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Some of the first steps in investing include: Setting financial goals, determining the investor type, and choosing the best broker and investments that will help you achieve your goals.
Before you make your first investment, you need to set a goal. For example, you can save for college or retirement. Your estimated investment timeframe until the goal is reached is also important. The goal and timeline can then help you choose an account and appropriate investments. For example, a goal may be to reach 175,000 euros for retirement by investing 300 euros per month and investing for 30 years at an average return of 3 percent. On average, even higher returns are possible in the stock market. For example, someone who saved a fixed amount each month in shares of the leading German index, the DAX, was able to generate an average return of just under nine percent a year on the money invested over a savings period of 20 years.
What type of investor are you? Before you know which investment is right for you, you should figure out what type of investor you are. To do this, you can determine your risk tolerance, and decide whether you want to take an active or passive investment approach.
Are you an active or passive investor? Deciding between active and passive investing is a matter of style and preference. In active investing, you actively choose which stocks or other assets to invest in. In addition, you actively manage your portfolio. In passive investing, on the other hand, you rely on the "buy-and-hold" strategy, which you can implement, for example, with passively managed investments such as exchange-traded index funds (ETFs).
Exchange-traded funds (ETFs) can be a good investment option for both first-time and experienced investors. Because index funds can hold dozens or hundreds of securities, such as stocks or bonds, in a single security package. They offer an easy investment and diversification option. ETFs are funds that trade like stocks - but invest passively like index-based mutual funds. ETFs offer the same broad diversification features as index funds, but many ETFs specialize more in stock market sectors or different asset types, such as commodity ETFs.
What is your risk tolerance? Risk tolerance is a measure of how much risk you can take when investing. For example, if you have a high-risk tolerance, you are generally willing to accept a high level of risk. In return, you have the opportunity to earn high returns on your investments. If, on the other hand, you are risk averse, lower-risk investments are likely to be more suitable for you - in return, you will accept lower returns. For example, stocks and bonds can be used to build a portfolio. Rule of thumb: The larger the share of stocks, the more offensive (risky) the investment. This is because stock prices generally fluctuate more than bond prices.
How much money can or should you invest? After determining your risk tolerance, you should assess your risk capacity. Important: How much money do you want to invest? Risk capacity is the amount you can invest without breaking your budget. Generally, 10 percent of income is a reasonable initial target for long-term investing. Risk capacity can also refer to the amount of risk you can objectively bear as an investor, regardless of your risk tolerance. A young investor with a stable salary and low expenses may be able to take on more risk, even if his or her risk tolerance is low.
How much assistance do you need to invest your money? Are you knowledgeable about the stock market and trading and therefore a "self-decider "? Then you know what to do. If you are more of a newcomer, you can educate yourself to take advantage of the financial markets and their investment opportunities. There is comprehensive and often free information material available for this purpose. (Or: Trive provides you with extensive free information material for this purpose).
Choose a suitable broker for yourself. A broker is a company that offers investment accounts, investment securities and, if needed, trading support, i.e. buying and selling securities, for their accounts. For example, investors can choose between a discount broker or a full-service broker. Trive is a discount broker and sees itself as an expansive, dynamic, and innovative next-generation multi-asset investment platform. The provider brings complex and sophisticated global investment products to an easy-to-use platform, offering clients a fully customizable and rich trading experience.
A discount broker is ideal for investors who want to manage their investment portfolio at a low cost. Typical discount brokers offer online access, and account holders place their trades, many of which are free of charge.
Once you've determined your risk tolerance and opened your accounts, you can choose your investment options. For example, it's a good idea to spread your risk by investing in different asset classes, particularly stocks, bonds, and cash. Stocks open up high return opportunities, bonds stabilize the portfolio, and cash allows you to buy value such as stocks, bonds, or funds at a low cost with some of your capital.
Stocks are also known as share certificates and represent ownership in a publicly traded company. They allow the investor or shareholder to participate in the profits and receive dividends paid by the company. Stocks are generally suitable for investors who have a medium to high-risk tolerance for short-term price fluctuations.
Bonds can be issued primarily by companies and governments. They are also often considered "fixed income" because issuers pay investors interest on them. Legally, bonds are debt securities. The principle is that investors lend money to companies and governments. In return, issuers pay interest to investors. In this way, the investor or bondholder becomes a lender. Bonds are suitable for investors with a low-risk tolerance who prefer more stable returns compared to equities. The more creditworthy the issuer, the lower the investor's investment risk. After all, in addition to interest, investors want to get their investment capital back in the end. In return, investors can achieve higher returns - at higher risk - with bonds from issuers with lower credit ratings.
Once you determine your investor type, you can invest in the different asset classes based on your risk tolerance or appetite. Categories such as "defensive," "balanced" or "offensive" will help you determine an appropriate mix of assets, which in the financial market often consist of stocks, bonds, cash, or even commodities.