Prepare to know yourself is the most first step of everything. A lot of people losing money in investments, not because of bad luck, but due to failure to understand flaws in decision making.
Daniel Kahneman Thinking, Fast and Slow will prepare yourself to avoid bad investment decisions. The market is full of investments derivatives, which, unfortunately, will rip off the investor.
Why thinking slow is important:
For any starter, basic knowledge on cost and risk is something that many people neglect. A lot of investment funds are hiding the real cost and risk from the advertised report, i.e. many people already lost a sum of investment when those funds take a cut from the purchase cost and annual managing cost. In addition, avoid any funds that claim to carry out active managing activities. In which, those funds always selectively published the best performing period while hiding all the bad record.
Why cost is important for your investment return
Let say you have $1000, now there are 2 mutual funds with the same portfolio with different promise and fees
- Fund A is an active-managed fund say and the published prospectus shows an average 18% annual returns records of 2 years, charge 2.5% from the purchase fees, 2.5% for annual management fees, no selling fees.
- Fund B is a passive fund. It shows an average of 6% annual return of 5 years, charge 1% on the purchase, 1% on selling but no management fees.
Which one will you choose?
If you choose Fund A, then you definitely need to spend time with Thinking, Fast and slow.
Beware of active managed ETF
Besides the hidden cost trap from various mutual funds, a beginner must also be careful about low-cost investment tools like ETF. The trillions of dollars financial derivatives market are known to inject half truth facts into various reputable news media. I.e. many simply write stories about 5% good earning from actively-managed funds but hides 95% that didn't make it. As shown by this article, 95% of equity funds are beaten by the simple market index.
In France, just look for the primary index funds ETF with no hidden cost or low annual cost maintenance ratio, i.e. passive market index ETF should have low expense ratio that shouldn't be more than 0.2%. For comparison, Vanguard index fund ETFs expense ratio are range from 0.01% to 0.05%.
You should deposit your investment (not saving for a rainy day) in a long run period. Unless France government f*ck up in the long run, otherwise, in a 15~20 years period, you have a worry-free investment.
You should also continue to put some money into
Livret Bleu as rainy day funds. Because the worst investment decision to make is selling a long term index fund during an emergency (thus you should also plan your insurance coverage).