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20/10/2021

Full guide: How to invest in the stock market in 2021

The stock market is a must when it comes to investing. However, it’s a very broad field. Purchasing and reselling shares enables you to make capital gains if the price has risen. However, market downturns can lead to losses. It’s therefore essential to understand market specificities to know where to invest in the stock market.

Get your trading practice off to a great start by asking for advice from a trader or registering for a demo account.

How do stock market investments work ?

Instead of keeping your savings in a savings account, think about investing them. Annual inflation is generally higher than the rate of appreciation of bank savings accounts, which leads to a loss of purchasing power due to the rising cost of living.

The stock market is currently one of the most popular investment sectors. To prevent your savings from gradually losing value on a savings account, you can invest them in shares, bonds, and commodities, among others. Anyone can be successful on the stock market once they’ve acquired the basics.

What is the stock market ?

The stock market is a market that allows buyers and sellers to exchange financial products, such as bonds, shares and commodities. There are many stock markets, such as the Paris Stock Exchange, the London Stock Exchange, the Tokyo Stock Exchange, or the Hong Kong Stock Exchange.

The stock market is based on the basic principle that companies enter it in search of funds, aiming to raise money on the stock market and avoid borrowing from banks and paying interest. Companies listed on the stock exchange earn money when you buy their shares, while you become the owner of a part of the company.

To know where to invest in the stock market in 2021, you need to be able to distinguish between the primary and secondary market, the two types of stock markets.

The primary market includes new companies that have gone public. During their IPO, their shares are purchased by underwriters. Underwriters are companies that acquire the securities directly from the issuer and resell them on the market. The secondary market is composed of benchmark stocks such as the CAC 40, the S&P 500 and the NASDAQ.

Understanding where to invest in the stock market

If you want to know where to invest in the stock market in 2021, you must first understand how the market works. In all cases, there has to be a buyer and a seller for the exchange of a financial product to take place. When you buy a stock, you become the owner of an asset that belonged to another investor.

Increasing your skills with new tools

There are tools especially aimed at stock market investors. The ARYA app, for example, is designed for all levels of traders, from beginners to those who are more experienced. You benefit from a 100% investment-oriented environment, but above all from a real stock market education.

The ARYA app provides guidance and advice from trading coaches. You can follow regularly-updated training sessions directly from your computer or smartphone. To progress more efficiently and know where to invest in the stock market at any time, you can also participate in weekly trading rooms and monthly MasterClass.

Analysis and valuable trading recommendations are provided to help improve your performance. By using the ARYA app, investors also benefit from a unique asset: a 24/7 support community.

Where to invest in the stock market and what are the risks ?

When you invest in a financial product, i.e. when you buy it, there is no guarantee that the operation will be profitable. The return depends on the resale value of the share. In any case, even if you know where to invest in the stock market, there will always be a risk of losing some or all of your initial funds.

However, long-term investments generally offer a more favourable return, but it’s important to understand that not all stock market products have the same potential for gains.

It is also possible to diversify your portfolio to better secure your invested capital. Moreover, the potential gains of the stock market are inversely proportional to the risks. Thus, the higher the risk, the higher the potential profits.

Once you have decided where to invest in the stock market, you must always analyze the risks. Various factors are taken into account by traders and certain strategies are to be known. This video will help you progress in trading.

The volatility of the chosen financial product must be taken into account for each investment. This term is derived from the fact that share prices fluctuate. The price of an asset may rise or fall sharply over time. These variations in relation to the purchase price then lead to gains or losses.

When the amplitude of these fluctuations is very large in the short term, the asset is said to be very volatile. This is why, before deciding where to invest in the stock market, you need a long-term investment strategy in order to reduce risks related to share volatility.

The different types of assets

When deciding where to invest in the stock market, you’re faced with the tedious task of choosing from a wide range of financial instruments, or assets. Before making an investment, you need to know the specifics of each type of asset 

In the stock market, asset classes group financial products by category according to similar characteristics.

The main stocks to invest in

Equities are the best known asset class. These allow companies to benefit from the financial contribution of their shareholders in order to grow. They are tiny parts of a company. A share is therefore the equivalent of a title to a fraction of a company's capital.

Investing in a company gives you certain rights, including the right to receive dividends, i.e the profits that can be paid out to you. However, the company decides when these earnings can be distributed to its shareholders. In addition to dividends, a share also gives you the right to vote at general meetings.

To know where to invest in the stock market when it comes to shares, there are different categories. Ordinary shares come with the right to dividends and voting rights, while preference shares offer specific rights, for example, the right to receive a guaranteed share of dividends or to benefit from several voting rights.

In the event that the company goes bankrupt, the holders of preference shares are then reimbursed in priority, but after the creditors. In addition, there are also bearer shares that are acquired via an intermediary. This means that your ownership titles are unknown to the company and that you have to declare yourself in order to have your shares registered.

