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Wednesday, March 18, 2020

In Times of Crisis Buy stocks: The Best Tips For Buying Stocks

Buying stocks promises high profits. Over the past 30 years, investors with DAX shares have achieved an average return of 7.2 percent per year. If you want to buy securities and make profits with them, you should know the most important rules for buying shares.



BUY SHARES - THE MOST IMPORTANT IN BRIEF


Successful investors achieve returns of more than 10 percent a year on the stock exchange. Your secret of success: When buying shares, you never put everything on one card and spread your risk over several securities from different industries. In addition, they only buy shares from carefully selected companies with a convincing business model and promising future prospects.
In this guide, we explain how you can successfully buy shares and what basic rules you should consider when buying shares.


BUY SHARES - RECOMMENDATIONS & TIPS

When buying shares, rely on a securities account with permanently favorable conditions. Our depot comparison helps you to choose the best provider for you.
Product recommendation: Open a free finanzen.net brokerage depot.1 It has already received several awards in specialist magazines.

Tip: New customers are currently receiving a voucher worth € 129 for the complete online course "Fundamentals of Exchange Trading" from the € uro Academy. Get information here!


WHY BUY SHARES? SHARES PROMISE LONG-TERM HIGH RETURNS

The question "Why buy shares?" Is answered quickly: There is no alternative to buying shares and other securities to build up wealth. In times of low interest rates, stocks offer what savings accounts, for example, can no longer offer: yield. With shares, you can therefore make your wealth accumulation more promising and, for example, polish up your old-age provision.

But what should I look for as a beginner when trading securities? How important is the market price when entering and exiting the stock market? How can I invest my money so that it increases? Anyone who has something on the high edge and wants more than the measly interest on the checking account asks these questions.

Historically, buying securities has been a profitable thing. Investors who had invested in the DAX for more than 30 years (period 1989 to 2018) were able to earn a return of more than 20 percent each year in 14 years alone. However, the DAX also lost more than 20 percent in three years. On average, the annual return on the DAX was 7.2 percent per year, despite the sometimes violent ups and downs.

SHARE TRADING - HELP THROUGH STOCK EXCHANGES

A systematic investment strategy contributes to your success in stock trading. For example, orient yourself on the strategies of investor legends Warren Buffett, George Soros or Peter Lynch. If you want to start trading stocks, you can also align your trading with one or the other wisdom on the stock exchange. Sentences such as "let profits run, limit losses" enable less experienced stock buyers or newcomers to get to know and better internalize the most important basic rules of stock trading.

Whether you want to trust the wisdom of star investors when trading stocks or not, you only invest money on the stock exchange that you can do without in the medium term. This is the only way to comfortably sit out price declines that are unavoidable on the stock exchange. On the other hand, if you use capital in share trading that is needed just a few months later, you can quickly be forced to sell your shares - in the worst case at unfavorable prices.

When trading stocks, plan with a long investment horizon, possibly until retirement. As retirement approaches, you should gradually reduce the proportion of risky investments. They gradually take the capital they need to top up their pension from the stock market over a longer period of time - and invest it in safe, less volatile forms of investment. Once you have completed the rough planning for building up your assets, you can start trading stocks.

HOW DO I BUY SHARES?

As a rule, investors can place the order to buy shares personally through a consultant at the house bank or by telephone, email or fax. With online brokers or direct banks, you can easily place your securities orders via online. You only need the security identification number (WKN or ISIN) of the relevant share certificate that you want to buy. The further steps are usually self-explanatory. Before you can start trading stocks, however, you still need a securities account.

BUYING AND SELLING SECURITIES: WHAT TO CONSIDER?

Investors who want to buy and sell securities such as shares, funds, certificates or warrants first need a custodian bank through which they can trade their securities. A deposit can be opened quite easily at a house bank or with an online broker. This brings us to the first of our most important tips for trading in securities, opening a securities account with a cheap broker.

TIP 1: CREATE DEPOT FOR STOCK PURCHASING AND SECURITY TRADING
In order to buy shares and also to trade other securities, you first need a securities or share deposit. You can open this either at a bank or at one of the often cheaper online brokers. The purchased shares, funds and certificates are then stored and managed in your securities account.

It's hard to believe, but many banks still charge fees regardless of whether you are an investor or not. It is not uncommon for these administration / custody account costs to be around 30 euros per year. You can avoid these costs! Selected providers and online brokers offer account / custody account management free of charge.

