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Start investing, step 2.

Home > Money > Start investing, step 2.

Start investing, step 2.

What do you want to invest in.

Investing is done on the stock exchange. It’s a place where shares and stocks are being bought and sold. There are different stock exchanges, for example London stock exchange or Nasdaq. This used to be a place where suit and tie guys were screaming, selling and buying from each other. Now it is all electronic. You can’t go there directly, you need a broker or a bank to give access to buy or sell stocks. There are a lot of different brokers. They all look quite alike but there are some differences. Most important are the transaction fees and service fees. This varies quite a bit. Best is to choose one that has low fees or no fees. Also there is a difference in user experience and customer service. Most are just fine. My platform of choice is DeGiro. They are low fee and once per month I can even put money in selected index funds without any fees in the ‘kernselectie’.  

Other brokers for example are eToro, Binckbank, Lynx, Plus500, Bux, Trading212 and Meesman. There are many more.

So you selected a broker to start investing. Now you can choose different products. Here I will cover stocks, bonds and ETFs.

If you buy a stock, you own a little piece of a particular company. If dividends are paid, they get paid to you monthly, quarterly or yearly. So you earn by keeping the stock. Also the stock can go up or down so you make a profit or a loss if you sell the stock.

Bonds are a loan to the government or a company. They borrow money and return it at the end of the duration. On top they pay you interest. Mostly bonds are less volatile, a more stable way of investing. Downside is that the yields are generally lower compared to stocks. This is a stable part of your investment portfolio.

ETF or exchange traded fund is a basket of stocks that follow a certain index. Usually this is widespread with hundreds or thousands of different stocks. If you buy an ETF you buy a piece of all the stocks or bonds in that index. Your return is the same as the index in total and you don’t need to buy all the individual stocks. This saves a lot of transaction fees and you can start with a smaller budget. Because ETFs spread over so many stocks, if one company doesn’t make a profit, another will make up for it. Also ETFs are passively managed because they simply follow the market. This results in lower fees then actively managed funds (investment funds).

So how do I buy all of them stocks?

If you want to buy (or sell) a stock or bond or ETF, you place an order. This is you saying you want to buy a certain amount of stocks for a certain price. Of your order has been executed, you bought a stock.

An example. I want to buy Vanguard FTSE All-World UCITS ETF at DeGiro. First I have to sign up at DeGiro. When I have a working account I deposit the money I want to invest from a checking account. In the search bar I type vanguard. It looks like this.

I choose the first one because it is in the kernselectie and I can buy it without transaction fees once per month.

The green K is for buy. Click.

Now you will see the following (but with other figures).

On top there is the title of the ETF. Then it says the abbreviation VWRL, et cetera.

Below is the current price. R is for realtime price.

The bid and let.

The bid is the highest price a buyer is willing to buy the share for.

The selling price is called the ask price or let (here laat). This is the lowest price a seller wants per share.

There is space in between, you call this the spread. In this example the spread is 2 cents. That is the space between the highest bidder and the lowest seller. When the market is open, this changes every few seconds.

Then it says buy in the green (koop) and sell in the red (verkoop).

Next to it is dayorder. You can choose day order or a continuous order.  When you set a limit for that day (day order) and the transaction is not made, the order will disappear. If you choose continuous order, the order will stay.

Below that is limit order on the pulldown menu.

There are different types of orders. We will briefly review them.

Limit order. This is the most common. You want to buy a certain amount of stocks for a certain price. When the price of the stock is equal to the price you put in the order, the stock will be sold to you. When the price is not reached, the deal is off. The closer your price is to the price of the stock, the higher the change your order will be executed.

Market order. With a market order you buy for the best market price on the moment of the transaction. So you only put the amount of stocks in your order, not the price you want to pay for it. Only do this when the stock exchange is open. This way you will buy around the price of the stock. A lot can happen to the price when the exchange is closed and you might pay a lot more if the value has gone up.

Stoploss order. A stoploss order is ment to protect you from big losses. If the stock you own falls below a certain price, you can use a stop-loss order to set the stock to be sold at the set price. If the stock exchange is closed and the price falls below the set stop loss, the share will be sold at the then current price. To prevent this, a stop limit order can be set. This indicates that your share cannot be sold for less than the set price.

So if you want to buy the share keep it on limit order, at limit put the same amount as the let. At amount type in the amount you want to buy. In this example two. Right of the amount (in this example two) the total price is filled in automatically.

It should look something like this.

Click place order and your first purchase is a fact. You are now an investor in more than 6000 companies!

Happy investing!

Elske

I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.

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