If you have a savings horizon of more than a few years, stocks are a superior way to save money. No savings account in the world can beat the returns on the stock market.
We have put together a guide for those of you who want to start investing in stocks. We will go over what stocks are, how you can buy stocks and some tips regarding stocks.
Please note that Sparpisarna does not provide any investment tips. All information on this page is intended to serve as inspiration only! We recommend contacting a licensed independent financial advisor.
Contents:
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- What is a share?
- A and B shares
- Dividend shares
- Preference shares
- Index for the Stockholm Stock Exchange
- Buy shares on the stock exchange
- Stock prices
- ISK, capital insurance or “regular” share account/custodian
- Investment savings account – ISK
- Capital insurance – KF
- ISK and KF easiest and best – but not always!
- Share and fund account
- ISK, KF or stock and fund account?
- Buy shares as a private individual or through the company?
- Risks with shares
- Investor protection and deposit guarantee
- Shares – some tips
- 1. Buy high-quality stocks
- 2. Build a diversified portfolio
- 3. Rebalance regularly
- 4. Don't try to time the market
- Best stocks 2020
- Good stocks to buy
- Questions and answers about shares
What is a share?
Shares are shares in a company. When you talk about investing in shares, you usually think of limited companies that are traded on the stock exchange.
How do shares work? When you buy shares in a company, you become a partner. This means, among other things:
- You get to share in dividends.
- You can make money on shares when the price rises.
- You get to vote at the general meeting.
Companies choose to go public to raise capital for their operations. When the company is listed on the stock exchange, it can also issue new shares to raise even more capital. More shares are then issued and the money from the new owners goes into the company's operations.
Owning and investing in shares is immensely popular all over the world, and shares are a great fit for both the experienced investor and the beginner with a small savings. Everyone plays on the same playing field, but while investment professionals spend many hours analyzing the details of interesting companies, the beginner often wants to find the best shares for beginners in a simple way. .
A and B shares
Shares can be in several so-called share classes, usually A and B shares. The difference between A and B shares is that those who have A shares have more voting rights at the general meeting. B shares usually weigh 10 times less in the vote. Companies issue different share classes to raise more capital without diluting the voting power of existing owners.
Should you buy A or B shares?In most cases, the choice between A and B shares is not that difficult. Simply buy the share that is currently the cheapest. If you are an ordinary small saver, you are unlikely to have any interest in voting at the general meeting, and then it does not matter that you own B shares instead of A shares.
Dividend shares
Many companies that make a profit choose to distribute a portion of the profit to shareholders one or more times a year. If you own shares in such a company, the money will be deposited into your account automatically. It is the board of directors of the respective company that proposes how large the dividend should be.
A share's Dividend yield refers to how large the dividend is in relation to the share price. If the dividend is 6 kronor and you buy shares at a price of 200 kronor per share, this corresponds to a dividend yield of 3% (6/200 = 0.03 = 3%) at that time.
It can be smart to bet on stock dividends regardless of whether you are a beginner or a professional. A popular strategy is to buy dividend stocks in companies that raise their dividends regularlyand which have dividends every year. The reason why this type of stock is so successful is that only quality companies can increase their dividends over a longer period of time.
However, it may be wise not to focus too much on finding stocks with large dividends. It is much more important that the dividend is stable and that it grows in the long term.
Tip: Buy new stocks for the dividends. Then you will also receive dividends from the newly purchased stocks next year. This means a kind of extra interest on interest effect!
Preferred shares
Sooner or later you will come across the term preferred shares. It should not be confused with “ordinary” shares. Companies issue preferred shares instead of taking out loans. If you buy preferred shares, you get priority to the dividend and often a higher dividend than on ordinary shares. Usually, there are also dividends four times a year instead of once or twice.
Nice, right? But consider this: Unlike common shares, the price development of preferred shares is often much weaker. They are affected by the interest rate situation and can therefore be compared to bonds in many ways.
There are situations when it is good to buy preferred shares, but if you have a long savings horizon, you are best off choosing regular dividend shares instead.
More for you, less for the bank – Avanza!
Index for the Stockholm Stock Exchange
Looking at the Stockholm Stock Exchange OMX30 index, i.e. the 30 most traded shares, and these are often used as a yardstick for how well the stock market is doing in Sweden.
In the last 10 years, the OMX30 index has increased from 951.72 to 1771.85, almost doubling! Has the stock market increased every year? No, during this 10-year period, the stock market fell 3 years, in 2011, 2015 and 2018 (however, the decline in 2015 was only a modest 1.2%).
