There have probably never been so many temptations and opportunities to start playing the stock market. Normal deposits are now earning a big zero, and success stories are all over the social networks tempting people to invest in shares. “Since the start of 2020, the price of Tesla shares has increased ten-fold, from 85 USD per share to 850 USD currently.” Reading this, you wouldn’t be the only one wondering if you should also invest in Tesla.

 Last year, global and local stock markets have seen a significant increase in the number of transactions, and this can be explained by tenths of millions of micro and small private players entering the market. This influx was largely in stocks, where growing number of different platforms are offering to start trading with just one click, one Euro, zero commission and so on. Popular social media platforms—Twitter, Facebook, TikTok—are overflowing with stories of dizzying profits from speculating in specific shares, inviting people to join the party. There is the feeling that all you need to do is start and watch the money flow in.

Yes, the market has transformed, with new means of access, new players and new money. It may seem that nothing will be how it was:  company financial data analysis is just for grandpas, just like risk splitting, balancing portfolios and so on. But historically, this has happened before, many times. And each time, in the end, the financial market’s “laws of physics” come out stronger.

What are the rules for the financial market? How can beginners find their way in this jungle? What should they start with, how can they make a profit? Zigurds Vaikulis, Citadele subsidiary CBL Asset Management Board Member and Head of Portfolio Management, offers his advice.

Only invest what you can afford to lose

 I only recommend investing your disposable income: money you don’t need for spending and which you can theoretically afford to lose without any large impact on your current lifestyle. This should certainly not be the first spare Euro you have, or the first money in your savings account. First, set aside a safety cushion worth three to six months of expenses. Anything else is disposable, and not only can you invest this, but I recommend that you should. To ensure that it doesn’t lose value, money can’t remain idle.

When to start investing

 As the saying goes, “the best time to plant a tree was 20 years ago. The second-best time is today.” You can always find an excuse to hold off on investing: maybe markets have been rising for too long, or maybe you are afraid because there is an economic crisis, markets are falling and so on. But investing is a long-term project. More important than timing the market is time in the market.  

Start with relatively simple investments

 Learning by doing! You should do this gradually – investing is no different. Recklessly buying individual stocks with no prior experience is not too clever. It is best to start with comparatively simple not too risky products – to feel for how the financial market works, and to test your reactions to what happens, for example, balanced investment funds. There is no lack of these in CBL Asset Management’s range of products. A balanced fund includes investments of different risk levels, from shares to the safest bonds. This is similar to how the world’s pension funds and reserve assets funds worth trillions of euros are managed.

Balanced funds have different risk levels and are available from a few dozen Euro. But in fund space the choices are extensive, from most popular among inexperienced investors low cost index funds, to actively managed equity and bond funds. As the investor’s money and knowledge grows, the range of available and suitable funds becomes almost unlimited.

Don’t put all your money in one place – manage risk and a balance your portfolio

 Whether you’ve only just started dabbling in the stock market or you have decades of experience as an investor, it is always important to diversify. Even if it is a famous, seemingly indestructible company, it isn’t a good idea to base all your financial well-being on one business model. Even the Roman Empire didn’t last, and Facebook and Apple probably won’t either.

How many companies’ shares should you have to call your portfolio diversified? There is no single answer, but I would say at least 10 to 15 – to cover different industries and also geographic regions. The fewer you have, the more you need to know about each company’s business and financial indicators, and also about market valuations.

Plus, diversification alone is not enough. You also need to balance. The equity risk needs to be “diluted” with, preferably, securities which price behave the opposite to shares at various points of the economic cycle. Balanced portfolio will better sail through financial market storms and cause you less stress.

Research all fees

 This is particularly important if your investments are small. For example, if you buy 100 Euro worth of shares, and the minimum commission for this transaction is 20 Euro, there is no logic in investing if your aim is to make a profit and not just to learn. Therefore, when researching fees, you should start by deciding how much you want to invest and make sure that the fees and potential returns are in proportion. If I had to give you a general number, I would say that a reasonable fee would be no more than 1% of the transaction value.

For example, in the balanced investment funds we manage, you can invest without any additional commission fees if you invest from 100 Euro.

Evaluate where to buy and keep

 Read, research, compare! Countless foreign platforms are currently promising miracles for free. However, when you read the fine print, it turns out that the discounts only apply to small sums and limited number of transactions. Commission fees are just one part of the story. Where are your money and securities will be kept? In a far-off island behind a wall of countless unknown intermediaries, or in a bank regulated by strict European standards on holding securities, deposit guarantees and so on. Who will you go to for advice if you have any problems: an online forum or a bank broker? How will you sort your taxes? Latvia relatively recently introduced a very user-friendly so-called investment account regulation which makes this process easier. Nobody wants to wake up one day to the State Revenue Service knocking at the door because you didn’t know about a specific tax you had to pay.

Should I borrow to invest?

Never. Today I’ll borrow, tomorrow I’ll buy shares from a well-known company, and the day after I’ll sell them for a huge profit: this is the fastest way to bankruptcy. Everything works until it doesn’t. Reckless speculation may work once, twice, three times, but on the fourth time things will go differently. Unfortunately, I have seen this play out many times. We rarely know how to stop.

Personal experience

I personally started investing around 13 years ago, when some extra cash started to accumulate after paying everyday expenses and loan payments. Although I had been professionally involved with investments already for some time, I of course ignored all rules of prudent investing described above. My transactions were extremely speculative and risky. The less money you have to invest, the more you are after huge profits. Meanwhile, I was also saving in much more sensible long-term formats: private pension plans, CBL Asset Management funds (many of these I manage as part of my job), also foreign mutual funds. I still set aside a small amount of money for short-term speculation, to keep me in shape so to speak. I can compare both styles, but from a financial point of view the prudent long-term method certainly wins.

About CBL Asset Management

Citadele Bank’s subsidiary, IPAS CBL Asset Management, is one of the leading and most experienced financial asset management companies in the Baltics, employing globally recognized fund managers. It has been managing investment portfolios since 2002. Meanwhile, in 2003, it became one of the first in Latvia to manage level 2 pension savings. CBL Asset Management has the largest team of managers in Latvia, which regularly analyses the financial and capital market and macroeconomic trends using their experience and the latest technologies, investing pension savings in both large international and local Latvian businesses, as well as in the bonds of various countries.

More information:
Kristīne Mennika
Head of Corporate Communications
AS “Citadele banka”
Tel. 26528533


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