How to become an investor from scratch?
Despite popular belief, in order to become an investor, a beginner does not need a special “initiation” into the stock exchange kitchen and a couple of higher economic educations. In fact, the technological side of trading on the exchange has reached such a level that anyone with a telephone and access to the network can open an account with a broker and buy assets into their portfolio.
However, at the same time, trading on the exchange was and remains a serious mechanism that requires knowledge and understanding of its work.
And if you are a beginner, you should immediately say goodbye to the idea of making a fortune by buying assets in a month. One way or another, anyone, guided by analytical reports and news reports, is able to collect their investment portfolio, even if you have not done it before.
Let’s take a look at the whole process of becoming a young investor step by step so that the process is more understandable for you.
Which account to open
Today there is a preferential system of accounts, which helps to save a few taxes. Many beginners open an individual investment account as an alternative to the usual one, as it provides an opportunity to receive additional income after three years.
- If you have an official place of employment with a good level of income, let’s say, at least three hundred thousand per year, it makes sense to open an IIA with a deduction of type A. If the official income is not too large, then it is better to open an account with a deduction of type B.
The main difference between IIA and a regular account is in preferential taxation, which makes it possible to return part of the income tax paid after a specified time.
If the question is which account to open, IIA or regular, rely on your long-term goals. If you do not plan to invest for a long term (more than three years), but want to sell assets and withdraw funds in a year or two, it will be more profitable to just open an account with a broker.
What about taxation
It is easier and more affordable for tax residents of the Russian Federation to invest in the Russian market. If you’re new in investing, it can be tricky to deal with deductions. For example, residents of a country pay 13% of income tax, while non-residents have to pay 30%.
Most brokers recommend opening an account with a broker in the country of which you are a resident. This will save you from the increased tax and will give you the opportunity to work with the same IIA.
The broker who you work with will automatically deduct interest of income tax, which is also quite convenient.
Anyway, if you have a brokerage account, you will not be able to hide your income, so it is important to minimize financial “losses” while working.
How to choose a broker
Residents of the Russian Federation, as a rule, have access to trading on the Moscow and St. Petersburg stock exchanges. At the same time, some brokers provide clients with access to foreign assets (traded on the St. Petersburg stock exchange), while others go only to the Moscow Stock Exchange.
There are enough brokers on the territory of the Russian Federation. Most large banks provide similar services today. There are also organizations that specialize precisely as a broker. Anyway, you can start investing on the exchange only with the participation of a broker, so you still have to choose.
If you are planning to trade through IIA, make sure that the broker you have chosen provides this opportunity, because not all organizations do this.
Next, you should pay attention to the commissions, which are of two types.
Brokers charge a commission for transactions, both purchases and sales. Pay attention to the percentage of the commission for each trade.
There may also be a monthly commission in the form of a fixed amount, say $ 100. If your deposit is small, this can significantly affect your potential income.
However, more and more large brokers are giving up the depositary commission, so it is likely that you will be able to find a partner without additional and unpleasant regular payments.
Open a brokerage account correctly
As I have already mentioned, you can also do this online. I have to admit that, it is worth clarifying whether your chosen broker is ready to open an account remotely, or if you still need to go to the office.
- To open an account, residents of the Russian Federation need only have a passport. If you open an investment account through the bank where you are served, it is even easier to do this.
Now attention. It is important for beginners to know that when opening an account, a bank employee, whether in the office or online, can offer additional services. It’s their job to sell as much as possible.
- Some employees go even further, convincing clients that it is simply impossible to open an account without the services offered or a fixed starting amount of several tens of thousands of rubles.
This is a pure craftiness at its finest, and an optional condition. Do not agree to transfer to trust management of your funds, if you have not previously planned to do so.
- The broker, if this is not prescribed in the terms and conditions of cooperation with him, cannot require you to deposit any fixed amount into your account at the time of its opening. Such requirements can be explained by the desire to maximize your deposit.
Study in detail the agreement with the company through which you plan to enter the stock exchange. This will prevent you from unpleasant surprises in the future.
Top up your account and choose assets
To top up the account if the broker is affiliated with the bank is easy. Here money can be transferred to an investment account from a card or bank account.
But if there is no such a union, you should make sure that no additional commission will be charged a broker for replenishing an account – this is another financial loss for a beginner.
Finally, the money is in the account, and the most important and burning question “What assets to buy?»
You will not be told that following someone else’s recommendations is a potential loss. The fact is that those assets and that portfolio balance that is suitable for one person may not be suitable for you personally due to the level of risk or return.
In general, on the exchange you can purchase three options of assets:
There are also futures, but this is an instrument of the derivatives market. You can also purchase currency, if your broker provides such an opportunity.
Bonds are what experts recommend to start with. There is even an opinion that there should be as many bonds in an investor’s portfolio in percentage terms as an investor is years old.
- Thus, the younger the investor is, the more risky assets (stocks) can be in his portfolio. Accordingly, the older a person is, the less he should risk while choosing more reliable assets in the form of bonds.
As for the funds, they can be called tools for «lazy investors». It is enough to buy a couple of indices, let’s say, on the Moscow Exchange and gold, and watch how they change in price. However, trading on the stock exchange is such an interesting and exciting process that you will hardly be able to sit still in the place of a passive observer.
If you are interested in the topic of investments, but you do not know where to start, I recommend visiting the training materials of the Academy of a Private Investor. In your Back Office you can find out the details of effective training right now!