cross-posted from: https://lemmy.blahaj.zone/post/46894980
Hi, I am a young Italian (I guess the “poste Italiane” gives it away uh) and I plan to make my fist small experiments to understand how buying stoks and ETFs works.
I tried to look around what all those acronyms and big words mean but usually the definition and explanations I found use other acronyms and big words and end up being mentally exhausting to follow.
As far as I understand An ETF is a group of companies that share a market and by shoving money in there (investing in the found is the right phrase I guess)
you either buy stocks
(which are just money you give the company to spend and after the profit is made it should give it back with a certain interest I think, right? How much interest and how often is a great mystery I have yet to solve)
or fractions of stocks
(what is the point of a stock being a certain price then??? If i can just buy a small piece of it???)
from one of the companies in the found
(randomly I guess, or according to a broker whims maybe idk)
and when the dividends are paid you can either get some money back or reinvested in the found.
Those ETFs are apparently more secure because they spread your money around multiple companies within multiple fields and I feel like I should invest more in those then in singular companies, is that right?
Also I’m planning to start with 50€ each month but if I feel comfortable enough I plan to rise the investment to maybe 300€ monthly, but I often see people saying that for those amounts of money (which are a fuckton to me) you should just dump in a single ETF and forget about it for like 10 years, but it feels so wrong to put so much money into something with risks attached to it and then ignoring it, is there something else I’m not getting? (As opposed to all the other things I’m understanding perfectly, right?)
You’re in better shape than you realize if you’re starting with nothing. A lot of people start with a ton of debt that they need to handle first. If you do happen to have debt, understand that what you owe on the debt will grow faster than any investment you as a regular individual could possibly make.
Keep it simple.
1. Pick a reputable broker that offers the type of account you’re looking for, whether it’s a general brokerage account or tax-privileged retirement account.
Prefer those with (A) either local presence or a solid online interface, (B) offer free transactions and no account fees (including hidden ones like fees upon withdrawal or accounts with the word “annuity” in the terms), and © offer a healthy selection of low-cost ETFs.
For most account types, this step should be straightforward and cost nothing to set up, so you can evaluate their tools and products before investing, and often even before officially opening a brokerage account.
2. Definitely choose ETFs over individual stocks. This is perhaps the most common early investor mistake.
Buying individual stocks is not a passive investing strategy. It is much closer to gambling. You’ve likely heard that “diversification” is important for long term investing, and that’s true. Well, buying individual stocks is the opposite of that.
As to which ETFs, prefer those with (A) low fees (low being < 0.05 percent) and (B) those which bundle as many fractional stocks as possible, meaning either total stock market indexes or other large indexes, often grouped by either Morningstar stock types or sectors.
The better the market coverage of the ETFs you choose, the better your diversification. This helps a ton with the next part.
3. Always opt-in to reinvest dividends from the value-producing stocks in the account’s portfolio.
This is usually a toggle or checkbox in the account settings, and is often opt-in, meaning it defaults to placing dividends in a settlement fund of some kind, like a money market account with a nominal (typically low) interest rate.
The reason this step is so often stressed in personal financial advice literature is that it’s (A) a common and easy mistake to make which (B) can rob you of years’ worth of compounded interest, depending on how long it takes you to catch it.
That’s the core. Everything else is either nice-to-have, good to note, or more of a personal preference…
For example, if the broker offers it, the service of a sweep account for automatic paycheck contributions (often called “direct deposit” which is just ACH that a payroll provider handles for you) can make saving over time more convenient/passive.
Also of note, this strategy assumes your target withdrawal/retirement date is at least 10 years in the future. If it’s closer, you may want to consider adding some percentage of bonds ETFs, which are nearly always lower ROI long term but tend to rise and fall in opposition to stocks, which means they have a stabilizing effect during market downturns.
Finally, this is a general tip, but important. Once you have your passive investment system setup, it’s best not to touch it, or watch it constantly, and just to let market efficiency do its thing over time. Never panic buy. Never panic sell. Never try to time the market. That is gambling, and you will lose those bets more often than you win.
I believe it would be a mistake to just give you a few recommendations, from my personal opinion, here in this post.
Conversely, I believe it would be my responsibility to point you in the correct direction. Fortunately, I have a friend who has a masters degree in finance and he is, also, a Certified Public Accountant.
Many years ago I read I Will Teach You to Be Rich: No Guilt. No Excuses. Just a 6-Week Program That Works. I asked my aforementioned friend about it and he confirmed that it was very solid information and advice.
Thus, I would highly recommend that you read that book and implement everything in it. My wife and I have as well as my brother and we have hundreds of thousands of dollars that will soon turn into millions. I can’t recommend this book enough.
Very gimmicky title for a book. Is it for real?
The author is a little gimmicky but his advice is legit. For example, he claims his “Conscious Spending Plan” isn’t a budget - it’s a budget. He knows his stuff, though, even though he does all the usual influencer things of trying to sell courses, etc.
Spend time reading resources and learning, like others suggest. But based on my observations, the current market, at least here in the US, is extraordinarily volatile. It may be worth waiting to invest larger amounts of money into potentially volatile investments like most tech stock for the time being (there are less volatile, lower yield investments out there that you can look into).
Since you’re just starting, start small. Trade only amounts you’re willing to lose. Once you get more confident, then invest what you want.
Also I want to say that I don’t really want to buy from “the big ones” like Amazon or Microsoft for a deep personal hatred towards certain megacorps
I recommend putting $100 (or euros) into your Robinhood account. When it’s gone, it’s gone. If you feel more comfortable investing with some experience, then you can add more.
The best financial advice I can give is that we live in a world of scammers and morons and the only winning move is not to play. If you can avoid spending money on anything that is not expected to have value afterwards, then do it.