REGULAR CHARGES AND COST OF CUSTOMER MANAGEMENT AT A GLANCE

There are various fees for your orders, i.e. for the purchase and sale of shares and other securities. In addition to exchange fees, which depend on the chosen trading venue (Frankfurt Stock Exchange, Stuttgart Stock Exchange, ...), your custodian bank also charges fees for each order, the so-called order commission. As a rule, securities investors pay a fixed commission for each order (for example EUR 7.95) as well as a volume-dependent commission. An order with a high volume, for example over EUR 10,000, therefore costs more than a EUR 2,000 order.

Important: A volume-dependent order commission, with a somewhat higher order volume, can quickly cost between 20 and almost 70 euros per order for most banks and brokers.

For your securities transactions, choose a provider with free account management, where you can buy and sell shares and other securities such as bonds, certificates or funds with low order commissions! You can set up free securities accounts with many brokers these days. Some custodian banks even offer securities trading at a fixed order commission of just a few euros, i.e. without volume-dependent fees. So it doesn't matter to you whether you want to buy securities with a value of just 500 euros or maybe even to conduct a trade with a value of 50,000 euros. Compare the conditions of the most popular brokers in our broker comparison.

We have also summarized other helpful tips for opening your depot in the guide Open Online Depot for you.

TIP 2: DEFINE THE INVESTMENT TARGET - EVEN BEFORE BUYING SHARES

Did you open your depot? Then define your investment goals - even before you buy your first share!

Tip: First answer the following questions:

1. How much money do you have available for trading securities?

As a beginner, start with small amounts and share purchases. You should also only invest capital on the stock exchange that you do not need at short notice. If the markets are going in the wrong direction, you don't have to sell at a loss, because an expensive car repair may be required. Securities trading on credit is taboo especially for beginners and is suitable for investors with many years of experience.

2. What risk are you willing to take?

Determine what risk you are willing to take. Anyone who trades in securities and invests in shares also has to expect temporary price declines. Share prices often fluctuate strongly, so that 10,000 euros can become not only 12,000 euros but also 8,000 euros within a few weeks or months.

Basically, the higher the supposed chance of a security, the greater the risk.

3. What return do you expect from your investments?

Determine the return you want to achieve with your stock market investments in period X. Rely on long-term, not short-term returns! In a securities account, yield assumptions in the range of five to ten percent per year are realistic. Remember: Most of the time, investors fail on the stock exchange because they want too much too quickly and buy shares that are too risky, for example. Investor legends of a Warren Buffett range do not rely on quick returns when trading securities, but on good companies. Then, in the long run, success usually comes naturally.

TIP 3: WHICH SHARES TO BUY? COMPILING SECURITIES DEPOSIT

If you have answered the above questions, you can devote yourself to the basic composition of your securities account - and the question: Which shares to buy?

Those who pursue a clever investment strategy are successful on the stock exchange in the long term. Which securities investors should buy depends largely on their risk appetite. While security-oriented investors tend to choose securities such as bonds or mixed funds, investors who are more willing to take risks often rely on equity funds and individual stocks. When buying shares, beginners should - depending on the type of investment - rely on growth shares, value shares or a mixture of these.

Tip: Successful shareholders minimize their risk primarily through diversification, i.e. the broad diversification of stocks.

Experienced investors therefore do not put everything on one card when trading securities. Instead, you buy shares from several companies from different industries and from different regions / countries. In this way, possible losses of individual shares can be offset against profits from other securities investments.

Investments in companies that are active in growth markets (so-called "growth stocks") can be extremely lucrative, since these companies often increase their profits considerably. This usually has a positive effect on the share price. On the other hand, trading growth stocks is also more risky than trading “value stocks”, meaning well-known companies that operate in established markets and have been market leaders there for years. Value stocks are often not as promising, but they also harbor a lower risk of loss. Value stocks often also offer higher dividend payments than growth stocks. Dividends have a positive impact on the return on your equity investment.

TIP 4: SHARE PURCHASE - INFORM BEFORE DETAILED

Money is not on the street at the stock exchange. Keep in mind that as a buyer of a stock, you always come across a seller who thinks it is better not to own the security. As a seller, it is exactly the opposite. Before you buy a security, always question your opinion from this point of view. If you want to increase your wealth with securities in the long term, you should therefore choose your investments carefully and always keep up to date with your securities before and after the purchase.

