How to start investing

BinckBank will help you take the first steps on the trading floor – and we’ll be there for on-going support whenever you need us!

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1. Determine your objectives

What are your goals? What kind of returns would you like to achieve – and how much loss can you afford? These questions are central to your decision to invest. Before you begin it is important that you determine your investment objectives and keep your goals clearly in mind. You need to do this in order to determine how you want to invest and your appetite for risk.

2. Select an investment horizon

Your investment horizon is one of the key elements in determining your investment approach.  Different for each person, it is the period of time that you will be allowing your investments to work for you and mature before you want to cash them in. In the short run the value of your investments can fluctuate greatly, especially with riskier investment types such as options and leveraged products.  

Unless you are experienced, we advise our clients to take moderate risk, set an initial investment limit and focus on a medium to longer investment horizon to achieve your goals. Other, more opportunistic, investors have no horizon time at all – they see a chance in the market and try to leverage this in order to potentially achieve a higher return. 

At the end of the day it is you who must decide what strategy is right for you, but of course we are always here to assist.

3. Your desired return

Once your goals are set and your investment horizon determined you can think about your desired returns. Imagine you have €5,000 available and decide to invest this amount. If you want to double it to €10,000 over 15 years, what kind of return would you need? We are here to assist.

The rule of 72

Use the ‘Rule of 72’ to help you calculate the required rate of return or the investment period easily.

• Rate of return = 72: the investment period

• Investment period = 72 :the average annual rate of return

In the scenario described above, you will have to add €5,000 to your assets over a period of 15 years to make the original €5,000 grow to €10,000. Your required return would in this case be 72 : 15 years = 4.8% per annum. Note that the Rule of 72 is a rule of thumb. Results obtained this way are not exact, but provide a reasonably accurate indication.

4. Decide how much time you want to spend investing

The more time you spend understanding the markets you want to trade in and the risks associated with them, you will be more equipped and have greater know-how to make better informed decisions.

5. When to buy and sell

When investing in the long-term, a commonly used strategy is to go for solid, profitable companies that pay good dividends. The ones to look out for are firms that have been performing consistently well for years. They are known as ‘Blue Chip’ companies, and Warren Buffett – possibly the world’s most famous investor – has been particularly successful with long-term positions in blue chip stocks.

If you are thinking of a shorter term strategy, it would be smart to include a technical analysis (TA) into your decision-making. TA tracks historical prices to predict future trends and in practice provides a popular tool to help determine the correct entry and exit time.

6. Which financial instruments are you going to use?

There is a choice of many different financial instruments, so you have to select the ones that will suit your strategy. Both inexperienced and long-term investors usually opt for stops, trackers and bonds, while the most popular instruments for short-term investors are shares, options, ‘turbos’, ‘sprinters’, futures or a combination of these.

Please note that we are speaking in general terms and not guiding  you on a one-on-one basis. Every investor is different and has different needs and preferences. We recommend that you only invest in instruments that you feel comfortable with and understand the associated risks. If you are investing for your retirement provision, make sure to use a safe, secure strategy and avoid risky derivatives.

Tips for when you start investing

• Don’t rush – take your time

• Check your portfolio regularly

• Follow the financial and economic news

• Read blogs about investing

• Do not take too much risk, especially at first