How to Invest in Shares on the Stock Market
If you are inexperienced in finance and the equity market, you are probably wondering how to make an investment in stocks. Generally, you can buy shares of an individual company directly on the stock exchange, or you can choose mutual funds or an exchange-traded fund (equity ETF) for your portfolio. As a rule, the easiest first step is to register with an online broker. You could use the services of a financial advisor within that firm, or you could invest in stocks based on your own research – a combination of both is also possible.
While you can invest in shares of a single company, it is recommended that you also consider mutual funds and equity ETFs, as these types of investments are more diversified. Both types of funds contain several positions and companies, which reduces your overall risk in the stock portfolio. If one of the companies in the fund underperforms, others could improve or remain stable, minimising losses and potentially maximising gains.
Mutual funds and equity ETFs have many things in common. The main differences, however, are how these funds are managed and how they are bought and sold. A mutual fund is typically actively managed by a fund manager, and that manager buys or sells the fund's assets in hopes of maximising profit for investors. Since these funds are actively managed, investors typically pay much higher fees than when investing in ETFs through the equity market.
Equity ETFs are usually passively managed, which means that you as an investor do not have to bear the costs of an active fund manager. Instead, equity ETFs are designed to track specific market indexes, such as the MSCI World, S&P 500, Dow Jones, Nasdaq Composite, Euro STOXX 50, S&P Asia 50 and others. ETFs can also be bought and sold during a trading day on the stock exchange, just as you would when investing in stocks. With mutual funds, you have to wait until the markets close before you can buy or sell. You can also find out more about investing in stocks on the external pages of the online broker 1822direkt and about the stock exchange at Boerse.net.