cross-posted from: https://lemmy.blahaj.zone/post/46894980
Hi, I am a young Italian (I guess the “poste Italiane” gives it away uh) and I plan to make my fist small experiments to understand how buying stoks and ETFs works.
I tried to look around what all those acronyms and big words mean but usually the definition and explanations I found use other acronyms and big words and end up being mentally exhausting to follow.
As far as I understand An ETF is a group of companies that share a market and by shoving money in there (investing in the found is the right phrase I guess)
you either buy stocks
(which are just money you give the company to spend and after the profit is made it should give it back with a certain interest I think, right? How much interest and how often is a great mystery I have yet to solve)
or fractions of stocks
(what is the point of a stock being a certain price then??? If i can just buy a small piece of it???)
from one of the companies in the found
(randomly I guess, or according to a broker whims maybe idk)
and when the dividends are paid you can either get some money back or reinvested in the found.
Those ETFs are apparently more secure because they spread your money around multiple companies within multiple fields and I feel like I should invest more in those then in singular companies, is that right?
Also I’m planning to start with 50€ each month but if I feel comfortable enough I plan to rise the investment to maybe 300€ monthly, but I often see people saying that for those amounts of money (which are a fuckton to me) you should just dump in a single ETF and forget about it for like 10 years, but it feels so wrong to put so much money into something with risks attached to it and then ignoring it, is there something else I’m not getting? (As opposed to all the other things I’m understanding perfectly, right?)
Fwiw, I think the market will be in trouble when the AI industry contracts (and I believe that it will based on the lunatic numbers involved, but see Ed Zitron’s reporting for info about that). There are safer places to invest and we had our financial planner move to those markets due to my skepticism.
Ask an LLM which markets suffered the least when the sub-prime housing crisis and resulting recession of 2008/2009 happened. Don’t trust an LLM for financial advice, obviously. But they’re less likely to hallucinate about something that’s a massive part of the training data and many of the articles written during that time period are in it. I think you can safely get a broad sense of which investments might be a safe bet if you believe the AI industry will have a negative impact in the future.
Good for you for choosing to start early / young. It’ll make a big difference long term.
I am not an expert, so this is just my understanding and view from limited personal interest and activities.
It’s typically said to invest what you can let sit for 10 years because that reduces risk through the assumption that downfalls will recover and gain long term. Stock market, including ETFs, do have a risk attached. A broad financial crisis can crash the stock market in broad ways. And we may be right before a crash. It remains to be seen how other markets, the US market in particular, will influence the EU stock market and economy. The EZB has already warned publicly about the situation (AI company overvaluation IIRC).
You will have to decide how much trust you want to put into the long term / 10 year market always rises / neutralizes inflation. When you look at the past, it’s generally true, at least.
You can also question the stability of all monetary systems we depend on, which is even more frightening, tbh.
ETFs track multiple stocks, and consequently spread risk. The broader the spread, the less risk, supposedly, and the less chance of outlier gains.
You can play around with stock, maybe companies you want to support, but if your goal is investment and gain, and you want to go stock market, your best bet is broad ETFs. If you go for fractions of shares, that’s fine in general. Just beware that neobanking can mean the bank you interact with is not the one holding the money. It’s other banks. The US recently had a case where people did not get their money back after their bank defaulted, not sure about the specifics, and I certainly hope it’d be better in EU either way.
Of course, broad ETFs include companies you may not like, given what you wrote.
Buying government debt is an alternative. You should use stable enough countries, though.
The current interest given by the EZB is also quite good and can neutralize inflation, if you want to go that route instead. Unfortunately, most banks don’t pass them on for held money. Trade Republic does.
Fixed time and interest is not worth it currently, given the high general interest rate if make use of it.
Try to define what your goals are. Is it short term gains? You’ll need to be much more involved (and I have zero tips for that). For medium to long term savings, dumping in a well spread ETF is a really solid idea. It has risks, sure. But there are no riskless instruments. Even a normal savings account is only secured up to a specific sum (100k€ most often) and your bank could go bust.
I recently pivoted from MSCI world to a all world imi etf, so instead of ~70% us stocks I “only” have 60% in my etf. If you leave your money in for more than 15 years, you will sit out crashes like 2008, corona, and so on and make a profit. Don’t buy any with more than 0.2% fees. Yes, of half the worlds economy crashes for good my etf money will be gone. But, what value would even cash have in such a scenario? I’d rekon the world will be gone full mad max if it ever came to that.
