How to invest in stocks insurancevlog

Investing means investing money in something that will later bring you a profit. Investing in stocks means investing in a particular company and owning a stake in it. For example, you bought an Apple share, and now part of the business in the volume that one share gives is yours. In this article, we will analyze the main points that relate to investing in shares of Russian and foreign issuers, that is, companies that have issued securities.

Why shares

What rights do shareholders have?

  • participate in the meeting of shareholders;
  • receive part of the company’s profits in the form of dividends;
  • claim the property of the issuer in the event of its liquidation.

For most investors, stocks are a way to increase capital. The owner of shares can have two sources of profit, which can work either separately or jointly. These include:

  • Dividends. When a company makes a profit, it can pay part of it to shareholders. As a rule, the average dividend yield in the US market is about 2.5%, in the Russian market – more than 5%. Thus, dividend stocks are a tool that can provide a stable passive income.

The average dividend yield is the ratio of dividends for the year to the share price.

  • Growth in market value. This option will make a profit if you sold paper for more than you bought. It is impossible to predict specific numbers here, because many different factors affect the value of shares.

Subjective and objective factors in the value of shares on the stock exchange.

Over the past ten years, the average deposit rate has not exceeded 9%, while the return on the Russian stock market was about 15%, excluding dividends. At the same time, investing in stocks of companies may seem risky and difficult to many. With deposits, everything is simpler: put money in the bank, they are insured and bring a small percentage. However, investing in the stock market does not have to be accompanied by high risk. If you choose reliable companies, refrain from speculation and diversify your portfolio by investing in various securities, then the risks will not be much higher than when opening bank deposits, but the profitability will increase. Consider how to invest in stocks from scratch.

Step 1. Decide why you are investing

The situation on the stock market is constantly changing, and no one can guarantee which stock will take off and which one will be an outsider. However, unsystematic investments, without a goal, plan and strategy, will definitely increase the risk of losing the money invested. To start investing correctly, follow the instructions.

  1. Define your goals. Think and decide what you want to receive and when. It can be the education of children in ten years, a comfortable old age in 20, or buying a house by the sea in five. Then calculate how much money you will need to reach your chosen goal. Be sure to take into account inflation, otherwise, when you accumulate the required amount, it may not be enough to achieve the goal, because prices have risen. For calculation, you can use the calculator of the cost of the financial goal.
  1. Assess your current financial situation. You can have savings and confidence in the future, or you can live paycheck to paycheck, loans and debts. A sober assessment of the situation increases the likelihood of achieving the goal.

4 categories of people in terms of financial literacy .

  1. Pay off your debts and form a financial airbag. Overpayments on loans are often significant, so it is worth paying off debts first. It is also important to form a financial airbag – a cash reserve in the amount of three to six monthly income in case of unforeseen situations, after which you can start investing. This will help you to be more calm about changes in stock prices and make decisions without fear of losing the latter. Do not use a financial airbag or borrowed funds for investments, no matter how reliable the investment may seem.

The prices of shares and other assets on the stock exchange are called quotes.

  1. Decide on start-up capital. Think about where you will start: immediately invest the entire amount or will invest gradually.
  2. Think about how much time you are willing to devote to the selection of objects for investment. You can spend a few hours a year, or you can spend a few hours a day – it all depends on your capabilities. Having decided, you will be able to choose a strategy and investment instruments, as well as to assume the expected return.
  3. Choose a broker and open an account. To do this, you do not need to visit the office of a brokerage company – just fill out an application online . If you need help with applying, use our instructions . By opening an account, you will get access to various trading platforms and will be able to buy Russian and foreign securities.

Step 2. Choose a money management method

What options can be:

  • Trust management DU ). You enter into an agreement with a management company whose specialists monitor the market, select securities and make transactions for you. You will have to pay a commission for their work, but you will not need to delve into the peculiarities of the stock market.
  • Self investment. You choose a strategy and securities, determine the degree of risk and make transactions. Minus – time costs. Plus – control over the situation and savings on commissions.

If you decide to invest on your own, then you can:

  • select individual shares;
  • buy ETF or BPIF.

ETF (exchange-traded fund) are special funds. They acquire many different assets (securities and other financial instruments) and divide them into parts – shares or shares, and then sell them on the stock exchange. If you buy an ETF share, then you become the owner of all the assets that are part of the fund at once, in proportion to the share of this share. Exchange-traded investment fund ( BPIF ) is the Russian analogue of ETF.

