Investing is very important if you want to become Financially Independent (FI). It will help you reach FI and it will also help you once you retired. It is the best way to fight inflation! If you plan to accumulate any amount of money, you will need to invest it.
However, investing is not easy to start with. There are many concepts that you will need to learn. I am writing this guide to walk you through investing. And more specifically through financial investing: bonds, stocks, and funds. Each post of the series will go into more details into one particular subject.
If you want to learn all about investing, this investing guide is for you. It is mainly aimed at beginners and starts from the ground up. But I also cover some advanced notions that everybody should find interesting.
Throughout the series, I will also share what is my current strategy for investing. The idea is mainly for you to learn about investing so you can make your own idea about investing.
1. Learning the basics
The first part of the guide is to learn all the basics of investing. It is very important to start with the fundamentals when you want to learn about investing.
- Investing basics: The basics of investing. The different ways of investing and how to invest.
- Financial Investing: The main financial instruments: Cash, bonds, and stocks.
- Mutual Funds: Funds of stocks and funds of bonds. Find out about passive investing to save on your fees!
- Exchange Traded Funds (ETFs): Mutual funds that are traded on the stock market. Very high availability.
- Index Replication: Find out the different ways of replicating the indexes that are used by ETFs and mutual funds.
- The three-fund portfolio – Keep it simple: Discover simple portfolios made of three funds. By holding only three funds, you can have a diversified investment portfolio. And you have minimal changes to do over the years.
- More lazy portfolios: Discover more form of lazy portfolios made of a few funds that don’t change much.
- Target Retirement Funds – Too much simplicity ?: Discover funds that are set for your year of retirement. You only need to hold one fund all your life. But is that too simple?
- Dividends – A nice passive income: Some stocks are paying dividends to their shareholders. Some people are investing specifically in these stocks. Find out how this is working?
Once you know more about investing instruments, you will need to decide on a portfolio. You can use an existing portfolio such as the three-fund portfolio. Or you can design your own portfolio from scratch. For this, you will have to learn a few more things:
- How to choose between stock market indexes. There are many stock market indexes available. You will need to decide which indexes you want to invest in. There are many things you can use to compare two different indexes.
- How to choose between two funds. Once you have chosen an index, you will still need to choose a fund to invest in that index. And there are sometimes many funds for the same index. Once again, there are many things you have to take into account to compare two funds.
- How to choose an index ETF portfolio. Finally, once you know how to compare indexes and funds, you are ready to design your own index ETF portfolio. You will have to decide on which instruments you want and which countries you want to invest in.
Designing your own ETF portfolio is not an easy thing. Most people are probably better off by using a simpler well-known portfolio.
3. Stock Market Indexes
There are many available stock market indexes. You do not need to know them all. But I believe it is good to know about the indexes you are investing in. I have written about several indexes:
- The Standard & Poor’s 500 Index (S&P500). This is probably the most famous index for the United States market.
- The Russell 3000 Index. An index comprising the 3000 largest companies of the United States.
- The Swiss Stock Market Indexes. Even though the Swiss stock market is very small, there are many indexes for this market. It is very interesting to learn about them.
4. Advanced notions
If you are interested in learning to invest, you can also go through some advanced notions.
- Exchange Traded Fund (ETF) Arbitrage: Discover how do ETFs keep their price in sync with their index.
- Currency Inflation: Learn all about inflation. This is the main reason why you should invest in the first place.
- Compound Interest: Compound Interest makes investing powerful.
- Yield Curve Inversion: An event believed to predict the next recession.
- Stock Market Order Types: The different order types that you can use to buy or sell shares on the stock market.
If you want to invest in stocks, bonds or Exchange Traded Funds (ETFs), you will need a broker. This will let you buy and sell securities on different stock exchanges.
I personally use and recommend Interactive Brokers as a broker. It offers a very wide range of financial instruments to invest in and has very low transactions fees. If you do not have an account yet, I wrote a guide on how to open an Interactive Brokers Account.
If you want a European broker, you can take a look at DEGIRO. It is a very good broker as well but DEGIRO does not offer access to U.S. ETF. If you do not want to invest in American ETFs, this is a very good choice. And it is significantly simpler to use than Interactive Brokers. If you are interested, I also have a guide on how to open a DEGIRO Account.
6. Alternative Investments
Investing is not only about stocks, but there are also many possible investing instruments. I do not believe one should invest a lot of money in alternative investments. But it is still a nice way to diversify your portfolio.
- P2P Lending: Instead of lending your money to a bank, you could lend your money to other people. This bypasses the bank-in-the-middle model. This can generate nice returns but could be risky.