines, I suggest Saxo or Interactive Brokers as a broker (trading account). All three have reasonable commissions. If you prefer to open a brokerage account in Switzerland, my advice is Neon Invest or Yuh.

The TER

The TER is a fee that the ETF covers (management fee). Indeed, each asset manager charges an annual fee for managing its ETF. AND F.

I advise you to choose an ETF with a TER which requests a maximum of 0.25% in commissions. (Ideally – 0.15%).

The less TER commission the investment company takes, the better your stock market profitability will be.

Taxes

Stock market taxes vary depending on the country.

Often, taxes on shares are lower than on dividends.

Sometimes it is better to choose an ETF from another jurisdiction to save on taxes.

Therefore, I strongly advise you to research the tax implications of your investment strategy. Sometimes, the best investment strategy is the one that minimizes taxes.

inflation

Inflation is a general increase in the cost of living.

👉 Inflation increases on average between 11TP3Q and 31TP3Q per year depending on the country.

This means that, for example, if inflation is 2% and you earned 10% in the stock market in one year, in reality, you only earned 8%. 😮

6th secret – Don’t think you’re smarter than others!

Note that after a few months of investing, you'll likely think you've figured out the stock market. You might even compare yourself to Warren Buffett.

Perhaps you will tell yourself that such and such a stock will fall by 10% in 2 months, that such and such a stock will rise by 20% in 1 month, etc.

So don't forget one important aspect!

It should be noted that Ray Dialo and John Bogle, trading experts, have over 30 years of experience in the stock market and have acknowledged in their books that’They cannot predict with certainty the movement of a stock.

I prefer to invest in diversified ETFs and a low TER (Total Equity Reduction). Without speculating on what's happening in the world.

As John Bogle wrote in his book ”invest wisely”.

”Don’t look for a needle in a haystack, buy the haystack and you’ll find the needle.”.

John Bogle

7th secret – Invest Regularly!

Investing a small amount each month (for example, 100 CHF or 500 CHF) rather than all at once per year is a good strategy, especially for beginners or to reduce stress.

For what ?

• Smooth out the price and avoid speculation

Instead of waiting for the "right time" to buy your stock once a year, you buy every month and smooth out the price over the year. This method is less stressful and avoids stock market speculation.

• Reduce the risks

If the market falls after your annual investment, you lose more. If you buy every month, you reduce this risk.

In truth, investing each month is more simple, less stressful and less speculative than investing once a year.

Which stock market strategy to choose?

After reading this article, you're probably wondering which stock market strategy to choose?

I will explain each stock market strategy in more detail on my website. Each strategy has its advantages and disadvantages. However, here are my top 7 ETFs according to each stock market strategy.

Growth

• Nasdaq-100 ETF (100 best US stocks)
• S&P 500 ETF (500 best US stocks)

High dividends

• ETF VHYL (World's Best High Dividend Stocks)
• VYM ETF (best US high-dividend stocks)

Global Growth

• ETF VT (World's Best Stocks)

Global Bonds

• ETF BNDW (government bonds in several countries worldwide)

Europe (for a European resident)

• IMEU ETF (400 best stocks across almost all of Europe)

To reduce the risk of financial loss and balance stock market profitability, diversification is recommended.

Conclusion

In short, you have the basics to understand the stock market! That's enough to get started. 👏

Indeed, I think you know the basics of becoming a stock market investor and having good management of your stock portfolio😀.

Here are the steps in summary:

• Don't worry if the stock value goes down
• Diversify to reduce the risk of losing everything
• Choosing a stock market strategy focused on growth or dividends
• Favor ETFs
• Account for and limit each expense
• Invest every month and sell as little as possible

Actually, I have to admit I'm jealous if you're young. I would have loved to have read this essential information when I was 20. The money and time I would have saved…

⚠ Remember that you are solely responsible for your stock market investments! Investing involves the risk of losing money. My advice is for entertainment purposes only.

FAQ – How to invest in the stock market? The complete 7-step guide for beginners

How to invest in the stock market when you are a beginner?

The simplest way is to open an account with a broker, choose a diversified ETF, and invest regularly over the long term. It's better to start with a simple strategy rather than trying to pick the best stocks.

What is the best investment to start investing in the stock market?

For most beginners, diversified ETFs are often an attractive option. They allow you to invest in dozens, or even hundreds, of companies with a single purchase, while reducing the risk associated with investing in any one company.

How much do you need to invest to start investing in the stock market?

There is no universal minimum investment amount. Many brokers now allow you to start with just a few dozen or a few hundred francs or euros. The most important thing is to invest an amount you can leave invested for several years.

Is it risky to invest in the stock market?

Yes. The value of investments can go up as well as down. That's why it's advisable to diversify your portfolio and invest with a long-term horizon.

What is the difference between a stock and an ETF?

In reality, a share represents a stake in a single company. An ETF groups several shares (or other assets) into a single financial product, making it easier to diversify your investment.

Should you invest in stocks or ETFs?

For a beginner, ETFs are often simpler to manage, more diversified and require less time than a portfolio composed solely of individual stocks.

Is it better to invest monthly or all at once?

Investing regularly allows you to smooth out your purchase price over time and reduce the risk of investing just before a market downturn. This method is often called Dollar Cost Averaging (DCA).

What are the main fees involved in stock market trading?

The most common fees are:

• brokerage fees; ;
• ETF management fees (TER); ;
• taxes according to the country of residence; ;
• inflation, which reduces the purchasing power of earnings.

How long should you invest in the stock market?

Investing in the stock market is generally a long-term investment. Many investors recommend a time horizon of at least 10 years to better navigate the different phases of the financial markets.

Is it possible to lose all your money in the stock market?

Yes, if you invest in a single company that goes bankrupt. However, a well-diversified portfolio significantly reduces this risk, even if it never eliminates it completely.

Are dividends better than growth?

There's no one-size-fits-all answer. Dividends provide a regular income stream, while growth stocks primarily aim to increase capital appreciation. The choice depends on your financial goals.

How to limit risks in the stock market?

Best practices consist of:

• invest for the long term; ;
• diversify your portfolio; ;
• favor low-cost ETFs; ;
• invest regularly; ;
• Avoid emotional decisions during market downturns.

Can you become rich through the stock market?

The stock market won't make you rich quick. However, investing regularly over several decades can allow you to gradually grow your wealth thanks to compound interest.

Which ETF should I choose to start with?

There is no ideal ETF for everyone. Many investors start with a global ETF or an ETF replicating a major index like the S&P 500, before adapting their strategy according to their objectives and risk tolerance.

How to invest in the stock market? The complete 7-step guide for beginners

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How to invest in the stock market? The complete 7-step guide for beginners