Stocks (in practice)

How to buy stocks

If you want to buy stocks, you need a special bank account for this. At least in Germany every bank I know offers this kind of accounts. The account for shares/stocks comes with an allocations account for money: If you want to buy shares, you have to transfer money on this allocation account and if you sell shares or receive dividends, the bank puts this money into your allocation account.

You can place buying or selling orders using the same channels like transferring money – you can go to the bank personally, sometime you can do it at the phone and you can do this at the online banking interface.

When you start looking for a bank to get an account for your future stocks and shares, here are some things you should keep in mind:

  • at standard direct banks (banks without local physical representations for customer service), you shouldn’t pay a monthly or annual fee simply for the account.
  • order fees below 15 € definitely are possible. For example, if I wanted to sell stocks for 2000 € at XETRA (that’s an electronic stock exchange), I would pay a total fee of 10,90 € (4,95 € + 0.25 % of 2000 €  for my bank and 0,95 € for the stock exchange)

What not to do…

If you want to invest in stocks, there is one big mistake you can make:

Invest your savings and sell your stocks with losses because you panic after the stock prices dropped during a crash and want to limit your losses.

…and how to avoid it

In case you don’t know yet, how you’ll react in such a situation, you should act careful and first gain trust in the fact, that stock prices will go up again after a crash.

I learned this without intention: In August 2007 a friend of mine introduced me to a stock market simulation game that used real stock prices but only playmoney. Back then, I invested 52 000 € of playmoney in different stocks. One year later the financial crisis kicked in and I lost interest in the game when my simulated stock were worth 43 000 € in December 2008. I decided stock are not for me. Anyways, I still received the weekly updates. In 2014 I noticed, that my simulated portfolio was worth 72 000 €. Thus my stocks had an average yield of 4,7% per year even with a big market crash. At that point I realized that stocks can be a worthwhile investment after all.

There is another way to learn to handle dropping stock prices. Simply don’t invest all your money at the beginning. Start your investment strategy with an amount you could handle to lose completely.  And then wait and get to know your reactions to different market situations. If you start feeling more comfortable you can increase the invested amount step by step – it’s better to miss a few market opportunities than panicking while all your savings are at risk.

What’s also helpful to avoid selling in panic is checking the development of your stocks as infrequent as possible and ignoring all news featuring stock markets and economy.

Where do you stand right now? Is there something your would like to see in future posts? Leave me a comment!

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