Published by: Elise Caradec — Editor specializing in consulting
Investment in stock exchanges attracts new investors each year who want to develop their assets in the long term. However, between market fluctuations, the multitude of financial products available and the many ideas received, it is sometimes difficult to know where to start. However, a structured approach helps to limit errors and invest more calmly.
Before making its first investment, it is essential to understand how to invest in stock exchanges taking into account its heritage objectives, its investment horizon and its level of risk tolerance. This step avoids impulsive decisions and builds a strategy adapted to his personal situation.
To supplement this information, it is also recommended to consult the educational resources proposed by the Autorité des marchés financiers (AMF), which detail good investment practices and precautions to be taken before any financial decision is taken: https://www.amf-france.org.
Define specific objectives before investing
Investing is not simply about buying shares in the hope that they will gain value. Each investment must meet a clearly identified objective.
The motivations can be numerous:
- preparing for retirement;
- constitute capital;
- finance a real estate project;
- generate additional income;
- transmit a heritage.
These objectives directly influence the choice of investment medium, the duration of the investment and the acceptable level of risk.
An investor with a 20-year horizon will be able to accept more volatility than a person who needs to recover his capital in three years.
Understanding the functioning of financial markets
The Stock Exchange is a trading venue where various financial assets are purchased and sold.
Among the most common are:
- actions;
- obligations;
- ETFs (listed index funds);
- certain investment funds.
Each category has its own potential performance, risk and liquidity characteristics.
Shares generally have the highest long-term performance potential, but they also have the largest price variations. Bonds often have lower volatility but generally have a more moderate return.
ETFs attract many investors through their immediate diversification and often reduced costs.
The importance of diversification
One of the main mistakes of beginner investors is to concentrate their capital on a few securities.
Good diversification reduces the impact of poor individual performance.
This diversification can be carried out according to several criteria:
- sectors of activity;
- geographical areas;
- company sizes;
- active classes.
Investing only in one sector or country puts the portfolio more at specific economic risk.
On the other hand, allocating savings to several markets often improves the return/risk ratio over the long term.
Adopting a long-term vision
Financial markets are changing daily as a result of many economic, political or geopolitical factors.
These fluctuations can sometimes impress new investors.
Yet history shows that equity markets tend to progress over long periods despite successive crises.
A strategy based on regular investment can mitigate the effects of volatility.
Investing gradually, monthly or quarterly, offers several benefits:
- smooth the average purchase price;
- reduce the risk of investing at the worst time;
- develop investment discipline.
This method is particularly suitable for individuals wishing to build a heritage without seeking to anticipate daily market movements.
Choose your tax envelope
Beyond the choice of assets, the envelope used can have a significant impact on the taxation of earnings.
In France, several solutions exist according to the objectives pursued.
The Business Savings Plan (EBP) is an interesting solution for investing in European companies while benefiting, under certain conditions, from advantageous taxation after several years of holding.
The ordinary securities account offers greater freedom of investment, in particular to access international markets.
Life insurance can also integrate units of account invested in financial markets, while presenting benefits in terms of asset transfer.
The choice will depend in particular on the existing assets, the proposed investment period and the tax objectives.
Investors' most frequent mistakes
Even with good preparation, some behaviours can penalize performance.
Among the most common errors are:
- want to make quick wins;
- investing without a defined strategy;
- sell during periods of decline out of fear;
- track fashion effects on social networks;
- neglect investment costs.
Emotions play a major role in financial decisions.
The euphoria during the sharp increases and panic during the corrections often lead to buy at the highest and then sell at the lowest.
A sufficiently long written strategy and placement horizon generally limit these emotional reactions.
The interest of heritage support
The construction of a portfolio is not limited to selecting some stock exchange values.
It must be integrated into a comprehensive heritage reflection that takes into account taxation, income, life plans, retirement, succession and saving capacity.
Personalised support allows the strategy to be gradually adapted in the light of changes in personal circumstances and economic conditions.
Arbitrations then become more coherent with the objectives pursued, while maintaining a global view of the heritage.
Building a solid financial asset
Success on the stock exchange is not based on luck or the search for a miracle placement.
Investors with the best results over time are generally those who use a rigorous approach, invest regularly, diversify their investments and maintain a long-term vision.
By taking the time to form, define realistic objectives and select materials adapted to their profile, everyone can gradually build a financial asset capable of accompanying their life projects while facing future economic developments.