Getting started: brokers, orders and good habits

Davor, 38, has cleared his card debt, built an emergency fund and has €10,000 to invest for the long term. He opens a broker app and sees buttons for “market” and “limit” orders, and two prices for the same ETF: €49.50 and €50.50. A colleague says, “Wait for a crash first.” Where should he start?

Steps before you invest

A sensible order for many people:

1. Pay down expensive debt, and build an emergency fund in safe savings.
2. Decide your goals and your time horizon.
3. Choose a mix of shares and safer assets that suits them.
4. Use low-cost, diversified funds.
5. Invest regularly and automatically.
6. Rebalance now and then, and ignore the daily news.

Brokers and what protects you

A broker is a firm that buys and sells investments for you. Choose a regulated one and check the regulator’s public register. Your shares and funds should be held separately from the firm’s own money.

An investor-compensation scheme pays you, up to a limit, if a firm fails and cannot return your assets. It does not pay for falling prices. Examples: at least €20,000 per investor in the EU (€22,000 in Slovenia), up to $500,000 in the US (including $250,000 of cash), and up to £85,000 per firm in the UK.

Orders and the spread

• A market order buys or sells at once at the best available price. It can fill at a poor price when trading is thin or fast.
• A limit order trades only at your chosen price or better. It protects the price but may not be filled.
• A stop order sells once the price falls to a set level. It then becomes a market order, so in a sudden gap it can sell far lower.

The bid-ask spread is the gap between the price buyers pay (the ask) and sellers receive (the bid). Buying and selling at once costs the spread.

Regular habits beat clever timing

Dollar-cost averaging means investing a fixed amount at regular intervals. For a lump sum, Vanguard compared investing at once with splitting it over three months. Using world stock-market returns from 1976 to 2022, investing at once did better 68% of the time over one year. Splitting still beat staying in cash 69% of the time. Regular investing from your salary is the natural way to invest income.

Over time, one asset usually outgrows the other and your mix drifts. Rebalancing means trading back to your target.

Behaviour matters as much as products. Common mistakes are chasing last year’s winners, panic selling in a crash, trading too often and checking too often. Over the past 30 years, missing only the 10 best days in the US market would have halved the return. And 76% of the best days came in bear markets or right after them, when frightened investors are tempted to sell.