How to become an investor in the stock market

In 2020, the number of investors in Russia doubled to 8.5 million people. According to the forecasts of the Central Bank of the Russian Federation, the Russians will continue to master the securities market, and the entire economically active part of the country’s population will become investors – about 74 million people.

Reasons for the investment trend: lower interest rates on bank deposits, the opportunity to receive passive income, a way to save up for a large purchase.

To learn how to become an investor, you need to follow a few steps and follow simple rules that will help you invest, protect yourself from risks and gradually increase profitability.

How to become an investor from scratch

1. Set a goal

There should be a guideline in investments. Don’t invest randomly. Calculate how much you need to earn in the stock market to reach your financial goal and invest according to the plan.

2. Set an investment term

Once you have determined your goal, decide how long it will take. Let’s say you want to earn 1 million rubles on the stock exchange in two years. Focusing on the average profitability of the Russian stock market – 10% per year, you need to invest about 35 thousand every month. When there is more time left, for example, 5 years, then you can invest about 13 thousand per month.

3. Determine the level of risk

If you need $1M a year, you need to invest more money every month and look for stocks with high growth potential that will outperform the average market return.

You will have to take risks buying emerging stocks – growth stocks, for example, Tesla, Nvidia, Square. Such stocks can go up a lot in price, but they can also go down a lot.

Tesla stock quotes (07/07/20 – 07/07/21). The chart shows how much the price has changed over the course of the year. At the same time, the final annual yield was +135%. This is well above the market return.

High risk is not for everyone. Therefore, many investors choose a long-term strategy. They buy shares for a period of 3-5 years and do not seek to make an instant profit on the stock exchange. They invest in stable and large companies and expect to reach passive income over time.

4. Start investing

It is not necessary to direct most of your budget to stocks right away and try to build an investment portfolio on the go. First, try to buy shares in 2-3 companies, and then gradually increase the total capital by regularly buying more shares.

Here are some well-known companies whose shares are worth less than 1 thousand rubles: VTB, MMK, M Video, Aeroflot, Rostelecom.

5. Open a brokerage account

Before buying your first shares, choose a broker and open a brokerage account. An individual cannot invest on the exchange directly. This requires an intermediary – a legal entity with a license for brokerage activities from the Central Bank of the Russian Federation.

The broker not only provides access to trading, but is also an assistant on the exchange. It tells you which companies to invest in, arranges training courses and keeps transaction statistics.

The largest brokers in Russia according to the Moscow Exchange: Tinkoff Investments – 5.8 million customers, Sberbank – 4.9 million, VTB – 1.5 million. Using Tinkoff as an example, let’s look at how to open an account.

How to become an investor in Tinkoff Investments

First: fill out a short account opening application. Enter your passport details and phone number. No need to visit the office, everything happens online.

Second: wait until the bank employees check the data and send you access to your personal account.

Third: go to the office and replenish the account with a bank card.

fourth: go to the “Catalogue” section and find the stock you need through the search. If you don’t know where to start, look at investment ideas or ready-made strategies in the “What to buy” section.

Fifth: After selecting a stock in the catalog, click on the “Buy” button, and then track the change in its price. When you want to take profits, put the shares up for sale.

You can also open an account with other brokerage companies. When choosing a broker, you are guided by the quality of support, the availability of services for beginners and the amount of commissions that the broker charges for each transaction. Commission in Tinkoff Investments from 0.025%. Opening and maintaining an account is free of charge.

How to become a successful investor

To become a good investor, don’t look at the stock exchange as a get-rich-quick scheme. Invest regularly and for the long term. After all, markets always grow in the future. Drawdowns due to crises are replaced by growth, and if you stick to the “buy and hold” strategy, then earning on investments is a matter of time.

The S&P 500 is an index that tracks the stocks of the 505 largest US companies. Demonstrates that the market is always growing, overcoming any crisis. As part of the index: Apple, Bank of America, Coca-Cola, Facebook, General Electric, Intel, McDonalds, PepsiCo, Tesla, Visa, etc.

Treat the stock market as an opportunity to earn additional income. And to protect yourself from risks, follow these rules.

1. Invest in blue chips

A great start is investing in blue chip stocks, the largest companies in the Russian and American markets: Gazprom, Sberbank, nornickel, Lukoil, MTS, Magnet, Apple, Microsoft, Coca Cola, Pfizer other.

Such companies always pay dividends, and due to a stable business model, they are less susceptible to market shocks. The importance of “chips” in the country’s economy eliminates the risk of their bankruptcy.

MOEXBC is an index that shows the dynamics of Russian blue chips. It has grown by 93% in five years.

2. Diversify your investments

Diversification is the distribution of money among companies from different industries and countries. It is needed so that during a recession in the economy your investment portfolio does not lose in profitability and does not sag too much.

During the crisis due to COVID-19, air carriers and oil companies turned out to be the main outsiders, while companies from the IT sector and the retail sector, on the contrary, showed growth. If your portfolio consisted only of airlines or oil corporations, you would not be able to recoup losses.

The main sectors for investment are metallurgy, oil and gas production, electric power industry, pharmaceuticals, finance, transport, retail, construction, telecommunications and IT technologies. To collect a good portfolio, you do not need to invest in everything at once – it is enough to buy securities of 12-15 companies from 6-7 different industries.

3. Buy different classes of financial instruments

You can break down an investment portfolio not only by sector, but also by asset class. For example, invest 50% of the budget in stocks and 50% in bonds.

Stocks are the profitable part of the portfolio, bonds are the protective part. Bonds are less risky, but you won’t be able to make money on them like on stocks. More stocks in the portfolio – higher potential profit and risk.

The most reliable bonds are issued by the state. They are called federal loan bonds or OFZ for short. With the help of this mechanism, the state borrows money from private investors at interest for budgetary purposes or large national projects.

4. Invest systematically

Financial discipline will help to form a full-fledged portfolio. Build capital gradually by buying securities regularly. Invest in the stock market part of your salary every month, for example, 10-20%.

Don’t buy stocks with the savings that make up your financial cushion. Invest something that will not affect mandatory spending.

5. Avoid Speculation

Think of buying shares like buying a stake in a business. Do not play the stock market, making short-term trades in the hope of capitalizing on stock price fluctuations. It’s too risky and more like playing roulette than a smart investment.

Give preference to companies that pay dividends. This way you can own their shares for years and make a profit in the form of dividend payments, even if the shares do not add much in value.

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Read: Where is the best place to open a brokerage account?