Stocks for beginners: How to get started on the stock market

What are stocks?

One thing in advance: Compared to the rest of the world, Germans are not exactly enthusiastic about the stock market. So is the Shareholder ratio 2023 After two relatively good years marked by corona, it fell from well over seven percent to just 6.7%. In the By contrast, in 2023, a whopping 61% of the population invested in securities. One reason for this is the difference in mentality: While Germans are traditionally very risk-averse, US share owners see themselves as proud shareholders of a company — which shareholders are, of course, in fact.

Because stocks are simply company shares. In other words, tangible assets through which investors can participate in the success or failure of a listed company. As a shareholder, you have both rights and obligations. You can benefit from rising share prices and dividend payments and attend the annual general meeting. Owners of common shares also have the right to vote on resolutions at the general meeting. Preferred stocks, on the other hand, offer a higher dividend but are accompanied by the waiver of voting rights.

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What are stock indices?

In addition to individual stocks, there are also “stock baskets” such as funds, ETFs or stock indices. A Index is a summary of various values to form a statistically relevant indicator. It can represent a sector, an industry or a specific region and is therefore regarded as an indicator of its development. Well-known “stock market barometers” include the DAX, Dow Jones, MSCI World or US technology exchange Nasdaq; an overview of the most important indices around the world is here portrayed.

A stock index, regardless of which country, is mainly influenced by the prices of the stocks included in the index, although the weighting of the individual stocks also plays a role. Stock indices differ in their type (price or performance index), the number of shares included and the weighting of these values. As a stock market barometer, a stock index provides comprehensive information about the price development on the stock markets. In addition, a stock index serves as a benchmark for private and institutional investors to measure the success of their investment strategy. For example, he has Dax 40 gained 19.5% in value over the past 12 months (as of November 21, 2024). If an investor had exceeded this figure with his portfolio, this is known as “outperformance.”

By the way, investors cannot buy an index directly. That is why there are “investment cases” through which an index can be securitized as an underlying asset and can therefore be made investable. To the common Index investment opportunities include ETFs, derivatives, and certificates.

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How do you take your first steps on the stock market?

Let's assume that the decision to invest in stocks, stock indices, or other securities has been made. But what's next? The first step is to open a securities account with a (direct) bank that is as inexpensive or even free of charge as possible in order to create the basis for buying and selling shares. As soon as it is clear which stocks you want to buy, the order can be placed online or through a broker. For this, investors definitely need the security code (WKN, ISIN, etc.), the number of shares and the price they are willing to pay. The investor must then determine at which stock exchange the share should be bought, as most shares can be traded on several stock exchanges. The purchase price is then debited from the customer's current account, which is stored with the broker as a so-called “settlement account”.

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What should beginners in stocks consider?

That's the theoretical part. But in practice, there are a few questions that investors should ask themselves specifically before buying shares. These include:

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• Investment objective and investment horizon

Define a potential investment target and the resulting investment horizon. In other words: What should money be invested for and for how long? For example, is it about buying a new car, traveling or financing a condominium?

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• investment capital

Depending on this, you should realistically estimate how much money can be invested in stocks once or regularly. Financial advisors like to rely on an old rule of thumb: 100 minus age equals equity ratio. A 35-year-old should therefore invest 65 percent of his assets in stocks.

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• investment strategy

Consider which investment strategy suits your investment goal. Are you very risk-savvy or would you rather invest your capital on the stock exchange over the long term and defensively in building up wealth? Age can also play a role here: It is usually recommended to pursue a defensive investment strategy at retirement age, as there is less time to catch up with bearish phases on the stock market.

In principle, securities can play an important role in wealth creation. This is because shares are tangible assets with which shareholders can participate in market developments. However, it is important to define a clear strategy in advance and not to speculate with risky “stock market bets.” There is one rule for every investment: no high return without high risk.

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Diversification through tangible assets

An important principle when investing is: “Don't put all your eggs in one basket.” Diversification means that you distribute your capital across different asset classes and industries to minimize risks. In addition to stocks, tangible assets can also offer an interesting opportunity for diversification. Platforms such as Finexity enable investors to purchase tokenized shares of works of art, real estate, or even classic cars. These tangible assets are often characterized by a low correlation with the equity markets and therefore offer additional portfolio stability. Tokenization also makes these asset classes accessible for smaller amounts, making them particularly attractive for beginners who want to broaden their investment strategy. Diversification can not only reduce your risk but also increase the chance of long-term returns.

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