how to start investing

How to Start Investing: You Need to Start Now [2024]

When I started investing more than 25 years ago, I had no idea what I was doing. I watched CNBC, read the news, and bought the hottest stock. Of course, that ended badly. I lost money and vouched that I would never invest in the stock market again. I then read The Millionaire Teacher by Andrew Hallam.

Investing can seem intimidating if you’re new to it, but it doesn’t have to be. Whether you’ve heard that you should invest to build wealth or are just curious about how to get started, this guide will walk you through the basics. We’ll focus on stock market investing, which is often the best long-term strategy.

For me, the Millionaire Teacher made investing so simple. You simply open a brokerage account (I highly recommend IBKR) and buy a global index fund or ETF (exchange-traded fund)—I will explain which ones to buy below—and repeat this every month! That’s it.

For the average investor, the most important secret: Time in the market beats timing the market.

Why Should You Invest?

Investing is crucial for growing your wealth over time. While saving money in a bank is safe, it typically offers low returns. On top of that, your money in the bank is losing value to inflation. How do you make sure your money does not lose its value? Historically, the stock market has provided average annual returns of 7-10% over many years, making it an effective way to build wealth and achieve financial goals like retirement.

Understanding Investment Options

There are several ways to invest, including buying property, gold, or bitcoin. Each option carries its own risk and potential reward. However, for most people, the stock market is the best place to invest over the long term due to its historical performance and ease of access.

How to start investing – Open A Brokerage Account

The first step in investing is opening a brokerage account, which is like opening a bank account. In Switzerland, options like Swissquote, UBS, and PostFinance are available but can be expensive, especially for expats. A more cost-effective choice is Interactive Brokers (IBKR), which is widely used by expats and offers very low competitive fees. I highly recommend IBKR!

How to Open a Brokerage Account with IBKR

  1. Register on IBKR: Visit the Interactive Brokers website and sign up for an account. You’ll need to provide personal information and complete the verification process.
  2. Fund Your Account: Once your account is set up, you can transfer money to it. There are two primary methods:
    • Option 1: Inform IBKR that you’re sending a specific amount and transfer CHF from your Swiss bank using the provided IBAN.
    • Option 2: Link your IBKR account to your UNFCU account and send USD directly.

What do I buy – Choosing the Right ETFs

Exchange-Traded Funds (ETFs) are popular investments because they offer diversification and low fees. You do not need to pay an active fund manager to do this. Save the fees and do it yourself. Here are some recommended ETFs to buy on IBKR:

  • IWDA: A global ETF limited to developed countries, domiciled in Ireland, managed by Blackrock.
  • VWRA: A global ETF, domiciled in Ireland, managed by Vanguard.
  • CSPX: Focuses on the US stock market (S&P500 – the largest 500 companies in US), domiciled in Ireland, managed by Blackrock.
  • VT: A global ETF, domiciled in the US, managed by Vanguard.
  • VTI: Focuses on the US stock market, domiciled in the US, managed by Vanguard.
  • VOO: Tracks the S&P 500, domiciled in the US, managed by Vanguard.

If you are starting out and want to keep things simple, just buy VWRA (choose this if you plan to retire outside of the US or Switzerland) or VT (choose this if you intend to retire in Switzerland). Contact me if you need further details on this selection.

Here is what VWRA looks like after 1 year (2023-2024): 23.29%. Keep in mind that it has been exceptional!

VWRA ETF one year growth chart

In short, send money to IBKR when your salary comes in every month and buy the ETF of your choice regardless of how the stock market is doing. It is a good thing that the stock market drops because you can buy more ETFs! Think of it like shopping during sales!

Consistent Investing is Key

To maximize your returns, invest consistently every month, regardless of market conditions. This approach, known as dollar-cost averaging (DCA), helps reduce the impact of market volatility and builds wealth over time.

Setting Up Automated Investments

  • Standing Orders: Set up a standing order with your bank to automatically transfer a portion of your salary to your IBKR account each month.
  • Regular Purchases: Log in to IBKR monthly to purchase your chosen ETFs, ensuring you stay on track with your investment goals.

Common Investing Mistakes to Avoid

Emotional Investing

Investing based on emotions like fear and greed can lead to poor decisions. It is difficult, I know. But stay disciplined and stick to your long-term plan to avoid these pitfalls. Investing consistently, regardless of market conditions, helps smooth out the market’s highs and lows. DCA ensures that you buy more shares when prices are low and fewer when prices are high.

Overtrading

Overtrading (too much buying and selling) can erode your returns due to transaction costs and taxes. Adopting a buy-and-hold strategy is generally more effective.

Chasing Hot Stocks

Avoid chasing hot stocks, which can be volatile and may revert to their mean value over time. Instead, focus on long-term, stable investments.

Principles of Successful Investing

  • Live Below Your Means: Spend less than you earn to free up money for investing.
  • Invest Early and Often: The sooner you start investing, the more time your money has to grow.
  • Diversify Your Portfolio: Use simple, low-cost index funds to spread your risk across various assets.
  • Never Try to Time the Market: Consistent, automated investing is more effective than trying to predict market movements.
  • Stay Disciplined: Keep investing regularly, even during market downturns, to benefit from long-term growth.

Conclusion

Starting your investment journey doesn’t have to be complicated. By opening a brokerage account, choosing the right ETFs, and investing consistently, you can build a solid foundation for your financial future. Remember to live below your means, invest early and often, and stay disciplined. With these principles, you’ll be well on your way to achieving your financial goals through investing.

And one significant advantage for investors in Switzerland is the absence of capital gains tax. This means you can keep more investment returns, making investing even more attractive.

Following this guide will give you the confidence and knowledge to start investing and take control of your financial future. Please contact me if you need clarification and don’t forget to subscribe to the money monkey!

Happy investing!

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