Interview with a real beginner: answers to the most common questions of a beginner investor
Logically, advice and tips for beginners are usually written by experienced investors, which usually means that they do not reflect the real problems of a beginner. But I did ask a real one for questions, which we will now answer together!
I don't want to write an article about advice for beginners from the perspective of someone who may already remember their beginnings a little skewed. So I asked my friend Cuba to send me a list of questions he would ask privately anyway. I will try to answer those here for anyone who may be in a similar situation. Just for context - Kuba is a college student who earns his money after part-time jobs and working while attending school. So he is almost a prototype of a person who wants to start (or has already started a bit) with investing. But now for the questions:
- Is there a right portfolio size? Is it better to diversify into new stocks all the time, or to have a steady portfolio and grow that?
There is probably no right answer to that. Every investor perceives the term "right diversification" differently. Many top managers swear by the fact that it is easiest for them to bet on, say, three companies they believe in 110%, rather than picking 20-50 with less potential. It's also important to note that a portfolio is not (and probably shouldn't be) made up of just stocks most of the time. Other securities, physical precious metals, cryptos, art, etc. may be represented. But that's probably for another discussion - so let's just stick with stocks.
https://www.youtube.com/watch?v=rYnQ-yWbRBs
On the second part - For a person who doesn't want to be interested in investing full-time, it's definitely preferable to stabilize some portfolio of companies they trust. You maintain and increase positions. Of course, ideally these should be of a quality and companies that will never need to be sold. A beginner, and probably no amateur in general, should have a portfolio of companies that must be followed "every day". Of course, it is necessary to make some adjustments to the portfolio from time to time. But in such a case one should really stop, think and properly analyze whether one is acting in unnecessary panic.
- How to perform a basic stock analysis? What do all the abbreviations for each stock mean? Alternatively, what values should I be interested in?
That's probably for a slightly longer answer. The basic analysis should be done sort of "in your head". Think about whether the company can be great in, say, the world 20 years from now. No one has a crystal ball to know which way the world will go. But we can guess and trust our judgement at least a little.
Then, of course, comes fundamental analysis. Numbers, reports, results, management, market sentiment, analysis of the market environment and competition. That would take several articles - so I'll just link to the video and we can eventually address it in a future article.
https://www.youtube.com/watch?v=_ZElGSm0pwE
- Social Investing. Yes/no and why?
Here Kuba alludes to the portfolio replication features offered by e.g. eToro. It's not bad, but it has several BUTs to watch out for. The first problem I perceive, in particular, is that you don't actually know much about how the stock works afterwards. It can make the beginner's mind a bigger mess than the one they came up with.
Secondly, it doesn't end with a simple click to copy - as some think. In fact, the copied investor often (and rightly so) adds funds to their portfolio that the copying investor must add proportionately. The other problem is also that in this case you are often buying fractional stocks to keep the portfolios at the same % ratio. Which brings up the issue regarding taxation of fractional shares.
How to tax fractional shares? Here's the answer from top experts
Finally, you may be a very active investor who makes several trades a day, which can mean you exceed the quantity test very quickly .
- Brokers... how important should it be for me to look for the right one? Are there big differences in the market?
It's absolutely crucial. After all, it's the first step for any investor. There are big differences. Whether it's the actual form that the stock broker provides, or perhaps the additional services, tools and fees.
In general, an investor should opt for safety above all. Don't be tempted by "sexy" features and options that you won't use anyway. We discuss brokers here often, so I would recommend looking for broker comparisons and overviews. This step really should not be underestimated.
It's also important what one actually wants to do. Do you want to buy ETFs, send a fixed amount each month and do no more? Or do you intend to do intraday trading, buy crypto, trade forex? Then your choice will probably be fundamentally different.
Here are links to a few articles about brokers that we have covered here on Bulios:
Review of the eToro investment platform
Degiro: The broker that offers the best conditions for investing in ETFs
Trading 212: The best broker for beginner investors?
XTB Review: Is it the most fee-advantaged broker on the market?
Alternatively, a comparison of all brokers in terms of specific criteria. For example, last time I looked at the form and amount of deposit insurance for each broker.
Are your investments safe? A complete overview of the amount of investment insurance for all brokers
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Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and several other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.
