Several people have asked me to write a kind of instruction on how to start investing. To do this, I had to take and read the book by Kristi Saare "How to start investing" to look at an alternative expert view of investment.
Unfortunately, I cannot recommend the book for reading, unless you are a 9th grade student. But of course, Kristi sets the right vector of thoughts that can be very easily expressed in just a few sentences.
Dependence of investments on budgeting
Learn to save and budget. It’s not fashionable, it’s not cool, and sometimes it takes a lot of time, some even threw comments on my posts that “it’s necessary not to maintain a budget, but to increase income.” A beautiful phrase and they are certainly right in some ways, but one without the other (budgeting and increasing income) does not exist, and investing, among other things, directly depends on how much you save. Kristi generally wrote that if you cannot save, then you recognize your poverty and inability to save at least 10 euros. Therefore, it's just a matter of how you approach your finances regardless of your salary or income, but it's important to take the first steps to get started. You can, for example, find my budgeting file here.
How to make savings?
Here come to the aid of various kinds of tools from our banks in the form of digital moneyboxes. To develop a savings system for yourself, you can start using the growth account in LHV. The whole point of the idea is that from each purchase the amount is rounded up to the whole euro and then transferred to the growth account, from where it is further reinvested in the funds of your choice. The list of funds, of course, is not small, and in a good way you should try to delve into those where you plan to invest. Each fund has its own information sheet, which can be found in the LHV internet bank. It is not necessary to read information about all the funds, but it would not hurt to choose the main areas and get to know them.
Beginner's mistake
IMPORTANT! I made a mistake when I started using the LHV growth account. LHV offers to invest up to 6 funds and, as usual, non-professional investors do not make sense to keep everything in one place! But in the case of the LHV growth account, this rule does not work. Just choose 1 fund, you don’t need to “grab” the rest. Why? First, these index funds already have different asset classifications and reduce risk. Secondly, you pay a commission for the maintenance of the fund and it is illogical to pay for several funds at once. Thirdly, shares in these funds often overlap, for example, Apple or Google shares can be found in several different funds, then why overpay for their maintenance? In addition, it turned out that the exit-sale of the fund costs 11 euros in LHV + 0,3% of the amount, the more there are, the more you pay for the exit. For this reason, I advise you to choose only one fund.
What funds did I choose? A fund consisting of shares of Chinese enterprises, shares of enterprises engaged in the field of clean energy. Also the S&P 100, bitcoin (a very risky fund and very volatile) and stocks in India and Asia.
Today (24/06/21) 683,22 euros have been accumulated/earned in the growth account and the total portfolio is up by 15,43% (or 91,35 euros). This format of investing can suit many and does not require long training.
III pension pillar
It may seem that I will continue the story of investing from the most boring topic, but this is not so. If you are already doing a little more serious investing, then this topic is for you! With no exceptions.
We are talking about 3 pillar pensions.
And you probably think that I'm completely crazy talking about retirement, but it's not. I will continue to explain, quite seriously, why this is an important topic. And so, step 3 is the only way to legally obtain tax exemption. You actually win 20% of your contributions immediately. But, of course, not everything is so rosy, the state puts a restriction that is valid until the age of 65. That is, you can get such a tax benefit only after waiting for 65 years. And in this case, you will not have to pay 20% taxes if you take the money back.
Why is it important? The fact is that professional investors, which you can become in the future, having a portfolio worth several, or even tens and hundreds of thousands of euros, will hold it for years. Therefore, it is beneficial to keep it where in the future it will immediately win 20%. Thus, the unpopular topic of pension funds in the eyes of investors turns out to be a tasty morsel.
And most investors start with the 3rd pension pillar before they invest in real estate or stocks or use the LHV Growth Account. It would seem that they are just as good tools, but there is no 3 step in their minds in the first place!
How does the III pension pillar work?
