People often think investments are just for the very wealthy. We don't agree. It's now possible to get started in investing with a few dozen euros. However, it's essential to understand the opportunities and risks of investing. That's why we created this page: to teach the investment basics to people who are just starting out.
So let's get started.
Starting to make an investment means moving your money to try to get a positive financial yield. You have capital, someone else has an idea. By providing your money (temporarily), this idea could become a reality. It's therefore likely, though it can't be guaranteed, that you then receive a financial reward for the risk you run.
Maybe you would like to stop working earlier? Or put some money aside for a rainy day? Or leave something to your children or grandchildren? Generally speaking, you have two options: either you put your money in the bank to get savings interest, or you invest it. Saving has a major advantage: the risk is fairly limited. However, interest rates are still quite low at the moment compared to historical averages. When you invest, you could get a return. However, this is offset by the risks you run by investing in ETFs. This page, “investing for beginners”, gives you an overview. Click here for more information about saving, investing and risk in the relevant section of the ETF Academy.
Investing for beginners is risky, as well as more experienced investors. Prices fluctuate and you could lose part or even all of your investment. However, it's possible to limit these risks. The main ways of doing this are:
By sticking to this principle, you become a long-term, non-speculative investor. People who fall under the category of beginners in particular should stick to these clear, simple rules. Click here for more information about risk in the relevant section of our ETF Academy.
Normally, it's primarily the wealthiest families who invest. This is a pity, because investing can lead to attractive yields over the long term. We think it's important to make investments accessible to everyone. That's why we're trying to bring together useful, simple concepts for getting started on this "Investing for Beginners" page.
A whole range of investment categories is available. In practice, they include the following categories, which are some of the most common:
What kind of return can you expect from your investments? Our answer is we don't know and neither does anyone else. It's the risk you run, which could be rewarded. Although past returns are no guarantee of future returns, it may be interesting to look at historical returns for each asset class. According to academic research1, in the USA the nominal annual returns for the period 1928-2021 were as follows2:
It's possible that returns will be lower in the future, but we can't know this with any certainty:
When you invest, you could lose the whole investment. In practice, this is a real risk only for people who invest in a very concentrated way, for example in one or a small number of securities in the same sector. By diversifying, the risk can be reduced without necessarily losing out on return. To do this, you need to invest in different products:
Diversification is therefore a very important issue, especially in light of the subject of this page, “investing for beginners”.
Since prices are volatile, it would be better to maintain investments over the long term. It would be a shame to get in when prices are high and get out when they're low. Some investors buy in for eternity, intending to pass on their portfolio after their death. By adding securities to their portfolio, they increase the flow of annual dividends. These dividends can for example be used for day-to-day expenses and consumer needs. The subject of dividends is also covered in detail in its own section of our ETF Academy.
It's important to bear in mind that investment costs can significantly reduce yields. Unfortunately, some managers are very good at creating expensive investment products with costs that are not very transparent. So looking at the small print is one of the details you need to pay attention to when investing, especially as a beginner.
Is there a right time for investing for beginners? And to get out? There are countless managers who use historical simulations to show that their method leads to fantastic results. However, few, if any, of these methods have proven to work reliably in the future as well. As a result, it would be good not to "time the market", but to stay invested for a long period. Gradual entry, for example with a fixed amount each month, reduces the likelihood of investing all of your capital at a time when the equity markets are high.
For beginning investors, investment funds offer considerable advantages compared to buying securities directly:
But keep an eye on costs! ETFs are relatively low-cost investment funds. To find out more, consult our ETF Academy.
1 Aswath Damodaran, NYU Stern School of Business, “Historical Returns on stocks, bonds and bills: 1928-2021”, January 2022.
2 Nominal yields refer to SEC yields before inflation.
The actual increase in value is smaller due to inflation. Stocks and shares are represented by the S&P 500, Government Securities by 3 months US Treasury bills, property by the Case-Shiller Index calculated on residential real estate.
NB: these numbers refer to a very long period, nearly 100 years. There were many periods where yields were negative. The yields above are also gross of costs. In addition, the bonds benefited from a prolonged period of falling interest rates.