Step 3. Choose the right promotions

Let’s take a look at what you need to consider when choosing securities in order to get a balanced portfolio.

1. Decide on an investment strategy

There are three most famous options.

  • dividend strategy. Its essence is to buy securities for which the company regularly pays part of the profits to its shareholders. Investing in dividend stocks is suitable for those who want to secure passive income. As a rule, the main risk of such a strategy is that the company may stop paying dividends or reduce their size. When looking for suitable securities, it is important to assess the company’s debt level and understand whether the issuer has enough profit to pay shareholders.
  • Cost strategy. This strategy involves looking for securities of promising companies that are undervalued by the market – that is, they are cheaper than they could be. This means that in the future the value of such shares may rise and make a profit due to exchange rate differences. Such an approach will require a fundamental analysis of the performance of companies, because it is necessary to determine the reason for the low quotes of securities. It may turn out that the low price is due to a high level of debt or an irrelevant product for consumers for which there is no demand.
  • Investing in growth stocks. You invest in promising companies that can bring significant profits in the future. As a rule, growth companies do not pay dividends and direct all profits to development. To find suitable securities, you need to be well versed in trends in order to identify potentially profitable directions.

When choosing any strategy, you should focus on long-term goals. As a rule, the shorter the period for which shares are purchased, the higher the risks.

2. Select companies to invest

There are no regulated rules for choosing investment objects, but there are some nuances that should be taken into account.

  • Take a look at the companies whose products you use. For example, Warren Buffett once tried Coca-Cola and liked the drink. The famous investor appreciated the company and has been holding its shares in his portfolio for several decades.
  • Evaluate the business as a whole, not just the paper. You are buying a stake in a company, so you need to understand how its business works and what prospects it has. The same Warren Buffett believes that you need to buy shares for a long time. He owns the words: “When we buy shares in great companies with excellent management, our favorite investment term is forever.”
  • Look at your competitors. The company may have good financial results and an attractive stock price. But if you compare it with other representatives of the industry, it may turn out that there are issuers with more impressive performance.
  • Look for promising options. It is important that the company has the opportunity to develop and remain sustainable for many years, and regardless of the investment strategy you choose. Study the market and the company’s development plans to understand what lies ahead for it.
  • Study company management. This rule is followed by many investors. For example, billionaire Carl Icahn said: “The company will rise or fall with the CEO.” If management thinks about the future of the company, and not only about their own benefit, then the chances of success of the enterprise are higher.

3. Find out what types of stocks exist

Preferred shares have priority in the payment of dividends, but, as a rule, their owners do not have the right to vote at the shareholders’ meeting.

Dividends on ordinary shares are paid at the discretion of the company, but such securities give the right to vote to their holders.

If the company has both types of shares, then in the event of financial difficulties, dividends on preferred shares will be paid without fail, while they may not be paid on ordinary securities. The amount of dividends on preferred securities is specified in the issuer’s charter as a fixed amount or a percentage of the par value of the share.

If the investment is focused on the purchase of dividend shares, then you can opt for preferred securities. If it is important to participate in the life of the company, it is worth buying ordinary shares.

4. Study paper options

To understand whether it is worth investing in the shares of a particular company, it is necessary to analyze the following characteristics of its securities.

  • Liquidity. This is a property of an asset that indicates how quickly it can be sold at the market price. The higher the liquidity of the instrument, the better, which means that the demand for it is high.
  • Volatility. The indicator reflects how much the price of a paper changes per unit of time. Most often, stocks of stable companies are characterized by low volatility.
  • Price range. First of all, in the trading application, you see the market price – this is the value of the stock at the moment. Also, the application often indicates the minimum, maximum and average price of a security during a trading session or a given period. They can be used to select a more appropriate purchase price for the stock.

Rice. 1. Range of stock prices on the example of MTS (MTSS)

5. Analyze the quote chart

You can choose stocks for investment using technical analysis, that is, by evaluating the stock quotes chart in the trading terminal or the broker’s mobile application. For novice investors, this may seem complicated, but there are a lot of educational materials. There are many types of charts , but the two most commonly used are:

  • linear;
  • candle.

A line chart is built along the axes of time and price in the form of a line that reflects the price of a security at the close of a period, for example, a trading session.

