My advice for beginning investors

This article is going to be about how I started investing and will warn you about my mistakes. I will also share my advice on how to get started.

Investing definition

The definition of investing is to “put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit.”

So it’s all about how you put your hard earned money to work, to acquire more money in the future. Starting with investing is really easy nowadays. You can open up an account within minutes, and the transaction fees are lower then ever!

How I started investing

I have always loved to play with money. My father had given me a troy ounce gold coin for my birthday when I became 15 years old and the price of gold was around 600$. After the price had risen with approximately 100$ I became more interested. I liked the outlook for gold, so I bought another 3 ounces.  Then I kept them safely stored.

This was my mistake: I didn’t sell them when the time was right. This was because I believed the stories about gold going to 10.000 dollars (and if it’s too good to be true….). After the price had been dropping for a couple of years I sold it. The return wasn’t as nice as it could have been.

Whether you see gold as a currency or as an asset, in the end it doesn’t generate a return. It doesn’t make you a real profit. If I had invested my money into the stock market, I would have had a much better return.

Why greed isn’t good

greed is good
greed is good

In the beginning I always was a little pessimistic about the stock market. I wanted to earn money by holding stocks as well as selling stocks I didn’t have. The latter is possible by trading derivatives. A derivative is a leveraged position, which can earn you money if the underlying asset / currency etc. rises when you are long. But you can also earn money if the underlying instrument falls (then you are short).

In the end, buying derivatives is a loss making business because of the bid/ask spread (CFD), or the diminishing time value in the instrument’s price (option contracts).

It’s always fun to gamble some money. Just know that in the end you will probably lose, like in the casino. More than 90% of traders lose money. That’s because we, humans, are too emotional. This affects our logical reasoning.

My rules to investing:

  • Don’t be to greedy, someone who always takes a profit will never be poor
  • Generate a slow but steady income:  “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”
  • Remember: if a stock declines with 50%, you need a 100% gain to get your money back
  • Don’t pour all your savings into the market at once, but keep adding to your positions every month. This averages your entry price.
  • You pay approx. 20% income tax on your cash dividends (atleast here in Europe), so stock dividend has a better net return.
  • Dont put all your egs in one basket; i.e.: diversify! Invest in different stocks,  markets, commodities et cetera. Most people don’t beat the market indexes, so ETFs (exchange traded funds) with low fees will probably generate a better return than active investing without the necessary due diligence.

Best platforms for investing or trading:

For investing into stocks and bonds, just choose one of your country’s biggest brokers with low transaction fees.

If you want to be able to gamble a little more and also want to be able to earn money when the market goes down; then you can also start trading derivatives and earn money (leveraged position increases risk and return).

CFDs (contracts for difference) are my favorite derivatives.  You don’t pay any transaction fees, but only the difference between the bidding and asking price, which can be as low as 0.01%! Personally I use XM.com for trading derivatives. It has a real user friendly platform and gives you a 25$ welcome bonus. Further, I believe it gives you a deposit bonus of around 50% up until 5000$. So if you deposit 100$ it gives you an extra margin of 50$ to trade with.

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