Hi, I am a young Italian (I guess the "poste Italiane" gives it away uh) and I plan to make my fist small experiments to understand how buying stoks and ETFs works.
I tried to look around what all those acronyms and big words mean but usually the definition and explanations I found use other acronyms and big words and end up being mentally exhausting to follow.
As far as I understand An ETF is a group of companies that share a market and by shoving money in there (investing in the found is the right phrase I guess)
you either buy stocks
(which are just money you give the company to spend and after the profit is made it should give it back with a certain interest I think, right? How much interest and how often is a great mystery I have yet to solve)
or fractions of stocks
(what is the point of a stock being a certain price then???? If i can just buy a small piece of it???)
from one of the companies in the found
(randomly I guess, or according to a broker whims maybe idk)
and when the dividends are paid you can either get some money back or reinvested in the found.
Those ETFs are apparently more secure because they spread your money around multiple companies within multiple fields and I feel like I should invest more in those then in singular companies, is that right?
Also I'm planning to start with 50€ each month but if I feel comfortable enough I plan to rise the investment to maybe 300€ monthly, but I often see people saying that for those amounts of money (which are a fuckton to me) you should just dump in a single ETF and forget about it for like 10 years, but it feels so wrong to put so much money into something with risks attached to it and then ignoring it, is there something else I'm not getting? (As opposed to all the other things I'm understanding perfectly, right?)
First, feel no shame or embarresment for asking your questions. No one is born with this knowledge. We only obtain it by study or asking others. That's exactly what you're doing, and its just fine.
Second, while the basics of stocks are mostly the same across the world, each country can have different rules for how to buy, taxation, and added/reduced risks or advantages vs other types of investing available to you in your country. Getting answers from someone that knows the systems in Italy should be your next step before investing any of your money.
The non-obvious answer is: there is no path with zero risk. Even just holding onto your money in cash in your hand, it loses value over time due to inflation. Meaning 1€ coin will buy more today of something than the same coin one year from now as inflation raises prices on what you'd buy. So part of investing is to gain more money while another type is to lose as little or no money as possible. The first path generally has higher risk than the second path, however the first path has generally higher reward than the second path.
The only relationship each of the company's stocks in an ETF (or mutual fund for that matter) have is that they are chosen to be in a group by the organization (brokerage company) that is selling shares in the ETF. The individual companies actually don't have a choice to be in or out of an ETF. That choice is made by the brokerage company. That brokerage company will buy individual stocks, put them in a big pile, then sell you a tiny slice of that pile as a share in the ETF. This means you have an easy way to own a tiny piece of lots of companies without having to buy individual shares in each company.
ETFs generally smooth out some of the volatility (rapid stock price rises and falls) because not all companies in the ETF are successful or failing at the same time. The "more secure" idea may come if you invest in a single company stock, and that company goes bankrupt, you lose 100% of your money. If you invest in an ETF and that same company is only 5% of the stock inside ETF, you only lose 5% of your money. The converse is also true though. If that company doubles its stock price, and you own individual stocks, your money doubles. If the company doubles its stock price and its only only 5% of the stock inside ETF, your money has only gone up by 10%.
I generally don't recommend picking individual stocks. Most people, myself included, pick very poorly or pick at the wrong time to buy or sell vs holding a large index ETF like one that mirrors the USA S&P500 (which includes the 500 largest profitable companies in the USA). I do a very small amount of individual stock picks myself and more often than not I would have been better off putting that money in a S&P500 ETF (which is where most of my money goes).
Generally this is good advice. You wouldn't want to pick an exotic ETF for this like something that includes only "large office building rentals" (yes such a thing exists). You'd pick something like that USA S&P500 ETF that historically has a steady return over time. The most important component to investing is TIME! This allows the power of compound interest to do the heavy lifting. Example: if a person put 10,000€ in S&P500 ETF the very first year the Euro existed in 1999, and never put another cent in, that person would have 100,491€ today! The money would be 10 times what was put in! That's the power of time!
Thank you for your time! Your explanation of what an EFTs is so helpful actually.
I got a whiff of the complications about local lows could bring already but I think I am handling those problems better then the ones with the actual trading (mostly because I can actually understand what people talk about)
Imo this is good advice, the only other thing i'd mention is Dollar Cost Averaging, basically budgeting to put a similar amount of money into something over a longer period of time. If you were to put $10,000 into something today, and the market has a routine crisis, it would sting a lot more than if you put the same amount of money in chunks of $200 over several months. Good to find something with low brokerage fees local to you.
Another thing worth mentioning, ETF or indexed funds will have lists of what they contain, if you can't find them, then you can ask for them (but they're normally easy to find). I say this because my money sat in a fund for a really long time that was filled with weapon companies and bonds in imperialist governments. You can find things labeled 'ethical', they're normally not that ethical (how is 20% of a fund being tied up in US tech stocks - google, apple, etc - ethical?), but it's better than having a direct stake in Lockheed Martin and Israeli Government bonds.
Oh and you will not time the market, do not try. I've never sold anything outside of an emergency when I needed the cash, and it generally takes about a week to organise.
I've had to look into this a lot because the government takes a portion of my pay and makes me invest it in superannuation.