Rice. 2. An example of a line chart of the share price in the Otkritie Investments application

The candlestick chart consists of rectangles painted in different colors with “tails”, the so-called Japanese candlesticks . Each rectangle represents fluctuations in the value of a stock over a certain period of time, and its color indicates an increase or decrease in quotes.

Rice. 3. An example of a stock price candlestick chart in the Otkritie Investments application
Rice. 4. Japanese candle. The presence of color in the body of the candle indicates a decrease in quotes within the time interval

Both types of charts allow you to evaluate the trend of the paper. If the line goes up, it is an uptrend and quotes are rising. If it is down, it is descending and quotes are falling. The candlestick chart also helps to predict reversals or continuation of trends. You can read more about them here .

6. Compare stock performance with the market

Stock indices will help with this – indicators that reflect changes in the price of a certain group of assets. For example, there is the S&P 500 index, which includes the shares of the 500 largest companies by capitalization in the US market. When the stock market goes up or down, the index—that is, the stocks of the companies included in it—follows that trend. Stock indices can be divided by countries, industries, groups of companies, goods, and so on. They are a kind of indicators that help assess the situation on the stock market.

The deviation of the company’s shares from the index in one direction or another can speak of both its problems and prospects. If the dynamics of the selected security differs from the dynamics of the index, you need to find the reasons for such a deviation and decide whether it is worth investing in such a company.

Step 4. Make your first purchase

Making transactions on the exchange is simple: just install the broker’s mobile application and add the necessary securities to the portfolio in just a few clicks. The step-by-step algorithm will be as follows.

1. Fund your account

This can be done through the bank application. Money arrives within hours or days, depending on the bank. The second option is a transfer from a bank account using the details that can be found in the personal account of the brokerage application.

2. Find a stock to buy

In the search field, enter the name of the company or its ticker – the code name of the asset, consisting of several Latin letters. Some issuers have similar tickers, and it is easy to confuse them: for example, the retailer Magnit has the ticker MGNT, and the Magnitogorsk Metallurgical Plant has the ticker MAGN. Always check what exactly you are going to buy.

3. Specify the number of lots

Shares on the stock exchange are traded in lots – this is the minimum number of securities that can be bought. Usually, the lot size of Russian companies depends on the price of the paper: the lower the price, the more shares in the lot. For example, one lot of Gazprom includes ten shares, while Segezha Group has 100 shares. Foreign issuers do not have such dependence: one lot, as a rule, is equal to one security. So, you can buy one share of Intel for $50 or one share of Amazon for $3,500.

4. Set the purchase price

Usually, in a brokerage application, you are offered to make a deal at the market price, that is, at the one that is currently in effect. Such an order to buy, or an order, is called a market order. You can also set a different purchase price – the price that you think is appropriate for the paper. In this case, the order will be called a limit order, and the transaction will take place when the market price matches the one specified in the order. For more information about what orders exist on the exchange , read the article “Open Journal”.

5. Make a purchase

When all the parameters of the transaction are set, click “Buy” – and the shares will appear in your portfolio. There are various settlement modes in the stock market. For shares, as a rule, the T + 2 mode operates. This means that from a legal point of view, the share will become yours only two trading days after the transaction. This is important to keep in mind if you buy paper to receive dividends.

Step 5. Check how healthy your portfolio is

There is a universal rule in the stock market: the higher the return, the higher the risk. If you are offered an investment with a promise of a yield of tens and hundreds of percent per annum, you need to think – most likely, these are scammers. An additional reason to be wary is the guarantee of profit. There is always risk in investing in stocks, so no one can guarantee a return.

Risks of investing in stocks

There are three main types of risk when investing in stocks.

  • Credit. It implies that any company has a chance of going bankrupt. In this case, the shares will depreciate, and you will lose your investment. Credit risks are assessed by special rating agencies – for example, international Fitch, Moody’s and Standard & Poor’s or Russian ones – Expert RA and ACRA. The higher the issuer’s rating, the lower the probability of its bankruptcy.
  • Market. The law of supply and demand operates in the stock market: when shares are in demand, their quotes begin to rise. Accordingly, if demand goes down, the price of securities also goes down. The desire of investors to buy or sell shares is largely influenced by the news background. So, quotes will go down if investors start to massively sell shares against the backdrop of negative news – for example, about poor financial results or about breaking a partnership agreement.
  • liquidity. Hundreds and even thousands of transactions are made on the shares of reliable issuers every day. Such securities are easy to buy or sell. But there are also less demanded assets. If you hold low-liquid shares in your portfolio, there is a chance that there will be no buyer on the exchange when you decide to sell them at the market price.

