A beginner’s guide to investing
More and more Europeans are investing their money, and it’s no surprise why. These days, beginner investors have access to tons of information and easy-to-use platforms. Plus, new investment options let you start investing with even a small amount of money.Ready to take the first step toward growing your money — but not sure how investing works? Our step-by-step guide has everything you need to know as a beginner to get started.
How does investing work?
Investing is a lot like tending a garden. To grow vegetables or flowers, you need nutrient-rich soil, seeds, water, and sunlight. The soil represents your financial foundation, where your seeds — your money — can take root. Water and sunlight are like the market conditions that determine how well your crop grows.
Just like with a window box or a balcony garden, even humble beginnings can turn into meaningful results. The size of your garden — or your investment — isn’t the most important factor. There are investment plans where you can start with as little as €1 per month.
How can you start investing?
Set a goal
Having a clear objective helps you define your investment timeline, budget, and strategy.
Choose the right investment for you
Your risk tolerance and personal goals will help you narrow down your options, and you can look for beginner-friendly investment products like ETFs or tangible assets.
Decide whether to invest once or regularly
Depending on the type of investment, you can opt for a one-time payment or make regular contributions — whatever fits your budget and risk tolerance.
Keep an eye on your investments
Different investment types and strategies need more or less monitoring, but generally, the key is to know what’s going on with your money.
How much should I invest per month?
The question isn’t how much you should invest — it’s how much you can comfortably invest without cutting into essentials like rent, bills, and groceries. Get a clear picture of your monthly income and expenses, then set a budget that works for you. Remember that you may have to pay trading fees and taxes on capital gains.Pro tip: Look for flexible investment options that let you adjust your monthly contributions. Also, consider setting up a tax-free savings allowance to maximize your returns.
Why it’s important to diversify your investment portfolio
You can’t completely avoid investment risk, but you can spread it out. For instance, instead of putting all your money into cryptocurrencies, you could diversify your portfolio with ETF savings plans or even open a high-interest savings account. The exact mix is up to you, depending on your personal goals and preferences.This way, you’re not putting all your eggs in one basket — just like planting different types of vegetables in case one crop has a bad harvest.
Which investment options are good for beginners?
When you're new to investing, it’s best to start small and stick to financial products you truly understand. There's no need to go all-in or get everything perfect from day one. Many brokers offer demo accounts so that you can practice and familiarize yourself with investing without taking any real-world risk. Experiment, learn, and grow your portfolio one step at a time.
Here's an overview of some popular investment options:
Stocks
When companies want to raise capital, they can go public on the stock market and issue shares. Shares, also known as stocks, represent part ownership in a company. Sometimes, they also come with voting rights and a piece of the profits, called dividends. By buying stocks, you become a part-owner and can benefit from the company's growth. Investing in stocks is a popular strategy, but it comes with higher risks. Stock prices can rise or fall dramatically, and many factors can influence their value. Before investing, research the company thoroughly, such as by reviewing recent financial reports, and monitor the stock's performance. Be wary of tips about "hot stocks" and use your best judgment to make independent decisions — you're the one who’s in charge of your finances.Mutual funds
Investment funds are like baskets that contain a variety of stocks. Depending on the type of fund and management company, a fund can have different assets in it. For example, a real estate fund mirrors trends in the real estate market, holding stocks from multiple companies in the sector. Mutual funds are actively managed. As fund managers adjust holdings to maximize returns, the composition of a fund can change. Active management can be helpful, but there’s also the risk a fund manager could make poor decisions. By nature, mutual funds are diversified because they include dozens or even hundreds of companies. This makes them generally lower risk compared to individual stocks.ETFs
Like investment funds, exchange-traded funds (ETFs) track the average performance of multiple companies, sectors, or regions. But ETFs are passively managed, meaning they have the same composition no matter what the market trends are. The goal isn't for an ETF to outperform the index it’s tracking, but to match its performance. As a result, ETFs often yield "average" returns and can be a good choice for long-term investments. They can also be traded on an exchange, just like a stock. Many beginners choose ETFs because they’re relatively safe and easy to manage. Since they’re passively managed, the fees are typically lower. You can also invest in ETFs through monthly plans that let you buy shares in fractions, depending on what you can afford to invest. Some brokers or platforms let you start with as little as €1 per month.Cryptocurrencies
Investing in cryptocurrencies is a high-risk move for beginners. Blockchain-based currencies like Bitcoin and Ethereum are relatively new and still extremely volatile. There’s also little regulation in the crypto market, and unlike ETFs, cryptocurrencies aren’t classified as protected assets. This means there’s no government safety net if the exchange goes bankrupt or the currency fails. Crypto investing takes a lot time and effort. You’ll need to monitor the market daily and trade frequently if you want to maximize gains and minimize losses. But if you want to go ahead with crypto, there are different tools and guides available online to simplify the process for beginners.Government bonds
Like stocks, bonds are issued to raise money — but by governments rather than companies. Governments use the money they bring in from bonds to fill budget gaps or finance infrastructure and education projects. Bonds have fixed terms, usually between 10 and 30 years, and pay regular interest, making them a relatively low-risk option. However, their value can still go down if market rates fall, and they’re only as secure as the government that issued them. Stick to bonds from stable governments — that makes it more likely that you’ll get your full investment back when the bond’s term ends.Precious metals
Gold, platinum, and silver have long been considered safe investments that offer protection against inflation. In Germany, holding precious metals for over a year exempts them from taxes. However, precious metals aren’t quite risk-free. For example, gold prices often fluctuate more than stock prices, due to supply and demand dynamics. And unlike stocks or bonds, precious metals don’t generate passive income through interest or dividends. It’s also essential to choose a trustworthy dealer. The market is unregulated, which makes it attractive to some pretty unscrupulous sellers. A safer alternative could be gold or commodity ETFs, which let you invest indirectly. Gold investment plans are also an option if you’re working with a smaller budget.Real-world assets
Items like sneakers, trading cards, wine, or diamond jewelry are popular investments. Like precious metals, they can protect against inflation and can become more valuable over time. For instance, a designer handbag might sell for much more years later — as long as it still has collector appeal. Just keep in mind that trends can change, and what’s valuable today might lose its worth tomorrow.Real estate
With rising real estate prices, property investments like houses and apartments have become even more popular, especially in major cities. Some private investors make substantial profits in just a few years. However, buying real estate takes a significant upfront investment, often involving loans and long-term commitments. Renting out a property can cover the mortgage payments, but being a landlord comes with responsibilities and expenses. Construction issues, poor location, interest rate changes, or economic downturns can also hurt property values and limit the value of the investment. These are just a few of the investment options out there. With some time and consideration, you can find an investment approach that’s right for your goals and risk tolerance. Remember: Every investment carries some level of risk, so never invest more than you can afford to lose.What is the best investment option at the moment?
