Investing in the stock market cannot be invented. Be able to identify profits when buying and then selling securities on the financial markets, it is necessary to conscientiously respect several Golden rules. This will give you all the chances to effectively build and manage your portfolio.
Define your budget and investment horizon
Stock market is risky by nature, invest only in financial markets savings that we don’t need in the short term. It is therefore crucial to determine the total amount you want to invest and immobilize. The time variable must also be taken into account.
For example, if you’re investing to get extra income when you stop working, the further away you are from retirement, the longer your investment horizon – that is, the duration of the investment – can be.
Create an investor profile
It is important for individuals before entering the financial markets determine the level of risk that he is willing to accept, i.e. the level of maximum loss we are prepared to tolerate given the expected return on the given asset.
Three typical profiles generally appear and relate to both the investor and the values in which he will invest: the cautious profile, the dynamic profile and the speculative profile. They are increasingly evaluated in terms of exposure to risk. In theory, high return is accompanied by high risk. Conversely, a low-risk investment will usually have a less attractive return.
Build and follow an investment strategy
After creating an investor profile, it is recommended to define a investment strategy before placement in the financial markets.
This amounts to setting a profit target for each security in question and sticking to it. Specifically, if the price of the acquired financial instrument has reached the target level, do not hesitate to sell it to realize your capital gain. On the contrary, consider also setting a minimum price threshold – which corresponds to the maximum level of risk taken – the achievement of which should lead to an immediate sale.
Since financial markets can experience large fluctuations, it is necessary monitor your portfolio regularly, especially if the asset in question exhibits a high degree of risk and therefore volatility. And even before investing, it is essential to be well informed about the financial products under consideration, their characteristics, quality of issuers, related risks, etc.
It is also convenient regularly monitor economic and stock market news through the financial press and exchange websites.
Select the placement medium
Depending on the time you are willing to devote to the stock market and your level of knowledge, this will be appropriate prioritize different types of assets, which will be invested in either a portfolio of traditional securities, an equity savings plan (PEA) or a life insurance contract.
For those who are very busy and do not fully understand the mechanisms of financial markets, it is recommended to prefer trackers, which are financial instruments that copy the performance of indices or specific themes. It can also support collective management through funds managed by professionals (control fees).
For those who have more time to devote to the stock market while mastering its mysteries, it may make more sense to invest directly in well-chosen stocks, especially according to your risk profile.
Identify the appropriate tax envelope
Once you have defined your investment horizon, you will have to choose the correct envelope where your stock market investments will be located and what the level of taxation on your gains will depend on (apart from social security contributions which must be paid in any case).
By the age of four, it will be more appropriate to use a classic securities accountto ordinary taxation. After five years and PEA reduced and optimized taxation, but only for European shares and funds.
ANDinvestment life insurance contractprovided it is held for at least eight years, there is also a tax-optimized envelope, but with rare exceptions it is not possible to place shares held directly.
Diversify your portfolio properly
AND good diversification is one of the pillars of a good investment in the stock market. By spreading the invested capital in a weighted manner, it allows for the spread and dilution of the risks associated with each acquired asset.
AND balanced distribution for example, it can lead to the following allocation of your investments: 50% invested in stocks, 30% in bonds and 20% kept in cash (which is mainly used to benefit from a possible drop in price). But avoid too much variance by having too many lines in your portfolio – too long to track and expensive to have.
Please note, however, that there is no ideal number of portfolio lines: everything will depend on the time an investor can devote to managing his portfolio, and therefore the higher this number, the more time he devotes.
When an investor manages his own portfolio directly, experience shows that a maximum 20 lines represents good practice.
Beware of fees
If you want to intervene in the financial markets, you will have to make a call intermediaries. We will have to pay attention to rewarding them without hesitation to make the competition work, especially by challenging players present on the Internet.
of management fees they are therefore collected by collective fund managers (FCPs and SICAVs) and to a lesser extent by trackers. Depositing funds in a life insurance contract will also generate additional costs that will affect the performance of your investments.
For live events, plan brokerage feesfor each share or sale transaction, as well as any portfolio custody fees and PEA management fees. Pay special attention to the prices charged for exposure to foreign markets.