Many people would like to start investing but may be hesitant due to some beliefs they hold about it. Some things you may have heard or wondered yourself might be:
Many people believe that investing is only for business tycoons or tech bros, but that simply isn’t true. Anyone can increase their savings through stocks with the right knowledge and tools.
In investing, what is comfortable is rarely profitable. - Robert Arnott
Investing your income can help your wealth to grow passively over time. Owning assets, rather than saving, can help you to make profits and outpace inflation.
You also don’t need to be wealthy to start investing. There are even stocks that cost as little as one euro.
Stock is a general term used to describe ownership of a company. To be a stockholder, or a partial owner, you must buy a share. A share is the smallest unit of measurement used to describe a portion of the company that you own. Imagine that a company is like a pizza, and you own one slice of it. That pizza slice is your share, or equity, of the company.
Beginner investors usually start out buying common stock, which allows for voting rights in a company. A disadvantage of common stock is that if the company goes bankrupt, you might be the last to be paid out of your share of the company. In some cases, investors don’t get their money back at all.
On the other hand, preferred stocks can grant higher dividends than common stocks and give an investor a higher chance of being paid out in the case of liquidation. Unfortunately, these stocks normally don’t allow for voting rights.
There are also other types of stocks to be aware of:
Risk is how an investor makes money. Stockholders take on a certain level of risk for their investment, and sometimes they don’t pay off. For instance, companies may go bankrupt, or the market might crash. If that happens, then you could potentially lose your investment.
Alternatively, if the company’s capital increases, then you stand to make a sizeable profit.
Imagine a 30-year-old person named Sam. Sam has a financial goal of growing his savings and wishes to put away 30 euros per month. If Sam wants to make reach this goal, he has two options.
The first is to open a savings account and deposit 30 euros of his income into the account every month. This means that, after 10 years, Sam will have accumulated 3.600 euros in his savings account. After 30 years, the amount will be 10.800 euros. However, the con is that, while savings accounts do accrue interest, the rate can be fairly low, depending on the bank.
The second option is to invest the money in a share of an Exchange-Traded Fund (ETF). This is a great option as ETFs offer low fees, easy management, and the ability to diversify your investments.
For example, investing in the iShares MSCI World ETF can yield - without the costs of the ETF itself - a valuable return of around 3,1 percent. This means that after 10 years, Sam will have accumulated 4.204,64 euros. After 30 years, the amount will have reached 17.653,29 euros. The reason that the value is higher is due to compound interest (the interest that you earn on interest).
Buying your first stock is exciting, but as mentioned it carries risk. That’s why consulting with a broker can come in handy for new investors. A broker is a person or institution that purchases and invests stocks on behalf of their investors. These brokers have knowledge regarding the stock market but can be costly and can vary in quality.
Fortunately, there are new types of online brokers - also known as neobrokers - who are revolutionising the stock market.
Investing with an online broker has several advantages:
Investing can be a thrilling and valuable next step in your financial journey. However, it's always important to stay informed and updated about the market and make sure you have disposable income to risk on stocks.
If you are looking to increase your savings safely, Scalable Capital is a leading European digital investment platform that helps budding investors to buy and manage their assets. Check out their FAQ section to learn more about investing with Scalable Capital.