You’re in better shape than you realize if you’re starting with nothing. A lot of people start with a ton of debt that they need to handle first. If you do happen to have debt, understand that what you owe on the debt will grow faster than any investment you as a regular individual could possibly make.
Keep it simple.
1. Pick a reputable broker that offers the type of account you’re looking for, whether it’s a general brokerage account or tax-privileged retirement account.
Prefer those with (A) either local presence or a solid online interface, (B) offer free transactions and no account fees (including hidden ones like fees upon withdrawal or accounts with the word “annuity” in the terms), and © offer a healthy selection of low-cost ETFs.
For most account types, this step should be straightforward and cost nothing to set up, so you can evaluate their tools and products before investing, and often even before officially opening a brokerage account.
2. Definitely choose ETFs over individual stocks. This is perhaps the most common early investor mistake.
Buying individual stocks is not a passive investing strategy. It is much closer to gambling. You’ve likely heard that “diversification” is important for long term investing, and that’s true. Well, buying individual stocks is the opposite of that.
As to which ETFs, prefer those with (A) low fees (low being < 0.05 percent) and (B) those which bundle as many fractional stocks as possible, meaning either total stock market indexes or other large indexes, often grouped by either Morningstar stock types or sectors.
The better the market coverage of the ETFs you choose, the better your diversification. This helps a ton with the next part.
3. Always opt-in to reinvest dividends from the value-producing stocks in the account’s portfolio.
This is usually a toggle or checkbox in the account settings, and is often opt-in, meaning it defaults to placing dividends in a settlement fund of some kind, like a money market account with a nominal (typically low) interest rate.
The reason this step is so often stressed in personal financial advice literature is that it’s (A) a common and easy mistake to make which (B) can rob you of years’ worth of compounded interest, depending on how long it takes you to catch it.
That’s the core. Everything else is either nice-to-have, good to note, or more of a personal preference…
For example, if the broker offers it, the service of a sweep account for automatic paycheck contributions (often called “direct deposit” which is just ACH that a payroll provider handles for you) can make saving over time more convenient/passive.
Also of note, this strategy assumes your target withdrawal/retirement date is at least 10 years in the future. If it’s closer, you may want to consider adding some percentage of bonds ETFs, which are nearly always lower ROI long term but tend to rise and fall in opposition to stocks, which means they have a stabilizing effect during market downturns.
Finally, this is a general tip, but important. Once you have your passive investment system setup, it’s best not to touch it, or watch it constantly, and just to let market efficiency do its thing over time. Never panic buy. Never panic sell. Never try to time the market. That is gambling, and you will lose those bets more often than you win.
Spend time reading resources and learning, like others suggest. But based on my observations, the current market, at least here in the US, is extraordinarily volatile. It may be worth waiting to invest larger amounts of money into potentially volatile investments like most tech stock for the time being (there are less volatile, lower yield investments out there that you can look into).
Since you’re just starting, start small. Trade only amounts you’re willing to lose. Once you get more confident, then invest what you want.
I believe it would be a mistake to just give you a few recommendations, from my personal opinion, here in this post.
Conversely, I believe it would be my responsibility to point you in the correct direction. Fortunately, I have a friend who has a masters degree in finance and he is, also, a Certified Public Accountant.
Many years ago I read I Will Teach You to Be Rich: No Guilt. No Excuses. Just a 6-Week Program That Works. I asked my aforementioned friend about it and he confirmed that it was very solid information and advice.
Thus, I would highly recommend that you read that book and implement everything in it. My wife and I have as well as my brother and we have hundreds of thousands of dollars that will soon turn into millions. I can’t recommend this book enough.
Very gimmicky title for a book. Is it for real?
The author is a little gimmicky but his advice is legit. For example, he claims his “Conscious Spending Plan” isn’t a budget - it’s a budget. He knows his stuff, though, even though he does all the usual influencer things of trying to sell courses, etc.
Also I want to say that I don’t really want to buy from “the big ones” like Amazon or Microsoft for a deep personal hatred towards certain megacorps
I recommend putting $100 (or euros) into your Robinhood account. When it’s gone, it’s gone. If you feel more comfortable investing with some experience, then you can add more.
The best financial advice I can give is that we live in a world of scammers and morons and the only winning move is not to play. If you can avoid spending money on anything that is not expected to have value afterwards, then do it.