Content

• Steps
• Advice
• Warning

Contrary to popular belief, the stock market is not just for the rich. Investing is one of the best ways to create wealth and help you become financially independent. The tactic of investing in small amounts continuously can lead to a snowball effect, which is when small snow particles gradually grow in size and momentum, eventually reaching progressive rates of growth. To have this success, you must adopt an appropriate strategy, be patient, disciplined, and diligent. The tutorials below will help you get started with small but smart investments.

Steps

Part 1 of 3: Prepare before investing

1. 

   Determine if investing is the right choice for you. Investing in the stock market is risky, and your money can be lost forever. Before you invest, make sure that you can cover your basic financial needs in the event of job loss or difficult circumstances.
   • You must have 3-6 months of salary in a savings account. This is to ensure that if you need to spend money urgently, you will not have to sell stocks. Even relatively "safe" stocks can fluctuate very quickly, and there is always the possibility that the price of the stock will fall below the price you bought when needed to sell.
   • Ensure to meet insurance needs. Before allocating a portion of your monthly income to an investment, make sure you buy the necessary insurance for your assets and health.
   • Never rely on your investment money to cover a hard time, as the amount invested will fluctuate over time. For example, if you invested your savings in the stock market in 2008, and you had to quit your job for six months due to illness, you might have to sell the stock at a 50% loss due to the stock price in the market. decline at that time. If you have enough savings and insurance, you will be able to cover your basic needs regardless of stock market volatility.

2. 

   
   
   Choose the right account type. Depending on your investment needs, you should consider many different types of accounts. Each account represents a means for you to hold your investments.
   • Taxable account is one where all investment income will be taxed for the year in which the income is received. Therefore, if you are paid interest or dividends, or if you sell the stock for a profit, you will have to pay the corresponding tax. Funds in this account are available for you to withdraw without penalty, unlike investments in a deferred tax account.
   • Traditional Personal Retirement Accounts (IRAs) allow you to contribute your investment with tax deductions, but limit the amount of your investment. IRA accounts don't allow you to withdraw money before your retirement age (unless you pay a penalty). You will have to initiate withdrawals when you reach the age of 70. Withdrawals will be taxed. The benefit of an IRA account is that all investments in the account can grow and add up without tax. For example, if you invest 20 million dong in stocks and receive a 5% dividend (1 million per year), that 1 million can be completely reinvested without tax deduction. This means you will receive 5% of the 21 million amount next year. The trade-off is that your access to money will be limited as you will be penalized if you withdraw early.
   • Roth IRA Personal Retirement Accounts do not allow withholding investments, but you can withdraw money without tax in retirement. A Roth IRA doesn't require you to withdraw money at a certain age, so it's a good way to transfer wealth to an heir.
   • Any of the above can be an effective investment vehicle. Spend more time researching your options before making a decision.

3. 

   
   
   Implement the strategy of averageizing your investment costs. It sounds complicated, but the reality of this tactic is simple - with an investment of the same amount each month, your average buying price will reflect the average stock price over time. Averaging your investment costs reduces your risk, as investing in small amounts periodically reduces your chances of accidentally investing before the market plummets. That is the main reason you should plan a monthly investment. In addition, this strategy can also reduce costs because when the stock falls in price, your monthly investment will help you buy more stocks at lower prices.
   • Investing in stocks means you buy stocks at a specific price. If you invest 10 million VND per month, and the stock you want to buy costs 100 thousand VND / share, you can buy 100 shares.
   • By investing a fixed amount in stocks each month (for example VND10 million), you can reduce the price of the stock you bought and make more money as the price of the stock increases (because costs decrease).
   • The reason is that when the stock price falls, a monthly amount of 10 million can buy more shares, and when the price increases, that 10 million will buy less. The end result is that the average purchase price will decrease over time.
   • It is important to note that the opposite is also possible - if the share price continues to rise, the amount of the periodic investment will buy less and less shares, and the average buying price will increase accordingly. time. However, your stock will increase in price, so you will still be profitable. The key is to take the method of investing seriously periodically, regardless of price rise or fall, and avoid "market prediction".
   • After the stock market plummets, and before it recovers (the rate of recovery is slower than the slump), consider increasing your retirement investment by a few percent. This way you will take advantage of the low stock price time and do nothing but stop investing a few more years later.
   • Investing small amounts periodically also ensures that you will not invest large sums of money before the market plummets, so the risk decreases.

