/ Getting started in the stock market: Building a portfolio

Stock market: Building a portfolio to get started in the stock market

The stock market is a fascinating world that offers many investment opportunities. If you are new to the stock market and want to start building your asset portfolio, follow these basic tips.

How will you react to a market decline? Will you sell your assets? Success in the stock market is closely related to human psychology. Fluctuations in your capital are inevitable, so it is important to assess whether you are willing to accept them.

Investment horizon

Do you want to invest for the short term, trying to profit from daily price fluctuations, or do you prefer a long-term investment? With long-term investments, it is easier to accept short-term fluctuations in the capital invested.

Financial Position

The size of your investment portfolio should match your income, expenses, and other financial obligations. It is easier to invest in the stock market if your income can offset any losses on your invested capital.

Invest passively or actively

Active investing in the stock market means choosing the securities you want to invest in on your own. It requires an in-depth analysis of the assets to create a portfolio that will ultimately outperform the market. Active investing requires a lot of time and work. You must analyze the economic context and data on the financial performance of companies to select those most likely to provide attractive returns.

This method of investing in the stock market is suitable for investors who want to take control of all their investment decisions: the choice of assets, the amount invested in each asset, the investment period, while regularly analyzing portfolio performance.

It is entirely possible to invest in the stock market without spending several hours a week analyzing the assets that make up your portfolio. Passive portfolio management often outperforms active management over the long term. For example, over 10 years, less than 10% of investment funds in Europe were able to outperform their underlying index.

Getting Started in the Stock Market

To get started investing in the stock market, you need to choose a tax wrapper. A tax wrapper is a savings product that allows you to make financial investments. Each tax wrapper has its own advantages and disadvantages, so it is important to choose the right one before you start investing in the stock market.

Common Securities Account (CTO)

A securities account is an account where you can hold stocks, bonds, investment funds, ETFs, and other securities. You can open a securities account with your bank or with an online broker (such as Trade Republic, DEGIRO or Scalable Capital). Working with a securities account is very simple. It is divided into two categories: your assets and your cash. You can make payments as needed to buy securities and withdraw money when you sell them.

The advantage of a securities account is its simplicity and flexibility. The main disadvantage is that it is not the most tax efficient. PFU (Prélèvement Forfaitaire Unique - flat rate tax) of 30% applies to capital gains and dividends.

PEA (Capital Savings Plan)

The PEA is an attractive tax wrapper for those who want to invest in European equities. With a PEA, you can also invest in investment funds and ETFs as long as at least 75% of those assets are invested in shares of companies based in the European Union. In return, the PEA offers investors a more favorable tax treatment compared to a securities account.

The main advantage: the PEA is that it is tax-efficient. If the PEA is held for more than 5 years, gains are taxed at a rate of 17.20%.

Main disadvantage: Not very flexible stock market investment options (you can't buy shares in US companies) and a 150,000 euro limit.

Life insurance

With life insurance you can invest in a wide range of assets as a tax-free package, especially if you invest in the stock market for the long term. With life insurance you can accumulate and grow your savings by investing in shares, investment funds or real estate.

Advantages of life insurance: Favorable tax treatment, ability to delegate portfolio management and prepare for inheritance.

Main disadvantage: Much less flexibility (some policies do not allow you to easily change investment options).

Conclusion

Getting started in the stock market requires careful research and a clear understanding of your financial goals and capabilities. Risk profile, investment timeline, financial situation and preferences for active or passive investing are some of the key factors that contribute to building a portfolio for entering the stock market.

The choice of tax wrapper is also important. It is important to choose a tax wrapper that best suits your goals and investment strategy. Regardless of which tax wrapper you choose, it is important to maintain portfolio diversity and monitor the health of your portfolio. Investing in stocks requires persistence, focus, and constant learning.

Start investing in the stock market with a well-crafted and diversified portfolio that matches your risk profile and financial goals. This will minimize the chances of mishaps and increase the chances of achieving the desired results in the long run.

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