English Personal finance Portfolio Management

First-time investments

Whether this is your first investment, but also if you want to make sure you don’t make a mistake, you need to clarify the following three questions: when, how much and how to invest.

If this is your first investment, but also if you want to make sure you are not making a mistake, you should clarify the following three questions:

  • when,
  • how much and
  • how to invest.

This article will provide you with some clarity and remind you of some key principles. Remember, your situation is unique and you’ll need to adapt these principles and best practices to your situation.

“Choose a sound financial lifestyle, start early and invest regularly, preserve your buying power, know what you’re buying, keep costs and taxes low, diversify.”

The Bogleheads’ Investment Guide

Investment Plan and Timeline

Investing incrementally is the only viable solution. This way, you avoid investing too much money before a down market, which would be fatal to your savings. This is even more important now (2022), as the stock market is generally very high.

Depending on your plan, you should invest regularly, for example quarterly or even monthly at the beginning. In order to balance the time spent, the costs involved and the risks associated with market fluctuations, we suggest that you invest on a monthly basis for the first year. If your broker offers low investment costs (a few euros per transaction), these limited costs for the first year will more than compensate for the reckless risk of investing in a concentrated manner at an inappropriate time. Once your portfolio is built up and if you are not interested in the subject, you can make investments or re-balance your assets every 3 or 6 months.

Decide how much to invest

If this is your first contact with the stock market, you should start with small amounts. This will allow you to see how you react in case of losses and to test the resistance of your psychological profile.

Unless you have huge cash reserves, you should avoid investing a large percentage of your money in stocks for a year or two. A stock market decline right after a massive investment can be a traumatic experience for any investor.

There is no set rule for determining the amount, but here are some numerical examples:

  • If you plan to save CHF 1’000 per month for twenty years, you will get a total investment of CHF 240’000 (without considering market effects and dividends) by investing CHF 3’000 every quarter.
  • If you can compare this to your total wealth at retirement of, say, CHF 1,000,000, it would represent about a quarter of your wealth (again, not taking into account dividends and value changes). Using a 3% rule, you could withdraw CHF 7,200 per year to make up for shortfalls in a state pension, for extra expenses, vacations, renovating a house, taking an expensive course, while virtually preserving your capital.

By working out some scenarios as above and estimating your savings and target wealth goals, you can define your investment rate and the amount you want to commit. Beware that some people may be overly optimistic looking at past returns that have been very high over the last ten years and invest too much at once. So think about your situation and respect your commitments.

Steps for the first investment

You have now determined the parameters and made the necessary decisions. You can open an account with a low-cost intermediary, transfer the money to this brokerage account and make your first investment in the stock market by consulting your broker’s tutorial and following the generic steps below:

  • Insert the name, abbreviation or reference (ISIN or CUSIP) of the ETF ;
  • Decide on the number of ETF units equivalent to the amount to be invested (e.g. 20 ETF units at CHF 50 for an amount to be invested of CHF 1’000 (20 x 50 = 1000));
  • Place a limit order with a price close to supply and demand; the higher the level of your order, the higher the probability that your order will be executed. Do not place a market order, especially if there is little activity, as this may move the price to your disadvantage;
  • Click on “place the order”: You are now the owner of the shares of the chosen ETF, and at the same time a shareholder (very, very minority) of all the companies that make it up.

Be informed and stay disciplined

“Is it wise, or even reasonable, to rely on the stock market to deliver in the future the returns it has delivered in the past? Don’t count on it!”

Don’t Count On It!. The Perils of Numeracy. Keynote Address by John C. Bogle. Princeton University. NJ. October 18, 2002

As mentioned in the practical tips, it is best to start small, and learn along the way. To stay informed, we recommend publications from reputable professionals (such as Bridgewater or Oak Tree) or leading academic publications such as the Journal of Portfolio Management. You should base your decisions on a solid source of information from peer-reviewed academic journals or good sources that popularize this type of content. Ideally, it would be wise to read 2-3 reference books on personal finance, the markets and portfolio management. Not everyone is interested in the topic and of course you can keep it to a minimum so you don’t spend too much time on it.

The principles of diversification, cost control and profitability will be the basis of your journey. The examples given (Vanguard, iShares, Interactive Brokers and DEGIRO) are illustrative only and should be used as reference points and not as absolute recommendations. Please feel free to consult additional information and recent articles on http://www.guidefinances. On this site you will receive regular information on the most important market developments, concrete steps to simplify your start-up and proven tools (ETFs, platforms), but please compare these options with your current and future service providers. It is very important for you to understand what you are investing in and you should ideally supplement all information with other sources.

Final warnings before you jump in

Above all, don’t panic and don’t try to sell (or buy) all your assets at once, especially at the current high price level. Finding good entry points is more a matter of patience and luck than skill. Invest small amounts according to your plan and review it annually. It is recommended that you do a complete review early in the year after the close of the previous year, such as when preparing tax forms. You should then continue to invest regularly by tracking the amounts and ETFs determined, even if they are small amounts. Also, try to accept with serenity the evolutions of the stock market and let your wealth accumulate over time.