There’s no such thing as the “perfect” investment — what matters is finding one that aligns with your personal goals and circumstances. That’s why it’s so important to understand your risk tolerance and take a close look at your finances.You can also explore historical performance data and average returns over the past 50 years, as well as research financial trends. Just remember that past performance and future predictions never guarantee success.
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FAQs
- Financial goals: Are you investing short-term or long-term? Do you want high or moderate returns?
- Time horizon: How long can you commit your money without needing it?
- Financial situation: How much can you afford to lose without jeopardizing your financial stability?
- Personality: Are you comfortable with risk or do you prefer to play it safe?
- Not doing enough research before making investment decisions.
- Trying to time the market rather than focusing on long-term growth.
- Investing based on emotions or following the latest trends without understanding them.
- Not diversifying your portfolio, which increases risk.
- Ignoring the fees and costs associated with investments, which can erode returns over time.
The good news: You can invest money even with a small budget. For example, €25 per month is enough for many ETF savings plans — and with some online providers, there’s no minimum. You can start investing in cryptocurrencies with as little as €1. And with interest-bearing savings accounts, depending on the provider, there may be no minimum deposit required. If you compare your income with your expenses, you’ll see how much money you have available to invest.
Your risk tolerance is how well you handle it when the value of your investments goes up or down (or both). Knowing what your risk tolerance is can help you set an investment strategy and choose investments. Here are a few things to think about to figure out your risk tolerance:
To find the right investment for you, you should understand your budget, risk tolerance, goals, and time horizon. For example, if you have long-term investment goals and are more cautious, then a high-risk, yield-oriented investment strategy may not be suitable for you. Plus, remember that you should invest in a variety of financial products to spread out your risk.
An interest-bearing savings account is probably the safest investment, because local deposit insurance protects your account, and you can access your money at any time.
There’s no one-size-fits-all answer to this question. As a general rule of thumb, you should have the equivalent of 2 to 3 months' salary in your account for emergencies. Use our handy 50/30/20 budgeting calculator to figure out the ideal savings amount based on your income.
You don’t need to be rich to invest in stocks. Some investors use online brokers with low or no minimum deposits, or invest in fractional shares or low-cost index funds or ETFs. Some platforms also offer micro-investing options that let you get started with very small amounts.
Stocks are ownership certificates of companies. When you buy shares, you become a co-owner and benefit from any dividend payments or price developments.
Exchange Traded Funds (ETFs) are traded index funds. They’re a pool of investments in numerous companies within a sector or region (or even several regions), and are structured according to the index they track. So, you’re only indirectly investing in these companies.
Consider your goals, risk tolerance, and time horizon. Are you trying to make maximum profits as quickly as possible? Then a high-risk investment might be your strategy of choice — just remember that you’ll need to keep an eye on market movements and try to manage your risk.
With a long-term investment with average returns, you might not see major returns right away. However, fixed-term deposits, government bonds from countries with good credit ratings, or very broadly diversified ETFs are comparatively low risk and may perform well in the long run.
Here are some common mistakes to avoid when you start to invest:
To protect yourself against potential losses, you should diversify your risk — in other words, don't put all your eggs in one basket. How you diversify your portfolio depends on your financial goals, budget, risk tolerance, and time horizon. If you have more short-term goals, you could invest in stocks from different companies, bonds with a short remaining maturity, and various cryptocurrencies, for example.
Another way to diversify is to invest your money in ETFs from different sectors, regions, and focus areas, such as a mix of emerging markets, commodities, currencies, and renewable energies.
If you want to invest in thousands of companies from around the world at a relatively low cost and without too much effort, broad-based ETFs are a good option. For example, you could invest in an ETF that covers many companies from developed countries (e.g., tracking the MSCI World Index) and also choose an ETF that includes a wide range of companies from emerging markets (e.g., tracking the MSCI Emerging Markets Index).
Yes, for ETFs, certain stocks, or cryptocurrencies, you don't need large sums of money to place orders. Keep in mind that trades incur fees and taxes — although there are some providers where you can trade fee-free.
Tip: If you live somewhere with an annual tax allowance, you can set up an exemption order with your bank or broker.