Stock Exchange – Investing from scratch

Posted on 22 de November de 201916 de March de 2023 by Carlos Martins

Investing is a way to save money while you are busy with life and make money work for you so that you can fully reap the rewards of your work in the future. Investing is a means to a happier ending.

Legendary investor Warren Buffett defines investing as “…the process of making money available now to receive more money in the future.” The purpose of investing is to put your money to work in one or more types of investment vehicles in hopes of increasing your income.

Let’s say you have $1,000 set aside and you’re ready to jump into the world of investing. Or maybe you only have an extra $10 a week and would like to invest. In this article, we’ll guide you as an investor and show you how to maximize your returns while minimizing your costs.

Main discoveries

Investing is defined as the act of saving money or capital for an enterprise with the expectation of obtaining additional income or profit.
Unlike consumption, investment allocates money for the future, expecting it to grow over time.
Investing, however, also comes with the risk of losses.
Investing in the stock market is the most common way for beginners to gain investment experience.

What type of Investor are you?

Before investing your money, you need to answer the question: what kind of investor am I? When opening a brokerage account, an online broker such as Rico or ModalMais will ask about your investment goals and how much risk you are willing to take.

Some investors want to take an active part in managing their money’s growth, and some prefer to “invest and forget”. But, “traditional” online brokers, like the two mentioned above, allow you to invest in stocks, bonds, exchange-traded funds (ETFs), index funds and mutual funds.

Invest with Online Brokers

Brokers are full service or discount. Full-service brokers, as the name implies, offer the full range of traditional brokerage services, including financial advice for retirement, healthcare, and everything related to money. They usually only deal with higher net worth clients and can charge substantial fees, including a percentage of their transactions, a percentage of their assets they manage, and sometimes an annual membership fee.

It is common to see minimum account sizes of R$25,000 at full-service brokerages. Still, traditional brokers justify their high fees by giving detailed advice to your needs.

Invest through your salary

If you’re on a tight budget, try investing just one percent of your paycheck. The truth is, you probably won’t even notice such a small contribution.

Once you are comfortable with a one percent contribution, perhaps you can increase it as you receive annual increases. You probably won’t miss the additional contributions.

Diversify and reduce risk

Diversification is considered the only free lunch in investing. In short, by investing in a variety of assets, you reduce the risk that one investment’s performance will seriously detract from the return on your total investment. You could think of it as financial jargon: “don’t put all your eggs in one basket”.

In terms of diversification, the biggest difficulty in doing this will come from equity investments. As mentioned earlier, the costs of investing in a large number of stocks can be detrimental to the portfolio. With a $1,000 deposit, it’s nearly impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies (at most) to get started. This will increase your risk.

This is where the main benefit of mutual funds or exchange-traded funds (ETFs) comes into focus. Both types of bonds tend to have a large number of stocks and other investments within the fund, which makes them more diversified than a single stock.

Set long term goals

Why are you considering investing in the stock market? Will you need your money back in six months, one year, five years or longer? Are you saving for retirement, future college expenses, buying a home, or building an estate to leave to your beneficiaries?

Before investing, you should know your purpose and the likely time in the future when you may need the funds. If you’re likely to need your investment returned within a few years, consider another investment; the stock market with its volatility does not guarantee that all your capital will be available when you need it.

By knowing how much capital you’ll need and the future point in time you’ll need it, you can calculate how much you should invest and what kind of return will be needed to produce the desired result. To estimate how much capital you are likely to need for retirement or future college expenses, use one of the free financial calculators available on the Internet.

Remember that the growth of your portfolio depends on three interdependent factors: