Buying shares for beginners - Important tips for stock trading

In times of low interest rates, savers can hardly avoid the topic of shares. Many investors are interested in shares as an investment, but shy away from getting started. Because buying shares for beginners without much stock market knowledge is primarily associated with one factor: Risk. Stock trading is perceived by many primarily as an uncertain speculation on the stock market and less as a safe investment. However, there are many reasons why buying shares makes sense even for beginners, and why you should not miss out on shares as an investment. In the guide, we clarify the questions of what you need to buy shares and whether small investors also have a chance on the stock market. In addition, we give valuable tips on the subject of buying shares for beginners, how they can avoid beginner's mistakes and successfully invest in securities.

What are stocks and what makes them a good investment?

"Stocks are a wonderful way to share in the success of others inexpensively and easily. Investors can easily participate in the most successful companies of our time, whose products and services we use every day, through stocks. That makes stocks the highest-yielding asset class for achieving one's long-term goals."

Stocks are shares in companies that are traded on a trading venue, the stock exchange, at a specific price. Companies go public with their shares to attract new capital. The additional income from the sale of securities ensures that equity can be strengthened and corporate growth financed. Anyone who buys shares thus owns a small share in that company. The price at which the securities are offered on the trading market depends on demand. The value of a share fluctuates due to the correlation between supply and demand on the stock exchange.

On the subject of buying shares, newcomers often ask themselves whether and why buying securities is a good investment at all. Savings accounts have long offered savers only low interest rates and are therefore no longer particularly profitable. In comparison, shares offer a good return as an investment. They can be used to build up assets over the long term and save for retirement at an early stage. In addition to the distribution of dividends, you as the owner of securities can also participate in the positive economic development of a company, which is reflected in a price and thus at the same time an increase in value for your shares.

Before buying shares, it is important for beginners to know a few key figures in order to select the right securities. These include, for example, the price-earnings ratio, or P/E ratio for short. This indicates the ratio of the share value to the value of the company. In addition, the P/E ratio indicates how many euros an investor would have to invest in the stock in order to make a profit of one euro. Also helpful in deciding for or against a share is the so-called cash flow. The cash flow indicates how solvent or liquid a company is. As a rule, the higher the cash flow, the more successful the company. For this value to really provide a meaningful assessment, investors should compare the cash flow values of different companies in the same industry.

What do I need to buy shares?

In order to buy and sell shares, a securities account is required. All purchased securities such as shares and funds are stored and managed in the securities account. In addition, a clearing account, usually the current account, is needed for stock trading, from which the orders are debited. In fact, no money can be deposited in the securities account itself. Before they can buy shares and securities, beginners or newcomers must also decide where they want to open the securities account. There are several options for this. In principle, you can open a securities account at any bank or direct bank. However, there is also the option to open a securities account with an online broker.

Where can I open a securities account?

If you want to open a securities account, you have several options. The easiest way is to open a securities account at your own bank or branch bank. There, future investors can speak directly with their bank advisor and have the securities account opened. In addition, the advisors may also have a few stock tips for beginners to help them take their first steps on the stock market.

What is possible at a branch bank is of course also possible at a direct bank. These also offer their customers securities accounts. This can be opened by online application. If you are already a customer of the bank, opening a securities account also involves less bureaucracy, as the relevant data is already available to the bank. However, this applies to both branch banks and direct banks.

A third option are the so-called online brokers. These are either offered by banks themselves or the providers cooperate with banks. They are either part of the offer of a direct bank or are brokers that cooperate with banks. The great advantage of online brokers is that the securities account can be done at any time from home. If you want to quickly start buying shares, this can save time compared to opening a securities account at the bank, as you do not have to wait for appointments here. However, even with an online broker, opening a securities account does not happen overnight. After applying to open a securities account, you must identify yourself via video or PostIdent. So here, too, it can take one to two weeks until everything is ready for the first share purchases. Those who opt for a securities account with an online broker often benefit from free securities accounts without management fees and lower order fees. If you prefer to buy shares online, but are a beginner, you will have to forego personal advice with this broker compared to a securities account at your bank. If you prefer to be advised when setting up the share portfolio, you may be in a worse position with the online broker. However, you can of course take advantage of independent investment advice, e.g. from a fee-based advisor. To get support with your personal investment strategy, you can simply contact your local personal fee-based advisor.

Buying & selling shares - what beginners should know

Which securities are good investments? Should one rather focus on different individual stocks or on equity funds? How can you tell how stable a company is and what risk is involved in buying shares? All these questions arise when buying shares for beginners and newcomers. Before investing, investors should clarify these questions in advance to avoid losses and unnecessary risks.

