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Useful suggestions on how to invest and earn

One can invest and save not only in bank deposits. The goal of this handbook is to inform about the wide range of alternative investment opportunities available to any investor. The target audience of this handbook is anyone who has established or plans to establish savings in the thousands (but not in the many millions) and who basically understands or is ready to learn what shares, bonds, investment funds and similar terms mean. The handbook content is regularly updated.

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Table of contents

Preparation

Investments in stock exchange shares

Loans/bonds

Other investments

Individual promotions - for gamblers

It is difficult to rationally recommend investing in individual stocks. In any case, it is not worth doing with the main goal of beating the average market return, because it is likely (statistically) to fail. Roughly speaking, only 1/6 of professional investors who choose individual stocks can outperform index funds over the long term. On the other hand, more than 50% of private investors lose money by investing in individual shares. Unfortunately, we have also experienced this statistical probability on our own skin. However, buying stocks is more interesting and intellectually challenging than buying, say, index funds, which is probably why many investors (yes, sometimes us too) choose to do so.

It should be noted that when buying and selling individual shares, you may have to pay a lot in commissions for the execution of transactions, which will reduce the return, so it is especially important to carefully and thoughtfully choose a broker. When trading shares regularly, the biggest earners are brokers, so the only recommended scenario is to buy these securities with the aim of holding them for a long term (10 years and more). When investing in individual stocks, it is very important to create a portfolio with at least 20 companies so that it is sufficiently diversified. This will mean that the failure of one or even several investments will not have too negative an impact on the overall investment return.

PLUSES:
  • Investment can be started with very small amounts
  • The investment is very liquid and can be realized quickly and without significant costs
  • Investing in stocks is a gamble
  • There is potential for big profits if you are lucky with your stock selection

MINUSES:
  • In the long run, you can get better returns by investing in index funds than in individual stocks
  • You should do your own research on each company
  • It is more difficult to create a diversified portfolio and, as a result, the risk of investment loss is greater

When investing in shares, we have come to the following principles, which we try to follow: (1) buy shares when others mostly want to sell them; (2) not to invest more than 5-10% of your savings in individual stocks (by choosing index investment funds instead); (3) invest only in those companies whose operations we can understand and evaluate ourselves, and (4) invest only with a long-term (10-year) perspective. Also, we definitely avoid companies with questionable corporate governance standards, which unfortunately disqualifies some of the companies listed in our own region.