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Created on 08.05.2019

Buying shares: what you should watch out for

Shares can be a very attractive investment prospect for many investors, though they are more volatile than other securities. Historically speaking, however, they are characterised by greater potential returns in the long run. Our step-by-step guide complete with important basic rules on buying shares will help investors get to grips with shares so they can pick the right ones.

Buying or selling shares is the easiest it has ever been thanks to online trading. After all, a few clicks is all it takes to complete a trade, and the share ends up in your portfolio. But before you get too carried away, there are a few basic rules you need to bear in mind so you avoid making the wrong move.

1. Open a custody account

The majority of investors involved in online trading today rely on themselves. To buy and sell shares, they have to set up a securities custody account at a bank. This is something that is usually very easy to open online. With PostFinance, for instance, all it takes is a few clicks in e-finance itself.

2. Define your investment horizon

A longer-term investment horizon is crucial to shares more than it is to any other security. If you can invest over the course of ten years or more, this will increase your chances of making a bigger return on your investment thanks to financial market trends, and potentially because of dividends as well. At the same time, a long investment horizon will also help you compensate for any potential losses caused by drops in share prices or stock exchange corrections. You can also be more flexible about when you decide to sell your shares if you have a long investment horizon than if you have to sell your shares quickly, and potentially at a bad time to boot.

3. Diversify

Diversification is a term in finance that refers to spreading your assets across several investments. In other words, you would distribute your funds across various different markets, industries, currency areas and securities. The term diversification comes from economics and means that options are increased and risks are reduced. This reduces the likelihood of putting all your money on the wrong horse and means that the performance of other securities can compensate for any security that does not perform as well as anticipated.

4. Find out more

As enticing as new technologies or exciting new industries may appear, don’t invest in anything you don’t understand or know about. Investors who are reluctant (or unable) to take overly high risks in particular should look more towards shares in companies that have a decent business model and a consistent cash flow. Consult expertsif need be to find out more about a company and its most important key figures.

5. Set your target price

If you have chosen a share, think about the target price you would want for it. In other words, when will it have increased in value enough for you to decide it’s worth selling again? And what is the absolute lowest figure you would get rid of the share for, loss or not, to avoid making a bigger loss?

6. Place your trade

Once you have selected your share, the next step is to actually buy it. You can do this very easily and independently with PostFinance using its online platform, “E-trading”. But don’t forget: whenever you buy or sell a security, you will be charged fees for carrying out, processing and brokering transactions, and the amount you will pay (i.e. the brokerage fee) will depend on the size of the order and the stock exchange. In this video, we will explain what buying shares involves: 

Provided you take these points into account, there is nothing standing in the way of you becoming a shareholder. For more info and tips about how to invest your money, take a look at the article “How to invest your money yourself”.

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