Step 1. Determine what risk you are willing to take
Can you calmly observe how the portfolio fluctuates in price from +20 to -20% and below? Or, having noticed a drawdown, will you immediately sell everything? Are you ready for losses in principle, because profits in the stock market are not guaranteed? If you are an absolute conservative, then investment in securities should be limited for you to bonds of the most reliable countries and companies, and with a fairly short maturity. If you are willing to take risks, you can add bonds maturing later than 2-3 years to your portfolio, including securities of smaller companies, as well as stocks. The higher your risk appetite, the more investment you can place in stocks. If you are ready for a drawdown of 20% or more, you can keep 100% in stocks.
Step 2. Determine the period for which you are ready to invest without withdrawing the invested money
If you are not sure that you can withstand even a year, it is better to place most of the funds (70 and even 80%) in the most conservative bonds. With more aggressive investments in a year, the market may not have time to recover, so the likelihood of losses in such a short period of time will be very high. If you are prepared for losses or can lengthen the investment period if necessary, consider adding stocks to your portfolio. If you are ready to invest for a period of 3 years or more and you are not afraid of risk, the risky part of the portfolio can exceed 20%.
Step 3. Decide if you are ready to choose stocks and bonds yourself
How to start investing for a newbie who cannot choose stocks and bonds by himself?
Invest through investment funds, for example Московская Биржа – Биржевые фонды. If you are a conservative, look at bond funds, if you are willing to take risks, add equity funds. It is better to choose funds with broad strategies, rather than sectoral ones – this way you minimize the risks of a particular sector of the economy. To create the widest possible portfolio, choose a global equity fund, as well as bond funds of American companies. A portfolio formed from these three funds is more stable than if you rely on, say, only IT stocks.
Step 4. Decide on the currency of investment
If you need capital, a portfolio can also be formed only from instruments. But if you save in another currency, it is better to give preference to the corresponding securities, especially those denominated in dollars – there are the most instruments in this currency on the Russian market, and the threshold for entering them is very democratic.
Step 5. Diversify your portfolio
The right investment is a diversified portfolio. It is undesirable to place more than 10% of the portfolio in the securities of one company, and more than 15% in one industry. If you invest through funds, the management company will monitor the ratio of securities, but if you form a portfolio yourself, you will have to do it yourself too.
Step 6. Optimize your tax and reporting investment
If you are ready to invest for 3 years or more, do it through IIS. You should not immediately start with a brokerage account abroad, since, firstly, from 2020 you will need to provide tax notification and reporting on all foreign accounts, and secondly, you will have to draw up a declaration on them, calculate and pay taxes. Also, even with long-term (from 3 years) investments in securities in foreign markets, investment deductions are not applied, so it is better for beginners to start with the instruments available on the Russian market.
Step 7. Decide on the amount of investment
I am deeply convinced that for investments of less than 400-500 thousand, it is better for a beginner to choose investments through funds than to form a portfolio on his own.
Step 8. Determine how you will invest your savings: one-time or regularly
When making one-time investments, study the market situation first: if it becomes extremely turbulent, as in March 2020, I recommend waiting with risky investments, even if you are prone to aggressive strategies. Better to temporarily place your savings on a deposit with the possibility of partial withdrawal and preferential termination, or in OFZ government bonds with maturity no later than a year later. This will help to wait out the panic and enter the target portfolio in a more stable situation. But if you plan to make regular investments, and even with an aggressive strategy, you do not need to postpone the purchase: even if the markets continue to fall for some time, you will continue to buy securities and, as a result, you will form a portfolio at an average price.
Step 9. Open a brokerage account
To start investing, you will need to open a brokerage account. This can be done remotely or at the office of the selected broker. After opening an account, you can fund it from your bank account.
Then you can