The annual return on equities is generally between 6% and 10%. Generally more profitable than other financial instruments, shares are also more liquid. This means that you can recover your capital at any time by selling them.

Bonds : coupons for long-term investment

Bonds or bond products are the second largest category of financial assets. These tend to be profitable and are made up of debt securities issued by the government, public institutions and private companies.

When you buy bonds, you lend money to the issuer. The investment generates interest, otherwise known as a coupon. However, you need to wait until the end of the loan contract before recovering the capital.

Among the different types of bonds, there are those with a fixed interest rate, where the interest rate is fixed as soon as the bonds are issued. On the other hand, there are also variable-rate bonds, where the interest rate is subject to a reference rate, which can rise or fall.

There are also convertible bonds that can be exchanged for shares of the issuer, but according to predefined terms. Finally, there are also zero-coupon bonds where interest can only be paid at the end of the loan.

At maturity, the capital invested is repaid if the company has not gone bankrupt. There is a risk of default based on the creditworthiness of the issuer. If the issuer goes bankrupt, part or all of the investment may be lost.

There is also an interest rate risk if you sell before maturity. Indeed, the transfer price of the fixed-rate bond is only guaranteed at the end of the loan's life. Moreover, selling before maturity also entails a liquidity risk. Indeed, it may be difficult to find a buyer and the resale price is generally low.

Money market investments : a favourable niche

Equity instruments that are part of the money market constitute a special asset class. This applies in particular to debt securities and debt instruments, which are distinguished by their shorter life.

These assets are usually traded for a few months or up to two years. They are composed of Treasury bills and are issued by the government. The latter correspond to corporate commercial paper and certificates of deposit issued by the banking system. These investments are popular because of their liquidity. However, their returns are generally capped by central bank rates.

Investing in commodities on the stock market

Among the financial assets favoured by investors, there are also commodities. Commodities are traded at prices that vary daily. They are thus open to stock market speculation, but also allow long-term investments to generate dividends.

Listed commodities include precious metals, such as gold and silver. Oil is also one of the most widely followed assets, as are other energy sources. If you want to invest your savings in commodities, you should know that their prices are highly dependent on supply and demand.

You therefore need to keep up with trade news in order to determine which assets are most favourable. Trade agreements play a crucial role in the market.

Commodity prices also vary according to climatic and geopolitical factors. However, these assets are ideal for portfolio diversification since their prices have no correlation with those of stocks and bonds.

Currencies : a distinct asset class

Currencies can be bought and sold on the foreign exchange market. They are also present on the specific stock market of Forex. Here, investors can speculate on changes in the exchange rates of currencies. The system of this market is based on the comparison between two currencies, such as the Euro and the Dollar. If you are looking for a place to invest in the stock market, Forex allows you to take advantage of the leverage provided by trading.

The most popular currency pairs include EUR/USD, USD/JPY and GBP/USD. Forex trading is done directly between buyers and sellers in an over-the-counter market where currencies are traded in pairs.

Where to invest in the stock market ?

In France, there are 6 tax wrappers for stock market investment, and the trader’s choice will define how all his or her stock market gains are taxed. You can invest via a traditional bank.

However, there are annual custody fees and frequently high transaction fees. Online banks often offer lower order fees. The best rates are offered by brokers that specialize in the stock market.

The share savings plan, or PEA

The PEA is a special account offering favorable taxation in 2021. The May 22 2019 Pacte law enabled greater flexibility for the sector. Investments can be made in French and European companies.

When you deposit funds on a PEA, you acquire shares in listed companies, as well as units in funds invested in French and European equities, such as SICAV and FCP.

The PEA works in much the same way as life insurance, since the taxable envelope is only taxable if money is debited to it. This gives the PEA an advantage over the ordinary securities account (CTO). The PEA is open to everyone, without income requirements. Investors can manage their stock portfolios themselves, but can also delegate management to a professional.

There are several types of PEA in which to invest in the stock market in 2021, including bank PEAs, insurance PEAs for investment in UCITS, as well as the PEA-PME-ETI, which is dedicated to investment in SMEs and ETIs0. 

The ordinary CTO securities account for investing in the stock market

The CTO is a financial instruments account that offers access to all markets, including listed and unlisted, as well as real estate. It is a fiscal envelope which allows you to carry out stock exchange investments in France and abroad.

It allows you to benefit from maximum portfolio diversification with securities and funds of all types with no geographical limits. This type of tax wrapper is popular for its flexibility, since it is possible to open an individual CTO, a CTO for a minor, a joint CTO or a joint ownership CTO.

Non-tax residents can also open a CTO. This type of account is also used to subscribe to preference shares and to invest as part of an IR-PME tax reduction strategy. There is no ceiling for the amounts invested and the funds are available at any time for liquid assets. CTOs are subject to the common law tax system and are therefore subject to the PFU (single flat-rate levy) on gains.