Buying stocks or stock funds as a beginner?

Before you can successfully invest in stocks as a beginner, you must of course first decide which securities to buy. On the one hand, there is the possibility of buying individual shares, but on the other hand, you can also use stock funds as an investment. The difference between stocks and stock funds is quite simple. A share is a certain proportion of a company. In a share fund many different shares are contained. The fund combines up to different 50 shares depending on the industry or geographical location. The advantage is the automatically high diversification. Therefore, many experts advise against buying only a single share of a company, as this significantly increases the risk of losses. Buying equity funds is therefore not a bad idea for beginners, but you should be aware that there are additional costs involved. An equity fund is managed by a fund manager, for which fees are incurred.

Anyone who deals with shares will also come across the topic of ETFs. Here the question quickly arises, what are ETFs and how do they differ from an equity fund: Exchange Traded Funds (ETFs) are described as passive investments. They replicate the performance of a stock market index. ETFs are traded exclusively on the stock exchange. Equity funds, on the other hand, are actively managed funds, as here the fund manager tries to achieve a higher return than the benchmark index through active intervention. In other words, he tries to beat the market. The benchmark index compares the various funds with each other. ETFs do not have this goal at all, but want to keep the costs low and replicate the benchmark index as closely as possible.

Is it possible to buy shares with little money?

In principle, it is not necessary to invest particularly large sums in shares. The great advantage of shares as an investment is that profits can be achieved even with the investment of little money. When buying shares, it makes sense, especially for beginners, to start with rather smaller amounts and share purchases. Since you should only invest the money that will not be needed in the near future, some beginners may not be able to raise the very large sums to buy shares anyway. But regardless of whether you invest a small amount each month in a savings plan, or buy one-time securities to hold as a long-term investment for many years, stocks are suitable for both large and small investors.

Which stocks should you buy as a beginner?

"One of the biggest mistakes investors make when buying stocks is that they focus on the DAX and maybe the Eurostoxx 50 and nothing more. However, this creates a certain amount of "cluster risk", meaning that they have only invested in their home market and so naturally miss out on returns in the US, Pacific and emerging markets. That's why it's important to diversify and take your stock portfolio global."

"Which stocks are the best to buy?" ask beginners and newcomers to stock trading. Basically, one should never concentrate on individual stocks, but rather diversify more broadly with regard to the various markets. Diversification not only reduces the risk of the investment. Those who focus only on individual stocks may miss out on the returns of other markets. When they buy stocks for the first time, newcomers in particular tend to focus only on their home market. In Germany, this is the DAX stock index. However, orienting oneself to the DAX is by no means wrong. Especially for the first purchases, it is a good idea to include the DAX 30 stocks. The DAX 30 contains the 30 largest German companies listed on the Frankfurt Stock Exchange. These companies have the highest stock exchange turnover and the largest market capitalization. This makes them a good entry point for beginners. In addition to this, however, it is also worth taking a look at the international markets. Here, too, there is a corresponding country index, such as the DAX, to which one can orient oneself. In the U.S., for example, this is the S&P 500, which includes 500 large U.S. companies.

When considering which securities to buy as a beginner, it is also worth considering equity and mixed funds. Mixed funds are a mixture of equity and bond funds. Thus, the fund manager can invest in both stocks and bonds. If the prices on the stock market are good, mainly stocks are bought. If prices on the stock market fall, one can switch to other, safer bonds and thus achieve a broader spread of risk.

How many shares should one buy as a beginner?

How many shares one should buy as a beginner depends on various factors. First of all, the amount of shares also depends on the risk the investor is willing to take and also his investment objective, i.e. the desired return, plays a role in this decision.

In addition, it depends on how much capital is available for the investment. Since only money that will not be needed in the next few years should be invested in securities, the amount available also determines how many shares can be purchased. That is why it is so important, especially for beginners, to check their finances thoroughly in advance and to determine the investment capital before starting to buy shares. Those who find this difficult can also turn to an independent fee-based advisory service.

Of course, you might now get the idea that buying many cheap shares could be useful for beginners. However, this is not necessarily the right way. Because first of all, the price of a single share is not particularly meaningful. Therefore, before making a decision, one should look at the key figures of the desired shares and then decide whether this is a good investment.

Buying many different stocks also initially seems to follow the recommendation to diversify in the stock portfolio. However, buying too many different securities is just as unhelpful as buying a single stock. In order to maintain an overview of the development of one's securities, especially as a beginner, even small investors should follow the rule of including no more than five to seven different securities in their stock portfolio.