How to start investing: a guide for beginners

How to start investing: a guide for beginners

By eToro
14 December 2022
Partner Content

To a first-time investor, the global market can seem daunting. But with the right knowledge and tools behind you, tackling this new frontier can be fun and rewarding.

Simple to use for those just starting out, eToro offers new investors a platform where they can get started with trading, connecting and learning from 30 million registered users worldwide.

How to start investing on eToro

The first step in investing is deciding how much money you should invest. Before getting started, make sure you have a strong understanding of your monthly expenses and that you have savings that will allow you to cover those expenses in the wake of a sudden change in income.

If you have additional funds to spare after covering all of your expenses, you’re well placed to decide what amount you would like to allocate to your stock portfolio. 

Once you’ve decided on the amount, you can open an account on eToro for free with just a few easy clicks. To sign up, you can use your existing Google or Facebook account, or type your email in manually. Once you verify your identity – which is crucial to keeping your account safe – eToro will ask some simple questions to determine what products suit your experience and risk appetite before you make your first deposit. 

Types of investments  

Different investments can play different roles in your portfolio. Stocks and crypto are generally higher risk and more volatile with the potential for higher return, and investors typically use them for growth. Bonds are generally lower risk, but have a lower potential for return.

There are numerous types of assets, all with varying levels of risk and reward.

Stocks

Stocks, which are also known as shares, are investments that represent ownership in a company.

Stocks are issued so that companies can raise money to scale and develop. When purchasing a stock, you essentially become a part-owner of the underlying company and are entitled to a share of its profits.

Stocks are traded on stock exchanges such as the New York Stock Exchange (NYSE), the NASDAQ, the London Stock Exchange (LSE), and the Australian Securities Exchange (ASX).

There are 2,000-plus companies listed on the ASX and one of the ways they are categorised is by industry sector. This makes it easier to compare companies with similar business models and which stocks in each respective industry are performing well.

“Energy stocks have been the standout so far in 2022 globally, as commodity prices have soared. On the ASX200, standout names include Whitehaven Coal, Core Lithium, Woodside Energy Group and Pilbara Minerals,” eToro market analyst Josh Gilbert said.

It’s important to note that not every stock performs well and that stocks do not rise in a straight line. Stock prices tend to fluctuate and experience periods of bad performance every now and then.

The same principle applies to global stock markets. Since the US entered a bear market five months ago - which applies to markets that have dropped by more than 20 per cent – investor sentiment has tumbled.

“Markets don’t always go up, and this is important to note. So, from time to time, you’ll want to evaluate your investment portfolio and your situation. This could mean diversifying your investments if you feel over-exposed to one area of the market or understanding your finances to weather the bear market,” Gilbert said.

“Strategies such as dollar-cost averaging can allow you to eliminate the task of trying to time the market or ‘find the bottom’. It’s a strategy that rewards consistency over timing, allowing you to protect against the unpredictable nature of markets.”

Indices

Instead of focusing on the individual growth or performance of a singular company, indices measure the performance of a group of stocks. Trading indices gives you exposure to an entire economy or sector at once, while only having to open a single position.

There are a number of stock indices available today, all which focus on different aspects of the financial market.

For example, country-focused indices such as the S&P 500 are generally seen as a broad representation of the US stock market, while FTSE Developed Asia Pacific Index tracks the performance of stocks listed in developed countries within Asia.

“Beginner investors can gain exposure to global markets through an ETF tracker,” Gilbert said.

“An index ETF tracks the performance of the S&P500 or the Nasdaq 100. SPDR S&P 500 ETF (SPY) – tracks the S&P 500 index, a list of the 500 largest companies in the US. This provides investors with instant diversification across 500 companies.”

There are also exchange-based indices like the NASDAQ 100 index, which tracks non-financial stocks listed on the NASDAQ exchange.

Meanwhile, sector-based indices track particular industries in the stock market. 

Commodities

A commodity is a basic good or raw material – such as grains, gold, beef or oil - that is used to produce more complex goods.

Considered the building blocks of the global economy, commodities can be an important way for investors to diversify their portfolios beyond traditional securities.

Today, commodity trading takes place on exchanges around the world such as the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME). 

The category can be divided into three main branches: metals, energy and agriculture. While metals are typically used in manufacturing and construction, it also includes gold and silver – which can be utilised in jewellery or other investment purposes.

Energy commodities - oil and natural gas - are relatively straightforward and play a crucial role in keeping the global economy ticking over. Meanwhile, agricultural commodities can be crops and animals that are grown or raised on farmland. Most of these are used to produce food, but some have industrial uses.

While every commodity has unique factors which drive its price, the major driver tends to be supply and demand. Higher demand for a commodity pushes its prices up, while excess supply of a commodity pushes its price down. 

Cryptocurrency

A cryptocurrency is a digital currency that is issued without the need for a central authority like a bank or government, and instead is distributed through a ledger to spread power among its community.

Cryptoassets such as Bitcoin, Ethereum, and XRP can either be bought and sold outright, or traded via Contracts For Difference (CFDs). CFDs are financial instruments that enable traders and investors to profit from a security’s price movements without owning the underlying security.

These assets tend to be highly volatile, and can move 20 per cent higher or lower in a single day. To use Bitcoin or any other cryptocurrency you will need to have a digital wallet, which is a software program that enables users to send and receive digital currency and monitor their crypto balances.

“It’s imperative for beginners to diversify their portfolio with other assets other than crypto so they are prepared for price fluctuations,” explained Gilbert.

“It’s vital that investors only invest what they can afford to lose, given that corrections in crypto markets average at around 51 per cent.

“History shows that altcoins tend to perform worse in bear markets than large assets such as Bitcoin and Ethereum.”

eToro SmartPortfolios

Beginner-friendly tools: eToro SmartPortfolio & CopyTrader

To help new investors navigate the financial world, eToro also offers SmartPortfolios, which are a curated collection of assets that track a specific theme or strategy put together by eToro’s market experts.

These portfolios aim to capture big ideas, megatrends or major impacts in the world and take into account factors such as balance, exposure, potential yield, risk and more. With more than 40 Smart Portfolios to choose from, you can invest in a range of sectors, including renewable energy, digital payments, logistics, drone tech, the Australian economy and more.

But if you’re more interested in replicating eToro’s top investors, you also have the option of copying their portfolio via CopyTrader – enabling you to access all of their open trades or only new trades with the click of a button

Practice investing with a virtual portfolio on eToro

After signing up for eToro, you will receive a $100,000 virtual money account, enabling you to practice trading live markets in real time without risking any capital.

With your virtual account you can open positions, test different strategies, practice copy trading, invest in eToro Portfolios and experiment with leverage, Stop Loss and Take Profit.

Allowing you to trade with stocks, crypto, commodities, currencies, indices and ETFs, the virtual account gives you the room to make mistakes and experiment with different investment strategies – making it the perfect tool for someone starting their investor journey.

To learn more about eToro’s investment services, click here to sign up today.

eToro is the world's leading social trading platform, which offers both investing in stocks and cryptocurrencies, as well as trading CFD with different underlying assets.

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