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How To Invest In The Stock Market When You Are A Beginner

By Aman Jain. Originally published at ValueWalk.

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When it comes to investing in the stock market, at first glance, the easiest solution is to buy stocks. But which stocks to buy? And when should they be resold? There is another solution to accessing all of the world stock markets (United States, Europe, emerging countries, etc.) with reduced fees: ETFs.


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What Is The Minimum Amount You Can Invest In The Stock Market?

One of the most common questions new investors ask is the minimum amount to invest.

We estimate that the minimum amount to invest in the stock market under good conditions is around $5,000. If you are investing less than $10,000, it will be better to start investing in funds or ETFs rather than direct stocks. These are not only safer investments (because they are so diverse), but it is much cheaper to invest this way. With a fund or an ETF, $1,000 is enough to invest in 100 companies with very low brokerage fees. Taking into account the impact of brokerage fees is essential to maximize the profitability of your investments in the stock market.

Why Start Investing In The Stock Market?

The primary reason for keeping your money in something other than a checking account is to safeguard it from depreciation due to inflation. In a checking account, your money will still be there in 30 years, as long as you don’t touch it. But your purchasing power will be considerably degraded. If inflation were your only concern, you might want to keep your money in an interest-bearing savings account.

Preserving purchasing power is only one of the arguments used to invest money; other crucial reasons may be preparing for retirement or building sufficient capital for a shorter-term purchase, such as buying a house.

For these types of goals, if you are not achieving your goals by saving on your own, you may want assets that offer higher returns; therefore, you will need to take on a higher level of risk.

These riskier assets can be stocks (allowing you to buy a share of a company’s future profits), bonds (enabling you to lend money to a country or a company to earn interest), or even investment funds (portfolio of stocks and diversified bonds) and ETFs (funds that replicate a stock market index). But, over the long term, equities remain the best-performing investment.

When Should You Start Investing In The Stock Market?

The best time to invest in the stock market is as early as possible to take advantage of the performance of the equity markets and enhance your capital over time. One thing is sure: to make your money grow, you have to start investing. Perhaps the mere mention of the subject is already making you anxious.

Rest assured, you are not alone: according to a report by RoboMarkets, young people between the ages of 18 and 35 are much more cautious than their elders when investing their savings. And this caution is not the consequence of less financial capacity: as soon as they have a job, more than one in three young people put money aside.

The Return-Risk Couple

Investing in the stock market means accepting a particular risk, offering an exciting return potential over time. We have all heard of investors who lost half of their fortune during a stock market kill or scandals like the Madoff affair.

While you can never eliminate risk, you can significantly reduce risk if you invest wisely.

We discussed the power of compound interest above and the fundamental rule: the earlier you start investing, the more your money will earn over time.

Think Long Term

Another simple rule of thumb: the longer your investment horizon, the more your money can be invested in riskier assets such as stocks instead of safer ones such as bonds. This is because the more years you have to reach your goal, the more likely you will be able to recover from a stock market crash. So by investing over a long-term investment horizon (5 to 10 years), it is possible to reduce the risk in the equity markets.

What Fiscal Envelope To Invest In The Stock Market?

To start investing in the stock market, you must open an account in a traditional bank, an online bank, or an online broker. Online banking has the great advantage of being much cheaper than conventional banking. You will thus save entry fees, custody, account maintenance, or subscription fees free with most online banks. Then the question arises about the type of account to invest.

The taxation applied to your future capital gains will depend on the tax envelope retained to accommodate your investments.

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