Let’s assume you are convinced of the importance of investing and want to start. What are the first steps?
Pick a broker
There are plenty of brokers online. I would recommend to not choose for a classic bank because they will sell you their own products on which they make the big bucks. They also have the habit to (over)charge you for every fucking service. Yes, I’m talking about you BNP Paribas (amongst others). For instance, they charge money to receive and deposit dividends from companies on your bank account. Scandalous!!! As if Belgian people don’t already pay enough taxes on their dividends (30%).
I would suggest going with online brokers such as BinckBank, Lynx, MeDirect, DeGiro… Depending on your own wishes and requirements, compare the costs and services. I have accounts at BinckBank and Lynx. I like BinckBank for their fast & clear communication and easy to understand platform. Lynx is more complicated but allows in turn way more possibilities to trade. I would suggest Lynx for a more active investor/trader who already has quite some experience. Lynx is also better for option trading. Watch out for the ‘lending of securities’ (in Dutch: uitlenen van effecten). Brokers such as DeGiro use it often and try to lure you with some extra yield. However, these actions are in most cases not profitable from a risk/reward view and I avoid them due to high risks when things go south. If you would consider doing this, read all informations very well!
Where to put your money?
Depending on your own will and time, you can choose to buy individual stocks. This, however, requires lots of follow-up and research. Prepare to read annual reports and many more. This is in my opinion the most profitable way of investing if you know what you’re doing. I consider this active investing.
What about bonds? It depends, in times of high yields it might prove very smart to buy a couple of bonds. Buffett did the same in his old days. However in these days, with yields at extremely low numbers, it does not make sense for me. Unless you want to bet your money on the Nigerian government, you’ll have a hard time finding some good-yielding bonds.
Mutual funds? Often banks promote their own products, for instance mutual funds. This is a basket of different stocks in which you can invest with a smaller amount. I’m not a big fan of these funds. Fund managers and banks almost always pay themselves (very) generous remunerations (1-1,5% easily) and they don’t guarantee a higher profit than the index. These forms of active investing are underperforming the index in more than 80% of the cases. Buffett even dared the hedge fund managers to a risky bet in 2007; which they are quite guaranteed to lose.
See this link: Buffet’s bet
Trackers/ETF’s: the way to go? If you don’t want to invest your time in analyzing and picking individual stocks, then I would suggest you go down this road. ETF’s are a very cheap way of investing in an index and their purpose is to duplicate the index. Costs are way lower than those of mutual funds (0,20-0,40% on average) and they often outperform mutual funds and the average stock pickers over longer periods. You also have less worries about individual companies and the risks are more spread. Don’t expect 20%+ years over year but the average return is 6-7%. That’s not bad for basically doing nothing at all. This requires 2 minutes a month to buy additional shares.
Important: If you don’t need the dividends from ETF’s, opt for capitalizing ETF’s (‘Acc’ as abbreviation). ETF’s that distribute dividends have a ‘Dist’ tag. Capitalizing ETF’s keep the money inside the fund and this way you avoid paying 30% taxes on them. I prefer Vanguard or iShares to invest in ETF’s.
I’m a proponent of investing in American stocks. If I would have to pick a portfolio of ETF’s, it would mostly consist of S&P500 (at least half), All-World and Emerging-Markets. Pick ETF’s in which you strongly believe. This makes it more bearable on a mental level.
There are plenty of other investment possibilities such as precious metals, oil, valuta or cryptocurrency. I do not know enough about these products and don’t really see them as an investment so I stay away from those. If you do have the knowledge or firmly believe in them, don’t let me stop you.
Bogleheads is a very interesting website if you want a closer look to all possibilities in Belgium.
Keep your income high and the expenses low. Have the discipline to pay yourself first. Invest this money on a monthly basis or quarterly basis for example. Be sure to check how much transaction costs you have to pay. I’m paying around €7/transaction so I don’t buy in smaller numbers than €1,000. This way the transaction costs don’t take too much of my yield.
One of the mistakes I made was in my first month of investing. I transferred €7,000 onto my broker account and started speculating, hoping for some quick profits. It was the week before August 24, 2015 (Black Monday). It didn’t turn out that well and after 2 years I finally got to close some positions at a very small profit. After that life lesson, I knew where I wanted to go. Advice: don’t put all your money at once in the stock market! Today I’m very happy I started with only €7,000.
Even when the stock market goes down, keep on buying. Especially then. Your profits are made when you buy, not when you sell. From time to time, stock markets will crash. That’s life. However, they always bounce back up. It might take some years but they do come back stronger. Try to behave rational and look at the underlying strength and fundamentals of a company or tracker. Search for value (=/= price).
Analysts are not goddish. Sometimes I ask myself how some analysts arrive at their price target or recommendation because it makes no sense at all. For smaller companies, analyst price targets might be self-fulfulling prophecies so I don’t take them for granted. I believe they give an idea of the market sentiment on a particular stock and how the future projections might evolve. Do your own research before buying into stock. For research I base myself on previous results instead of future projections. Growth can have a price too, but without a solid history it is more speculation in my opinion.