How to invest in the stock market: a beginners guide

Investing in the stock exchange is no longer just for a few people. With the emergence of online investment platforms, it is now possible to access the benefits of the capital markets without the need for large sums of money or advanced financial knowledge.

If you are hesitant about investing online, this beginner's guide gives you some tips on how to take the first steps.

Investing online: what are the advantages?

Online investment platforms have democratised access to the stock market, previously reserved for a small group of people. The main advantage over traditional investment banks and brokers is the low fees they charge, up to 10 times lower than traditional institutions. In addition, some neobrokers allow us to invest from as little as €1 so, unlike a few years ago, we do not need to have a large amount of money to start investing. Moreover, the apps provided by these new platforms allow us to carry out any transaction without having to go to a bank or any other institution. Finally, investing online gives us direct control over all our investments, in an intuitive interface that we can consult anytime and anywhere.

Investing for beginners

Step 1: Saving and investing at the same time

The first step to being able to invest is to save part of our income. Typically people invest between 5% and 15% of the money they earn each month, of course some people invest much more or even much less. In this sense, it may be reasonable to start with 5% and increase it progressively depending on your risk tolerance or savings capacity. A simple way to start investing could be to set up an ETF savings plan, for example. Exchange traded funds (ETFs) are financial instruments that allow us to invest in a diversified way (in a variety of companies and regions), in a single transaction. Some of them track major stock indexes such as the MSCI World Index, but there are ETFs across different regions and themes, as well as fixed income ETFs.

Step 2: Investing on a shoestring

In general, for small investments, savings plan will allow us to decide how much we invest each month, and to change the conditions without penalty (e.g. change the amount or pause the plan). Generally, the regular contribution we have decided on will be taken directly from our current account into the savings plan. Savings plans can help to ensure that our savings are not eroded by the effect of generalised price increases or inflation, and can also help to facilitate a more comfortable financial future, as an alternative or complement to other retirement planning products such as traditional private pension plans, which are often less flexible. In some cases, such as Scalable Capital's broker, savings plans allow you to buy whole units or fractions, depending on how much money is invested periodically.

Step 3: The golden rules of investment

There are two golden rules that can help to mitigate some of the risk involved in investment: diversification and a long-term mindset. We have already discussed how investing in ETFs can help us to diversify our investments across companies, regions and sectors, but ETF savings plans also have another advantage that we will benefit from if we hold our investments for the long term: compound interest. This effect occurs when the profits generated by the initial investment also produce further profits, leading to exponential capital growth over time. ETF savings plans generally allow you to reinvest the interest earned on investments, which in the long run can have a multiplier effect on the amount initially invested.

If you found this guide useful and want to start investing, you can take your first steps with our broker.