4. 

   
   
   Learn about reinvestment. Reinvestment is a fundamental concept in investing, talking about a stock (or any asset) that generates income based on the amount of income that is reinvested.
   • The following example will explain this concept. Let's say you invest 20 million dong in stocks each year, and those shares yield 5% dividend per year. At the end of the first year you will have 21 million. In the second year, the shares also generate a 5% dividend but now 5% is calculated on the amount of 21 million. As a result, you will receive VND 1,050,000 in dividends, 50 thousand more than the first year.
   • Over time this number will increase greatly. You just need to put 20 million in the 5% dividend account, then after 40 years you will receive more than 140 million. If you contribute 20 million more per year, this will be 2 billion 660 million after 40 years. If you started contributing 10 million per month for 2 years then the amount you would make 16 billion after 40 years.
   • Keep in mind that this is just an example, we are assuming the stock value and the dividends do not change. In fact, the share price can go up or down, and your earnings can be significantly more or less after 40 years.
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Part 2 of 3: Choosing good investments

1. 

   Avoid focusing on just a few stocks. The concept of not putting all your eggs in one basket is very important in investing. Initially, you should focus on diversifying your investments, that is, investing money in many different types of stocks.
   • If you only buy one type of stock, you run the risk of the stock's price falling sharply. If you buy stocks of different industries, the risks decrease.
   • For example, if the price of oil falls and the stock of oil falls by 20%, your retail stock may rise in price because customers spend more money on gasoline when the price of the commodity falls. Information technology stocks may keep their prices unchanged. The end result is a portfolio that has less negative impact.
   • One good way to diversify is by investing in a product that can fulfill the requirements of portfolio diversification. Examples are mutual funds or portfolio exchange funds (ETFs). Due to their potential for instant diversification, these funds are a good choice for new investors.

2. 

   Explore investment options. There are many different investment options to choose from. However, since this article focuses on stocks, there are three basic ways for you to approach the stock market.
   • Consider investing in an ETF portfolio swap. A portfolio swap is a passive portfolio of stocks and / or bonds to achieve a number of goals. Often this target will mimic larger metrics (such as the S&P 500 or NASDAQ). If you invest in an ETF that simulates the S&P 500 index, you are buying shares of 500 companies, so diversification is huge. One of the benefits of an ETF is its low investment fees. Managing these funds is very simple, so customers don't have to pay much for the service.
   • Consider investing in an actively managed mutual fund. An actively managed mutual fund uses the money of many investors to buy a group of stocks or bonds, according to a certain strategy or goal. One of the benefits of mutual funds is its professional investment. These funds are supervised by professional investors, who invest their money in a variety of ways and will respond to changes in the market (as noted above). This is the main difference between a mutual fund and an ETF - a mutual fund has managers actively choose stocks to buy according to a strategy, while ETFs simply mimic an index. One downside is that the cost of joining a mutual fund is higher than an ETF, as you have to pay extra costs for active management.
   • Consider investing in individual stocks. If you have the time, knowledge and love to research stocks, individual stocks can make a big profit. Remember, unlike mutual funds or highly diversified ETFs, individual equity portfolios are less diversified and more risky. To reduce this risk, you should avoid investing more than 20% of your portfolio in a stock. This will in part bring about the same diversification as a mutual fund or an ETF.

3. 

   Find a broker or mutual fund company that can accommodate your needs. Use a brokerage or mutual fund company to act on your behalf. You need to focus on both the cost and the value of the service they deliver.
   • For example, there are several types of accounts that allow you to deposit and make purchases with very low commission fees. This is very suitable for those who already know how to invest.
   • If you need in-depth investment advice, you should choose a company with high commissions to receive high quality customer service.
   • With a large number of investment brokers today, you will surely find a place with low commission fees, but still meet your service requirements.
   • Each broker has different pricing policies. Pay close attention to details of the product that you plan to use regularly.

