Investing in the stock market is one of the best ways to build wealth over a long period of time. Stocks may be riskier than putting your money in a saving account where you only earn a tiny annual interest. In the long run stocks are more profitable. While daily trading of shares is extremely risky and should only be done by experienced traders, buying a diverse selection of stocks or funds with the intention of staying invested for 10 years or more is a good way that average investors can earn a respectable yearly return (Dividends) for their money.
Too much risk can result in you losing all of your investment. Thus a long-term investment strategy is best if you want to stay clear of daily stock market anxiety. Studies show that even professional investors on average do not beat the index. Determine a strategy in advance of how much of your savings you want to invest in the stock market. It is more probable than not that most shares of large stable companies appreciate in value over the decades, and if the dividends are paying 2 – 3% of your investment, this is a better return currently than money in the bank.
Remember in Switzerland that there is a Federal stamp tax on all transactions no matter where you buy or sell your shares. There is however no capital gains tax.
What Shares to buy?
The basis of this decision is information. How can you find information on good companies to invest in? Clearly, you should research the company you plan to invest in carefully before committing money; as investing guru Warren Buffet has said, he only wants his money in businesses he understands.
Therefore, get informed:
Read the finance pages of the newspaper, research online. And of course the information, articles and forums on SUISHARE and associated SUISHARE company specific websites where you can discuss investing with like-minded people, from financial experts to fellow investors. Additionally, the SUISHARE discussion boards bring together people of all skill levels, creating relevant intelligence concerning the financial fitness and potential of companies.
Good investing is about reducing your risk by spreading your money around and allocating your cash sensibly. So where do you start? A great way to learn what stock trading without spending real money, is that you can sign up for a free Investment simulation. You are given US$100,000 in pretend money, to practice investing strategies or to simply learn how to trade stocks and options in real companies in the stock market.
Here is a great online tool that will help you learn and improve:
Once you are ready to invest, determine the stock you wish to purchase, how much you wish to buy, and make sure you have the money to spend.
How much can you afford to invest?
Be realistic – it’s better to pay debts first, or perhaps pay into your company’s pension scheme if the company also contributes. Do you have a lump sum to invest, or are you going to invest every month? Many experts say it is better to buy smaller packets of shares and funds over the long term, to help iron out the rough and smooth periods.
Timeframe is important? If you’re under 50 and saving for a pension, then you might take higher risks and invest knowing you won’t need the money for 10 years plus. If you’re saving for a mortgage deposit in a couple of years, then don’t put all your cash in a small selection of shares that might be at a low point when you need to cash in.
Use limit orders for better cost control:
You can purchase/sell shares with various orders. The most important ones are market orders (best orders) and limit orders. When you place a market order, the trade will be executed as quickly as possible. With a limit order, you can determine a minimum or maximum price at which the purchase or sale shall be made. In addition, you can decide on a time limit for the order to be executed.
Limit orders have the advantage to protect you from unwanted price fluctuations. However, the execution of a limit order may require more time, depending on your determined minimum or maximum price and the development of the market price. In case of unexpected changes in the market, the trade may never be executed. If you are in no hurry to execute a trade, a limit order may be the right choice for you.
How to acquire Shares:
There are many avenues for acquiring shares. Traditionally people traded shares through their bank. This method is the most expensive, and in Switzerland, Credit Suisse and UBS are at the top of this expensive list. Today’s online world with simple electronic tools, has dramatically simplified share purchase and ownership considerably.
The modern way of building a share portfolio is to buy shares online. At the other end of the scale to Credit Suisse and UBS are online providers like Postfinanz, Corner Trader or Strateo.
As an example if you trade 50’000 CHF per year on the Swiss market, the cost difference between cheapest online service and most expensive Bank is about 2’000 CHF.
Money manager: If you have one of these you are probably not looking for advice or education on how to invest here. Money managers are investment professionals who usually handle very large portfolios of money for clients (100’000 / 250’000 CHF upwards) and thus charge management fees based on the assets under management. Money Managers are basically for those people with substantial incomes, who would rather pay someone to fully manage their investments. There is unfortunately no guarantee that you will receive a consistent return.
Banks & Brokers:
Using a human stockbroker is an effective way to trade quickly and receive direct communication about trading. Use your bank contact/broker to place a trade into the stock you want, requesting them to buy whatever number of shares you want (often based on their recommendation), and provide sufficient funds to make the trade. Naturally there is a fee for advice and for placing trades on your behalf. There is of course no guarantee that the advice is correct.
An online trading site is often the easiest way to trade for private parties, without utilizing a lot of resources, limiting the fees and increasing your knowledge. An online account allows you to buy and sell stocks/options instantly with just a few clicks. Downside is that no one at the online company provides investment advice, stock tips or any type of investment recommendations; you’re on your own. However there are enough online sources for you to take investing matters into your own hands.
Investors regularly underestimate the costs of trading stocks. Most Swiss banks and brokers will charge higher costs when you buy or sell shares via an advisor – such as by telephone.
In addition to the share price, costs apply for the purchase and sale of shares. These trading costs vary considerably between different banks, brokers and online services.
Depending on the volume that you trade, Swiss banks could charge you in the amounts of hundreds or thousands of francs, even for a single trade! It definitely pays to compare before choosing any one platform.
Be aware of these price differences particularly transaction costs. Some banks or brokers charge a flat rate for transactions, some charge a flat rate below a certain amount and then a percentage above a certain return. Check and find out exactly what the costs of a transaction are. SUISHARE will conduct regular benchmarking / comparisons.
Beware of unnecessary charges. If you are being talked into in buying a fund / insurance-investment plan where there is a high initial charge, you are best advised to avoid these.
Monitor your investments:
You should think of investments in shares and funds as long-term and avoid trading regularly, as your returns will be eaten up with charges. SUISHARE provides a service where at 1 glance you can see how your share portfolio is developing. Be active in monitoring the companies you invest in. Lack of vigilance by shareholders sometimes emboldens those in the company to stray off the path of ethics, morals and their fiduciary responsibilities. SUISHARE exists to mitigate repetitions of company failures by an intense vigilance over company behavior. Our vigilance builds investor confidence in the market. The VW scandal reduced VW shareholdings by 50%. With a SUISHARE style vigilance this in all likelihood would not have happened.
Practically no companies offer printed share certificates anymore. Proof of your share ownership is saved electronically. At online brokers, “holding” your shares is often free, or attracts a minimal charge. Banks on the other hand can be quite expensive.
Some companies in Switzerland offered free share deposits for their shareholders, but due to the administration costs imposed by the dual tax agreements, this vehicle has largely disappeared, with a handful of cases remaining for only Swiss investors.
Holding Swiss shares outside Switzerland: the companies’ respective share registries should be able to inform you about the process involved.
Registering your shares:
Registering has to be done over the institution where you purchased your shares. They will forward your information to the company you invested in. The Share Registry will then guarantee that you receive regular company updates, such as quarterly financial reports, the Annual Report, Invitation to the AGM, and any gimmicks / gifts that the company gives to its shareholders. You should always ensure that the Share Registry has your accurate address and bank details, particularly to ensure you receive your dividends.
You can find the address of Swiss Company Share Registries in the SUISHARE Resources pages on the right menu bar.