When buying shares, the following applies: Before you buy a share, find out all you need to know about the investment and orient yourself towards the most successful investors of all time, such as Warren Buffet, George Soros, Benjamin Graham or Peter Lynch. They only invest in securities of companies whose business they fully understand.

Tip: Take a look at the Investor Relations website of the company you want to invest in. Get an overview of the business of the corporation on finanzen.net. Here you will find extensive information on every security and every listed share, for example here on the DAX stocks. In addition to news, information on the share price development or the business figures, you will also find dates, key figures and assessments from analysts there. When choosing suitable stocks, a look at the constantly updated list of purchase recommendations from analysts also helps. The finanzen.net stock exchange apps also provide valuable services here. There you can easily be informed as soon as there is something new about your securities.

TIP 5: AVOID THE BIGGEST BEGINNER MISTAKE IN SECURITY HANDS

Many beginners make the same mistake when trading securities. They invest their money in just one security, usually a rather speculative stock. This can go well, but in most cases it goes wrong. Avoid such a single-value risk and the risk of double-digit losses on the next downward movement or negative corporate news. Never put everything on one card at the stock exchange! Instead, spread your risk by dividing your stake into several promising values.

Tip: Start gently with smaller amounts on the stock exchange, do not immediately start trading securities with overly speculative stocks and do not make the biggest beginner's mistake to put everything on one card. Before you buy your first share, a test of your own investment strategy is recommended. Create a watch list with interesting values ​​and a sample depot. Simply register for free on finanzen.net, then you can create as many watchlists and sample portfolios as you like under "myfinanzen" and experiment with different exchange strategies without investing real money.

TIP 6: WHERE TO BUY SHARES? CHOOSING THE RIGHT TRADE SPACE

Once you have defined your investment strategy and decided on a company's share or the purchase of another security, you must enter the security code number (WKN or ISIN) in your broker's trading mask and select which exchange you want to use to buy your security. In Germany you have the choice between the Frankfurt Stock Exchange, the XETRA system of the Frankfurt Stock Exchange and some regional exchanges (Stuttgart, Berlin, Düsseldorf, Hamburg ...).

You can now also buy and sell many securities in OTC direct trading. As an investor, you save yourself the exchange fees and brokerage fees. In addition, you do not have to wait for your order to be executed on the exchange. Our recommendation is therefore: Buy common stocks through direct dealers such as Tradegate or Lang & Schwarz.

Nowadays, you can trade stocks directly at various trading venues. The principle is simple: You place a price request for 20 BASF shares in the order form of your online broker. The trading partner of your custodian bank will then inform you of a non-binding purchase or sale price. Since the market prices change quickly, you only have a few seconds to decide on the offer. If you do not do this, you can then make a new binding price request. You can also trade certificates and warrants conveniently and directly from the issuing bank, the so-called issuer. Provided that your custodian bank offers over-the-counter direct trading with this issuer, i.e. with the corresponding direct dealer. It is best to check this before opening your securities account!

Which trading venue is the cheapest depends on many factors: Your planned volume for securities trading, brokerage (broker's commission) and the spread, i.e. the difference between the buying and selling price, are particularly relevant. With standard stocks such as DAX shares, the differences are usually negligible. In the case of small caps with a small trading volume, on the other hand, you should make sure that your security is actively traded on the trading venue you have chosen, so that you buy or sell at a market price. You should also exercise caution with over-the-counter direct trading outside of regular trading hours. Since the direct trading partners bear a higher risk here, the spreads in securities trading are regularly higher than during the regular trading hours.

Tip: Use the extensive information on finanzen.net. Here you will find the current prices and trading volumes for each security at the various trading venues (example: Siemens stock exchanges). Select a trading venue where your share is actively traded (stock exchanges and trading volume for the Siemens share). Also important when buying and selling shares: Always place your order with a limit (a price limit). This ensures that you don't pay an inflated price when you buy, and that you don't get a bad price for your shares when you sell. With brokers with top conditions such as the finanzen.net brokerage depot, you do not pay any fees for setting, changing or deleting a limit.