4. 

   Open an account. You fill out a personal information form to use when you need to place orders and pay taxes. In addition, you will transfer money to the account used to make the first investment. advertisement

Part 3 of 3: Focusing on the future

1. 

   Be patient. The biggest obstacle that prevents investors from seeing the strong influence of the above reinvestment phenomenon is impatience. It's really hard for people to sit there watching their balance grow slowly, and sometimes lose money in the short term.
   • Try to remind yourself that you are playing a long game. You should not see failing to make big short-term profits as a sign of failure. For example, if you are buying a stock, you should know its price will fluctuate leading to profit or loss. Usually, stocks fall before they rise. Remember that you own a part of a business, and you shouldn't be demoralized if the price of the gas station you own falls for a week or a month, nor be discouraged if your stock price fluctuates. Focus on monitoring the profits of companies over time to evaluate their success or failure, and stock prices will evolve accordingly.

2. 

   Maintain the pace. Focus on the pace of your investment. Follow the amount and frequency of the investment you identified earlier, and let the investment amount increase gradually.
   • You should take advantage of the time of discount! The cost of capitalization tactic is the right one and has been used to create wealth in the long run. Furthermore, the cheaper a stock is priced today, the higher the chances of its price going up tomorrow.

3. 

   Keep up to date and look to the future. In this day and age, with technologies that can deliver information to you immediately, it can be difficult to look to the future many years later while continuously monitoring your investment balance. However, those who can do this, their snowball will gradually increase in size and speed, until it helps them reach their financial goals.

4. 

   Pursue the chosen path. The second major obstacle to achieving the reinvestment effect is the investor's desire to change tactics, when they pursue immediate returns by investing in new high priced stocks, or selling stocks. just dropped the price.That's the exact opposite of what successful investors do.
   • In other words, do not pursue profit. Investments that are highly profitable can turn heads quickly and cause losses. "Chasing profits" will often lead to disaster. Patiently follow the original strategy, provided you have taken it into consideration.
   • Not changing his stance and not constantly buying and selling shares. History shows that selling stocks at the highest price four or five times a year can be the key to profit or loss. You won't notice those days until they are over.
   • Avoid market prediction. For example, you might want to sell when you feel a market could go downhill, or avoid investing more because you feel the economy is in a recession. The research proves that the most effective method is to invest at a steady pace and use the above-discussed strategy of averageization of investment costs.
   • Research shows that people who simply adopt the strategy of averaging the costs of their investment and accept stable investments will get much better results than those who try to predict the market, invest large sums of money in per year or avoid buying stocks. The reason is that it takes more than a decade to learn the pitfalls of equity investing, such as investor sentiment when the market swings, information is exaggerated, a group of people are paid to Selling shares and falsifying information to create a pink perspective is really just fraud. Many brokers will not tell you that 99.9999% of companies will go bankrupt over time, so mutual funds and investment cost averages will help you avoid all trading firms. cost without having to learn or suffer losses.
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Advice

• Seek support early. Get advice from an expert or a friend or relative who has financial experience. Don't be so proud that you don't dare admit that you don't know anything. There are many people who want to help you avoid making mistakes at first.
• Keep track of investments for tax and budget purposes. Keeping records with clear content will bring you many advantages later.
• Avoid the temptation of quick but risky investments, especially in the early stages of investing, when you could lose everything because of the wrong move.
• If your company has a 401k plan that fits your investment desires, it's crazy not to take advantage of that program. It will give 100% return on your investment. The bank will never pay you 1 million dong for every million dong invested.
• It is important to know if the market is in inflation or not. A period of inflation is good for investments in real estate and gold, but when there is no inflation, investing in stocks is better. A period of inflation is characterized by high prices (such as gasoline prices), a weak dollar and a rise in gold. During this time the real estate market performed better than the stock market. A period of non-inflation is characterized by falling interest rates, and a strong dollar and stock market. During this time the stock market outperformed the real estate and gold markets.

Warning

• Be patient before you can get a big return on your investment. Small investments with low risk take time to return.
• Even the safest investment is risky. Don't invest more than you can afford to lose.