I will not delve into the descriptive part of the 3rd pension pillar. You can easily google and read about it yourself. I'll just say a couple of words. It's just a fund where you can freely send money and just as freely withdraw. In this case, you will need to pay 20% income tax, which the state paid for you. You can register the fund in Internet banking.
The advantage of this pension pillar is that the employer can additionally invest in addition to your payments. Of course, not all enterprises have such benefits, but most large ones provide similar benefits. I recommend using them.
Which fund to choose if you decide to invest in a 3-pillar pension fund? Mandatory index (invests in shares). Then every month you can immediately transfer part of the salary there and forget it for a long time. You are guaranteed to receive a refund of income tax from the fund. Plus, the fund itself can grow and you are already a definitely successful investor :). As my good friend said, it would be better if they let me close the second stage and he would send everything to 3.
Investment in stocks
About the most interesting. About promotions.
Perhaps I'll start this topic with a statement. Playing with stocks today is almost no different from the lottery. Half will agree with this statement and half will not, and there are indeed difficulties.
Why do I say with such confidence? Let's see what professional investors do. Here in our local market there is a cool team of Aripaev Investor Toomas. A project they launched to attract investors and expand their managed portfolio. According to recent reports, the Invetor Toomas portfolio did not predict market movements and made money on random transactions with shares such as Tesla, for example. In fact, even if you seriously monitor finances, listen to analysts, do financial and technical analyzes, this does not guarantee that you will be able to invest successfully and make money from it.
Anyone who claims otherwise is most likely a coach or a charlatan. Who will be happy to take money from you for meaningless training and some "working" methods. Better heed one piece of advice: gambling with stocks is one of the most risky undertakings. You can easily lose all your money. If there were any magical person who knows how to beat the market, then he would not tell you about it and in general he would hardly be public.
But the desire to have passive income is huge. Especially when you hear all sorts of stories about how someone made 2 euros on Tesla. After all, you want the same. If you are ready to lose all or part of your money, then here is what I took away from the whole investment venture.
What are the best investment platforms and why?
The lowest commissions. When you trade, it is of utmost importance that you pay intermediaries for your participation in the transaction. There are only 2 platforms that allow you to invest almost for free or for very little money: Revolut or Interactive Brokers. By the way, our local banks, such as LHV, also use the latter.
Revolut has an unrealistically convenient mobile application, but the number of shares where you can invest is limited. I'd like to see more choice that Interactive Brokers has, but so far it hasn't been possible to get to them.
What to do?
Here you have chosen a platform. What's next? Where to invest? Everything that I wrote above, in principle, almost reduces the value of fundamental analysis to 0, but still it is worth listening to it. For myself, I identified several criteria for choosing stocks: news, team, idea, sphere, finance, current position of the company and brand. All these criteria together should tell you clearly that everything is in the green zone. For example: Tesla. News - every time it breaks some kind of record, the information field in 70% of cases always highlights the company in a positive way. Team - Elon Musk himself and his team are doing incredible things. Idea - new revolutionary products, isn't it worthy of attention? The sphere is a growing market for electric cars, which is in its infancy today. Finance - finance.yahoo.com will help guide you.
All recent forecasts have been "beaten" and Tesla has exceeded analysts' expectations, but here it is worth noting that the company is very much overvalued! Its current value is related to profit as 1 to 1060. It means that Tesla needs 1060 years to earn today's profit in order to determine its value. This indicator caused me to “leave” Tesla shares several times. (For more information on this, see here)
The position of the company - is there room for further growth? Can it win the market or create a new niche? Tesla still ships 80 cars a year, which is a very small figure compared to other companies. Brand - both in the case of Tesla and in the case of Elon Musk, he is very strong.
Does this mean that investment in Tesla is justified and it can be bought? Unfortunately no. You still have to seize the moment yourself. I currently hold Tesla stock but have only invested $250 in it as I find additional risks in relation to its value, but I hope the line of thought is clear.