#011: Tools I Use To Invest In The Stock Market
My criteria to evaluate if I can trust an investment app or company
Investing in the stock market used to be a cumbersome experience.
Nowadays, you only need to download an app and you are able to buy stocks, ETFs, bonds and the like.
In this post I explain what criteria I apply to know which investment app I can trust.
Here I only consider web and mobile tools as I assume you have already come to the conclusion that this is the way to go.
Reasons therefor can be fees or convenience.
However, if I were to consider investing with help of in-person consulting I would still apply the approach described here.
Step 1: Understand your investment focus
Before you choose your investment tool you should have clarity on what you want to do with it.
I do not recommend first choosing the tool and then see what it offers because then you are already narrowing your window of opportunities.
Personally, I want to be able to buy some of the most popular index-ETFs, e.g.,
- A globally diversified ETF such as the Vanguard FTSE All-World UCITS ETF Distributing (ISIN IE00B3RBWM25)
- ETFs following the S&P index such as the Vanguard S&P 500 UCITS ETF (ISIN IE00B3XXRP09) or the iShares Core S&P 500 UCITS ETF (Acc) (ISIN IE00B5BMR087)
- As I get my income in Swiss Francs I also want to buy ETFs traded in CHF to hedge against foreign currency risks such as the UBS ETF (CH) SMIM (CHF) A-dis or UBS ETF (CH) SMI (CHF) A-dis
I also want to be able to buy stocks from companies that are publicly traded in the U.S. or in Europe.
Step 2: Understand the fees
There are usually several kinds of fees involved when purchasing assets with the help of (online or offline) brokers such as
- Management fees: Typically they are defined as either a percentage of your overall portfolio wealth or a fixed price per month or year.
- Transaction fees: They are charged per sale or purchase.
- Other fees e.g. to close an account or for withdrawing money.
It is worth to carefully compare the fee structures between different tools.
Also, be aware that the same stock or ETF can often be purchased on different stock exchanges. Different transaction fees may apply depending on where you buy the asset.
Step 3: Understand taxation
Taxation depends on both your domiciliation as well as the domiciliation of the asset that you are purchasing.
You need to understand how you will be taxed on dividends, gains and withdrawals
- in your country
- in the country where the asset is domiciliated (e.g. the U.S.)
Factors to consider are
- Estate tax treaties between your country of residence and the country where the asset is domiciliated. Such a treaty often waives double taxation for residents in both countries.
- Limit amounts above which hefty taxation laws apply, for example, when you withdraw money from the account.
Step 4: Understand the company risk
Whenever you invest through a broker, an app or tool there is a risk that the company behind may go bankrupt.
Be aware to understand that risk and ask yourself how much you can trust this company and what happens to your assets in such a case?
I usually assess how long the company has been around, how many users does it have and what the reputation of it is.
Has the company been investigated by authorities in the past, were there any scandals or unhappy customers who have lost their money?
Furthermore, understand how much money you want to have invested through one single company?
Think about it in absolute numbers as well as percentage of your investments or net worth.
I personally invest through different apps belonging to different companies that are located in different countries.
Step 5: Understand the country risk
The country where the investment company is domiciliated can be a risk as the company must follow that country’s laws.
Could the company be forced by authorities to freeze your account or block withdrawals?
Could the company be (randomly) forced to hand over all names of its customers to the authorities?
It is worth to think about this risk as well.
Step 6: Start investing
After you have carefully assessed all of the above you are ready to invest.
As with all investments it is good practice to start small, try something out, learn from your experience and mistakes.
Happy investing !
My choice and favorite tools
I personally use the apps of DEGIRO and Interactive Brokers.
The fees are low and the tools provide me with all the flexibility I need. For example, DEGIRO offers trading a lot of ETFs commission-free.
If you are interested in opening an account, please consider using my referral link here.
Key takeaways
- Think about your investment focus before you choose which tool to use.
- Perform your due diligence on the broker-tool before you invest significant amounts of money.
- Choose your tool, start small and learn fast.
Don’t miss the next newsletter if you want to get more actionable insights on how I optimize my life.
Disclaimer
The views expressed here are those of the author. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, the author has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest. Any investments or companies mentioned, referred to, or described should not be considered as investment recommendation, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
