Personal Finance & Money Asked by Kiril1512 on January 12, 2021
I want to start investing money and build a portfolio.
I read a lot of things about investing, videos, guides, etc… and summing up we need to start with some amount and the best would be to constantly continue investing every month.
Imagine this:
Should I buy another "stock" that costs 100€ or less?
OR
Should I wait another month and have 200€ to buy that 101€ "stock"?
This is the only thing that I can’t understand… Maybe I need to save every month 100€ to invest when the "stock" cost drops and only buy when its on sale and not buy every month?
I'm not sure what you mean by "action" - it sounds like you use it as a generic term for some investment like "stock", so correct me if I misunderstand, but I'm going to assume you mean something like a "stock" or a "fund".
The price you pay doesn't matter a whole lot (other then limiting whether you can buy the minimum number of units). What matters is what you think the return will be. A stock that goes from 10€ to 12€ has the same return as one that goes from 100€ to 120€ (assuming you buy 100 of the former and 10 of the latter).
So should you buy more stocks at 101€? Well that depends on whether you think it will continue to go up in value. Obviously you can't know for sure, and you don't know if other stocks with a lower price will necessarily rise more.
Maybe I need to save every month 100€ to invest when the action cost drops and only buy when its on "sale" and not buy every month?
This is called "timing the market" and is not an effective strategy. Certainly buying stocks at lower prices is better, but what if the stock never goes back below 100? If it keeps going up, then obviously you should have bought at 101 and rode it up.
If you have money to invest, just invest it. Sometimes you'll get lucky and buy low, sometimes you'll buy high, but since markets tend to go up over time, on average you'll have more winners than losers. This is called a "Systematic Investment Plan" and is a common way to implement "Dollar Cost Averaging", where you buy stocks periodically, averaging out your cost by buying at various prices.
If you are new to investing, then it's usually recommended not to invest in individual stocks. You can significantly reduce your risk buy picking a few broad mutual funds rather than trying to get lucks on individual stocks.
EDIT:
If you literally mean that you have 100€ and can't buy a whole unit of X that costs 101€, that's another reason to focus on mutual funds or ETFs that allow fractional units rather then individual stocks. You can invest any amount you want (the unit price is largely irrelevant - focus on returns) and don't have to worry about buying whole blocks or units
Correct answer by D Stanley on January 12, 2021
Look up "Dollar Cost Averaging" (regardless whether you use USD or EUR, this is about the principle). Basically: If you wait, you invest and TIME THE MARKET. Timing the market is a GREAT way to earn more. It also is a skill that VERY FEW people have, and mostly it is not available to you. If it is, you are way better of to make a career doing that and having 100 times more money available. People that CAN time the market are RARE and earn.
Now, assuming you can not time the market - do an action every month. See, who says that after going to 11 it will not go on to 12, 13, 14. Look up the historical stock prices of companies like Yahoo, Apple, SAP to realize how far prices can go over years.
Hence Averaging.
Answered by TomTom on January 12, 2021
If you are investing 100- per month, it is not possible to buy "individual stocks".
You should buy an index fund.
Answered by Fattie on January 12, 2021
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