Start to invest

So you have found your way to the stock market but feel overwhelmed by all of the information (didn't we all feel this way when we first started out). No worries, below flowchart will help to take small steps to get "your feet wet".

Step 1: Finding a broker

First step is finding a broker. A broker is a firm who buys assets for you on the stock exchange.

You transfer money from your bank account to your broker. And with that money you can now start buying assets (stocks, bonds, ETF's). You are not buying the assets from your broker. But rather at a stock exchange. On the other end is another person (or company) that wants to sell his assets. The seller also goes via his broker to sell his asset on the stock exchange.

You have a deal when the price that you want to pay equals the price at which somebody else wants to sell their asset.

There are many different brokers, both Belgian and foreign ones. They all have their own advantages and disadvantages. So we will not recommend one over the other. But a couple of recommendations to keep in mind:

1. No monthly or yearly account fee. There are enough brokerage accounts which do not charge any account fees. No need to waste money by choosing one which does (even if it's your main bank). Even if you do not own any assets on their account, you still need to pay for the account.

2. No asset management fee (custody fee). Some brokers will charge you a fee (in percentages for example) to hold your assets. Same as item 1, there are enough alternatives to choose from which do not charge these costs.

3. Minimize transaction costs. Your broker will buy the asset that you want from a stock exchange. He of course also wants to get paid for his work. This is called the transaction costs. Transaction costs vary between brokers but is usually not something you can get around. But you can minimize them by comparing different brokers.

4. Some of the cheapest brokers are foreign brokers (Lynx, DeGiro). Which are fine to use but you have to be aware that there is some administrative work to be done (declaring your account for example). Take a look here for more information.

5. Remark: if you followed recommendation 1 and 2, nothing is stopping you from using multiple brokers. You can start out with one broker (Belgian one). And once you get the hang of it, you can open another brokerage account (foreign one). You can transfer your assets from one broker to the other (usually costs associated) but you could also just leave your first assets with your first broker.

Step 2:

Opening an account is usually quite straightforward and typically follow the same flow:

• You sign up

• You prove who you are (eID for example)

• Your request to open an account will be reviewed and approved

• You usually get a mechanism to log in on your account. For example: a Digipas or an app on your smartphone or...

• In case of a foreign account (Germany, Netherlands, UK), you need to declare your account.

Step 3

Choose the assets you want to buy. Again, there are many assets to choose from. But the most recommended strategy is to invest in:

• Globally broad diversified ETF's

• Denominated in EURO (no exchange fees)

• Accumulating ETF's (no taxation on dividends)

• Based in Ireland (no source taxation in Ireland)

• Full replication or optimized sampling

• Synthetic ETF's to be avoided (counter-party risks)

There is a very elaborate post explaining everything in detail. But if you just want to get your feet wet:

• Start buying VWCE by looking for this code on your brokers site: IE00BK5BQT80

• Or start buying an MSCI World index like IE00B4L5Y983 or IE00BFY0GT14 or IE00BK5BQV03. Unlike the name says, you are only buying the "developed world. So you should add the emerging markets + small caps. But for the first 10-ish months you do not need to worry about this (assuming you buy the same amount of assets every time).

You can't go wrong with those. Only thing to look out for is to choose the best stock exchange. You want them:

• to be denominated in EURO (no exchange fees).

• to have enough trading volume.

• to have low costs (brokers costs also depends on the stock exchange used).

Once you get the hang of it, you can also look into other assets (like emerging markets or small caps or focus on US etc...).

Step 4: Place a limit order

Once you have found the asset on your brokers site, you need to buy it. There should be a big "Buy" and "Sell" button.

You typically can choose between a "Day order" or a "GTC" (or something similar) order. The first order, like the name suggests, is only valid for one day. The order will be cancelled after 1 day if nobody wanted to sell at the price that you want to pay. The latter means "Good Till Cancelled". Which means that the order will be open until you cancel it yourself. So if you put in an order on Saturday, you would need to use a GTC order. Otherwise it will cancel itself on Sunday without a deal (trading is closed during the weekend).

Additionally, you can also choose between limit order and a market order. With a limit order, you are telling the broker that you want to buy a certain amount of shares at a certain price. Example: Shares of "BEFIRE" are trading at 24€. You set a limit order to buy 10 shares of "BEFIRE" @ 25,2 €. You can place the order 5% above the current market price to execute the transaction immediately.

With a market order, you are telling the broker that you want to buy a certain amount of shares at ANY price. So it would also buy the shares when a price spike occurs due to anomalies. For example, when the faulty trading algorithm of a high frequency trading firm causes the price to double.

Example:

1. Last market price: 50€

2. Your limit order: 50€ + 5% = 52,5€

3. Your buy price depends on the actual prices that other people want to sell and not your limit order. So if the price has dropped to 49,5€, you buy it at 49,5€. If it raised to 50,3€, you buy it at that price. In most situations the price would be close to the last market price. For sure for high volume ETF's.

4. Only in a case where the price is spiking you would pay 52,5€. And thanks to the limit order, you would not pay more.

Although the 5% is arbitrarily chosen by myself. One could also buy with a +1% limit order. Summarized: use a Limit order (day order or GTC) to buy your assets.

Step 5: Make sure all taxes are paid

Most (Belgian) brokers will take care of the Belgian stock transaction tax. Some foreign brokers will also take care of this tax (Lynx, DeGiro) Make sure to check upfront if your broker will do this for you. For sure if you do not feel confident to do this yourself. Be aware that taxes need to be paid within 2 months following the transaction if you need to do it yourself.

Dividend and interests

Most (Belgian) brokers will take care of this tax. Most foreign brokers will not. If your broker does not withhold the correct taxes, you need to declare these yourself in your yearly tax return.

Make sure to take a look at this post And also take a look here to understand the complexity of the stock transactions taxes before you choose a foreign broker.