Getting started in the stock market: building a portfolio

The stock market is a fascinating world that offers many investment opportunities. If you are new to the stock market and want to start building your asset portfolio, follow these basic tips.

How you react to price fluctuations in the stock market

How will you react to a market decline? Will you sell your assets? Success in the stock market is closely related to human psychology. Fluctuations in your capital are inevitable, so it is important to assess whether you are prepared to deal with them.

Your investment horizon

Do you want to invest for the short term, trying to profit from daily price fluctuations, or do you prefer long-term investments? With long-term investments, it is easier to accept short-term fluctuations in the capital invested.

Your financial situation

The size of your investment portfolio should match your income, expenses and other financial obligations. It is easier to invest in the stock market if your income can offset any losses on your invested capital.

Invest passively or actively

When you first get started in the stock market, you have an important decision to make: to invest passively or actively. Here's how to choose the approach that's best for you.

Active investing

Active investing in the stock market means choosing the securities you want to invest in on your own. It requires in-depth asset analysis to create a portfolio that will ultimately outperform the market. Active investing requires a lot of time and work. You must analyse the economic context and data on the financial performance of companies to select those most likely to provide attractive returns.

This method of investing in the stock market is suitable for investors who want to take control of all their investment decisions: the choice of assets, the amount invested in each asset, the investment period, while regularly analysing portfolio performance.

Passive investments

It is entirely possible to invest in the stock market without spending several hours a week analysing the assets that make up your portfolio. Passive portfolio management often outperforms active management over the long term. For example, over 10 years, less than 10% of investment funds in Europe have been able to outperform their underlying index.

By investing in indices, for example through index funds or ETFs, you will be among the most successful investors on a completely passive basis!

Getting Started in the Stock Market

To get started investing in the stock market, you need to choose a tax wrapper. A tax wrapper is a savings product that allows you to make financial investments. Each tax wrapper has its own advantages and disadvantages, so it is important to choose the right one before you start investing in the stock market.

Common Securities Account (CTO)

A securities account is an account where you can hold stocks, bonds, investment funds, ETFs, and other securities.

You can open a securities account with your bank or with an online broker (such as Trade Republic, DEGIRO or Scalable Capital). Working with a securities account is very simple. It is divided into two categories: your assets and your cash. You can make payments as needed to buy securities and withdraw money when you sell them.

The advantage of a securities account is its simplicity and flexibility. The main disadvantage is that it is not the most tax efficient. PFU (Prélèvement Forfaitaire Unique - flat rate tax) of 30% applies to capital gains and dividends.

PEA

The PEA is an attractive tax wrapper for those who want to invest in European equities. With a PEA, it is also possible to invest in investment funds and ETFs, provided that at least 75% of these assets are invested in shares of companies based in the European Union. In return, the PEA offers investors more favourable tax treatment compared to a securities account.

The main advantage of the

PEA is that it is tax-efficient. If the PEA is held for more than 5 years, gains are taxed at a rate of 17.20%.

Main disadvantage

Not very flexible stock market investment options (you can't buy shares in US companies) and an amount limit of 150,000 euros.

Life insurance

With life insurance you can invest in a wide range of assets as a tax-free package, especially if you are investing in the stock market for the long term. With life insurance, you can accumulate and grow your savings by investing in shares, investment funds or property.

Advantages of life insurance

Favourable tax treatment, the ability to delegate portfolio management and prepare for inheritance.

Main disadvantage

Much less flexibility (some policies do not allow you to easily change investment options).