TIP 7: OBSERVE SHARES AND SPECULATIVE SECURITIES

The price of your shares is mainly influenced by company news. Good business figures mostly lead to price increases, poor business figures tend to lead to price losses. In addition, other news that is not directly related to the company also affects the share price. The shares of a car manufacturer that sells a large part of its cars in China will tend to grow with good economic news from China, but will tend to fall when there is bad news.

Tip: Even if stocks are usually intended as a long-term investment, you should keep yourself up to date on current economic developments and your stocks. You can find constantly updated market reports on finanzen.net and in the finanzen.net stock exchange apps. You can also easily be informed there as soon as there is something new about your shares.

TIP 8: RUNNING THE WINNING, LIMITING LOSSES

While traders tend to aim for quick returns, investors are looking to invest in successful companies in the long term and to participate in their success by buying shares. Nevertheless, even with long-term investments, it is advisable to question them if success fails to materialize or the share takes the wrong direction.

Experienced stockbrokers act according to the old stock exchange motto "let profits run and limit losses". For many investors, however, psychology is putting a spanner in the works. They often realize their trading profit after small price increases. On the other hand, they do not sell if the price falls and hope to see their purchase price again sometime. It is not uncommon for high losses to accumulate.

TIP 9: RELY ON FUNDS AND PASSIVE INVESTMENTS

When trading securities, you can also rely on investment funds and passive investments such as ETFs or index certificates. These securities can be an excellent alternative to long-term wealth accumulation, as they offer investors a broad risk diversification with just one investment. However, experienced investors do not buy the next best fund, but choose their investment wisely. When selecting, professionals pay particular attention to experienced fund management, an above-average price development compared to other funds (with the same investment focus) and a comparatively small fluctuation range, a measure of the risk. Use the fund tools on finanzen.net here, too, with which you can compare funds according to various criteria such as the Sharpe ratio and select the best funds from individual industries quite easily. Here you can find more tips on fund purchases.

On the other hand, if you just want to invest in an index such as the DAX, Exchange Traded Funds (ETF) or index certificates are available. Since these replicate the index practically one-to-one, no fund management is required here, which is associated with significantly lower cost / fee structures for investors.

Tip: Trading shares, certificates and warrants is fun and can bring high profits. Nevertheless, use funds and passive investments to build up long-term assets. When choosing your broker, pay attention to a wide range of funds, ETFs and fund savings plans. Especially when buying funds, high front-end loads of up to 6.25 percent sometimes become due. Lost money that you can skillfully navigate when buying through fund brokers or brokers with customer-friendly terms. For example, customers can use the finanzen.net brokerage deposit to buy almost all funds authorized in Germany without a front-end load.

FINAL POINT: WHEN TO BUY SHARES?

Finally, we address one of the most important investor questions: When is the best time to buy and sell stocks? The question of the right entry and exit times is asked by many investors who want to build up wealth by trading on the stock exchange. The somewhat sobering answer to this is: The perfect moment to enter the market or exit an exchange exposure cannot be foreseen. Despite all the possibilities, investors are only lucky if they hit the right time. The fact is: if you wait for the right time, you've already missed it. The following methods can help to at least approach the perfect entry point.

Various economic indicators can give signals for future price developments. These include, for example, various performance reports on the economic situation of a country (GDP figures etc.), the inflation rate, the development of oil prices and the ECB interest rate development. The most important methods to find the best possible time to buy shares are technical analysis and fundamental analysis.

The technical analysis examines the past price development of a share or an index ’for conspicuous price formations - depending on the strategy or method chosen, other patterns / signals are important. As a rule, technical analysis analyzes charts, which is why they are also referred to as "chart analysis" or "chart technique".

The fundamental analysis, on the other hand, takes a close look at various fundamental data on stocks and companies. The aim is to find out whether it is currently sensible to buy or sell shares. The price-earnings ratio of a share (short: P / E) is, for example, a particularly popular fundamental indicator. The KGV helps to track down cheap share certificates.

Note: The entry point is less important for investors who have a long-term investment horizon when trading stocks than for short-term investors.

BUYING SHARES AND BUYING SECURITIES - YOU SHOULD DO IT

1:Open a securities account for stock trading.
2nd:Define your investment objectives. So determine how much money you want to invest, what risk you want to take and what return you expect from your investment.
3rd:Assemble your securities account and choose stocks that fit your investment strategy.
4th:Spread your risk and don't put everything on one card.
5:Monitor the performance of your stocks. Benefit from profits and limit losses.

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