Allowing you to place your own orders, a CTO is the simplest solution for investing in the stock market. It also allows you to benefit from the leverage provided by the SRD. It’s the perfect stock market tool for diversifying assets. It is always linked to a cash account, which is used for the supply and receipt, as well as the storage of capital.

Investing in the stock market with life insurance

Contrary to what people think, life insurance is not a financial investment, but a financial package. It allows you to invest in the stock market with free management to increase the value of capital or support. These include the euro funds which currently have an average return of 1.3% and which offer a total guarantee to investors.

On the other hand, life insurance allows you to invest in growth capital or euro growth capital, but with a predefined guarantee period of between 8 and 12 years. This means that if the investor withdraws before the maturity date, they can lose part of their capital.

Lastly, there are the non-guaranteed supports or Units of Account (UA) which take care of shares, bonds, diversified, SCPI, POCI, SCI, ETF, trackers, ... However, these present a high risk factor for novices.

 4/ How can you generate gains on the stock market?

For a stock market investment to be profitable, certain basic rules must be applied.

Define and stick to a stock budget

To invest in the stock market and obtain gains, you need to define a precise budget according to your available capital. In general, it is advised not to exceed 30% of your assets. Moreover, investments must be adapted to your investment horizon.

It is more profitable and less risky to make targeted investments over the long term. This will save you from having to monitor your asset portfolio every day and from panicking if prices enter a downward trend.

Diversifying assets

Because of economic cycles, some assets have an opposite correlation. It is therefore necessary to compose a portfolio with diversified financial instruments. This requires investments in different companies, in different sectors and in different countries.

To do this, you can invest in about ten securities, an allocation of 1 to 5 trackers or two free management life insurance policies. In any case, you should avoid investing all your capital in a single listed company, because in this case the risk would be particularly high. Portfolio diversification also helps to limit asset volatility, as it allows you to benefit from average prices.

Invest gradually and regularly

Predicting market trends is difficult, if not impossible. Make regular, scheduled investments. This avoids having to anticipate unpredictable market variations.

To make a good investment in the stock market, spread your stock budget over a period of 6 to 12 months and continue to invest regularly.

Investing in the stock market for the long term

It is essential to define an investment horizon over several years to invest well in the stock market and generate gains. In the short term, the market is subject to fluctuations of up to 15%. These fluctuations must be observed on a large scale to determine a general trend.

By investing for the long term, you avoid making decisions in a panic. The key is to keep an initial strategy in mind. This includes sticking to your initial predefined stock budget. Don't hesitate to increase investments when prices are low and decrease them when prices are high.

You need to be patient and to correct the balance periodically, such as every quarter. In any case, in order for your investment to be less risky and to generate returns, avoid speculating in the short term on daily price fluctuations.

What are the best stocks to invest in ?

If you're looking for where to invest in the stock market, here are the most profitable stocks in 2021:

Apple: This year, Apple's revenue gained 11% and reached $60 billion. Apple's shares rose by 18M to reach $2.58. The American giant announced a $0.82 dividend per share payout for its shareholders. Currently, Apple's 4-for-1 stock split is a great opportunity for a small capital stock investment.

Amazon: The online retail giant's share price continues to rise despite the health crisis. Amazon Prime is beefing up its offerings and AWS Cloud is still growing strongly. Amazon's asset price has climbed 72% in a year. Indeed, from $18,998, it has risen to $3270.

Google: Google's shares have been among the most profitable in recent years. The global search platform has handled between 91.9% and 93% of queries in the past 12 months. Alphabet, Google's parent company, is also benefiting from strong growth in YouTube and Google Cloud, two of those businesses. Cloud revenues exceeded $3 billion in the second half of the year, a 43% increase over the same period last year.

Netflix: The leading video streaming service is one of the most appealing stocks this year. Its stock is up 73.5% annually. It stands out for the volume of its content, which far exceeds that of its competitors, even Disney. Netflix gained 1 million new subscribers in the Asia-Pacific region in the second quarter. It still has more than 2 billion potential customers in that region, not including China.

Tesla: With a market capitalization of USD 393 billion, Tesla is the world's largest automaker. It is also a clean energy company that builds storage and generation solutions. With its planned entry into the S&P 500, Tesla promises a surge in its share price.

Facebook: The social networking giant's shares are listed on NASDAQ. It features over 2.5 billion users worldwide. Facebook is also benefiting from the monetization of Instagram. Facebook Shop's growth has been accelerated by covid 19. With an initial price of $209 at the beginning of the year, Facebook shares have gained 33% and now stand at $280.

Orange: included in the CAC 40, the French telecom operator has been affected by the health crisis, but has several large-scale projects in the pipeline. Having rebounded little, its low share price is a good investment opportunity. Orange has already acquired the largest range of 5G frequencies in France.

Other stocks to consider for investing in 2021 include EDF, BNP Paribas and LVMH.

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