How to reduce risks

The main way to minimize risks when investing in shares of companies is to invest in different types of assets, or diversification. When there are a lot of securities in the portfolio, and one of them starts to fall, the drawdown can be leveled by others. This approach was supported by many well-known investors.

We diversify because we cannot predict the future .

Paul Samuelson , economist and  Nobel laureate.

How can you allocate assets to get a healthy portfolio.

  • Invest in different markets and countries. The economies of states are divided into developed and developing. The former are more stable, but investments in them are characterized by low profitability. The latter can bring more profit, but will become a riskier type of investment. Examples of developed countries are the USA and Canada, developing countries are Russia, India, China.
  • Choose different sectors of the economy. Companies from different industries behave differently when the state of the economy changes. Diversification across industries helps to minimize risks: when one of them sags, the growth of another will be able to compensate for the decline.
  • Buy shares of different companies. It is risky to invest all or most of your money in the securities of one or two issuers. The portfolio will be more balanced if it contains shares of representatives of each sector of the economy, while the share of one company does not exceed 5-10%. A suitable alternative to buying individual issuers is ETFs, which can be considered a diversified asset.

Signs of a healthy portfolio

How to invest in stocks the right way? First of all, you need to carefully choose securities. We list several parameters that indicate the balance of the portfolio.

  1. Stocks are in line with the chosen goal and strategy. If the portfolio is focused on receiving stable dividends, growth stocks in it will be superfluous.
  2. There is diversification. The portfolio includes representatives of different sectors of the economy from several countries.
  3. The choice of shares is fundamentally justified. No spontaneous acquisitions: before buying shares, each company was analyzed for sound financial condition.
  4. Shares are liquid and have low volatility. This approach will help mitigate market and liquidity risks.

What is trading?

Trading is the active trading of financial instruments, when transactions are made with a high frequency – for example, several times a day or even an hour. This approach is also called speculative trading. When investing on your own, you choose a security after evaluating the quality of the company and keep it in your portfolio for a long time. Trading involves constant monitoring of the situation on the stock market, the search for entry points into an asset and the sale of securities when a goal is reached, which is justified by technical analysis. And all this – on a fairly short time intervals of a few minutes, hours or days.

The attractiveness of trading lies in the fact that it provides an opportunity to make high profits in a short time. The main disadvantage follows from this: in order to earn a lot, you have to take a lot of risks. And there is no guarantee that the risk will justify itself. You can’t do trading for a couple of hours a month – it’s a daily job.

How to learn trading.

How to pay taxes when investing in stocks

When receiving a profit from investments, the investor must pay taxes. In the case of shares, such an obligation arises:

  • when receiving dividends;
  • when selling securities at a price higher than the purchase price.

The rates and conditions for paying taxes differ depending on the country of the issuer. The table shows the main situations that a private investor may face.

Rice. 5. Tax rates when investingBetween Russia and the United States there is an agreement on the avoidance of double taxation, thanks to which dividends can be paid not 30%, but 13% – 10% in the US and 3% in Russia. To receive this savings opportunity, you must sign Form W-8BEN .

For all dividends received from foreign issuers, it is necessary to report to the tax authorities and pay the tax yourself. This can be done by filling out a declaration in the form 3-NDFL .

Please note that a number of companies that operate in Russia are registered in other countries. In this case, depositary receipts are traded on the Moscow Exchange, and investors need to report dividends to the Federal Tax Service on their own.

Investment Income Tax Calculator

Investing in the stock market is an opportunity to preserve and increase your capital, if you carefully approach the choice of securities. And it doesn’t matter how much money you have at the start: even for a few thousand rubles, you can collect a diversified portfolio of ETFs and BPIFs, or pick up shares of individual companies and gradually buy them up.

To start investing in stocks from scratch, it is enough to spend 15 minutes and open a brokerage account. “Opening Investments” provides access to the Moscow and St. Petersburg stock exchanges, where you can purchase securities from different countries and form a reliable portfolio. Fill out an application right now!

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