Buying shares and trading on the stock exchange yourself is easier than ever thanks to online trading. After all, a few clicks is all it takes to complete a trade, and the share is added to your portfolio. But before you get as far as actually purchasing a share, there are a few basic rules and tips you need to bear in mind to avoid making the wrong move. Here’s a step-by-step guide of what to do if you would like to add shares to the securities in your custody account or want your first investment to be in shares.
Buying shares: what you should watch out for
Are you looking to purchase shares for the first time? 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. Find out what you have to do to invest your money directly in shares.
1. Open a custody account
The first step when trading shares is to open a custody account: to buy and sell shares you need to have a securities custody account with 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 before you can start trading shares.
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 your portfolio
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. Diversification means that options are increased and risks are reduced. For instance, diversification reduces the likelihood of putting all your money on the wrong horse and means that the performance of other securities can compensate for this if need be.
Want to find out more about diversification? Read our article “Diversification – why you shouldn’t put all your eggs in one basket”.
4. Find out more
New technologies and exciting new industries often seem an enticing prospect. The most important tip is: never invest in anything you don’t understand or don’t know anything 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
When you have chosen your first 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? Only then should you begin filling your custody account with shares.
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:
Find out more about the different types of share you can invest in our article “The various types of shares”.
Want to learn from the greatest stock market gurus? Read the best tips from Warren Buffett and others in our article “Learn how to invest with the very best tips from renowned investors”.