Dividends are not included in the prices above, only the share price itself. Owning so-called Dividend Shares and receiving dividends at regular intervals is one of the nicer things about owning shares.
Share pairs – Fund pairs – Avanza!
Buy shares on the stock exchange
How do you buy shares? Shares can be bought and sold on several different “exchanges”, in Sweden the largest and most well-known is the Nordic OMX Exchange Stockholm, colloquially the Stockholm Stock Exchange. But there are several marketplaces such as NGM, First North, Nordic MTF, Spotlight (formerly Aktietorget) and more.
To be able to buy shares, you need to use a stockbroker, the easiest and most convenient way is through an online broker such as Avanza or Nordnet. You can also trade shares through one of the major banks, however, the pure online brokers have significantly more information and training on their websites.
Open an ”account” or open a ”deposit”? These are just two different names for the same thing, we will usually use the word ”account”.
If you are going to start with shares, our tip is to open an account with Avanza. They offer low brokerage and have user-friendly interfaces. It is free to open an account and you can quickly get started with your share trading.
Here's how to save in shares:
- Open an account with Avanza bank: We recommend opening an ISK account with the online broker Avanza. It's free. ISK is the best account type for private individuals in most cases (see below). Companies (AB) should usually choose a KF account or Stock and fund account.
- Transfer money: With a bank transfer, the money arrives on one banking day.
- Buy shares:Select a number of shares for your portfolio. Enter how many shares of each company you want to buy. Click the buy button. Congratulations: you are now the owner of a company. Continue with the next one. It doesn't get any harder than that to start trading shares! See our stock market tips down below in the next chapter.
- Save regularly: Get into the habit of buying shares every month, preferably right after you get paid.
Saving/buying shares regularly is important from several perspectives:
- The power of habit! When you buy regularly, every month is a suitable recommendation, it becomes “no cost” for your finances quite quickly, you get used to it quite quickly that part of the income should be spent on investments and (if necessary) cut back on expenses a little.
- Reduces risk!The stock market and/or your stocks will not go up in value every day forever. Sooner or later there will be a year, or maybe even two years in a row where the stock market price decreases, if you save 1) Long-term and 2) Regularly, these declines will not feel so difficult at all – BUT, read more under “Build a diversified portfolio”.
Stock Market Prices
If you want to keep track of how your shares are doing, just log in to your account and follow the development of your share prices. They are updated in real time. On Avanza and Nordnet you can also see how your portfolio has developed since the start. You can also compare it with the stock index.
If you are looking for new shares or want to see other stock prices, we can recommend Avanza's Börsen yg þáð. Avanza also has a stock list with stock prices.
Another option is Di Börskurser. Learn about the successes and mistakes of others by following blogs about shares, which you can easily do via StockBlogs.se.
ISK, endowment insurance or “regular” share account/custodian
When you are going to buy shares, you basically have three types of accounts to choose from:
- Investment savings account (ISK)
- Capital insurance (KF)
- Shares and mutual fund accounts
Investment savings account – ISK
Each account type has its advantages and disadvantages. For private individuals, an investment savings account (ISK) is in most cases the best choice. Therefore, it is also the most common type of share account and mutual fund account.
When you save in shares or other securities in ISK, you do not pay tax on the profit itself, but instead the entire holding is taxed at a flat rate once a year, which is done in the tax return under the income category capital. Currently, the ISK tax is 0.375 percent, but it changes as the government loan interest rate changes.
Only private individuals can open an ISK.
Open an ISK account here!
Capital insurance – KF
Capital insurance (KF) can be an alternative to ISK. Actually, a KF is not an account. It is insurance. In practice, you can trade shares on a KF in the same way as on an ISK.
There are still several differences. When you have shares on KF, you do not have the right to vote at the general meeting because it is the insurance company (or the online broker's insurance company) that owns the shares.
Another important difference is that you can have another beneficiary for your deposit in a KF, e.g. a spouse or child. In addition, companies are also allowed to have holdings in a KF.
Just like with ISK, the entire holding in a KF is taxed at a flat rate, the calculations are similar and at the time of writing, a KF has 0.375 percent in tax just like an ISK. Unlike an ISK, the flat rate tax is deducted from the KF account.
Finally, it can be convenient to have foreign dividend shares in a KF instead of an ISK because the bank then handles the withholding tax.
Open a KF account for a COMPANY here! Open a KF account for a PRIVATE PERSON here!
ISK and KF are the easiest and best – but not always!
In most cases, an ISK or a KF is the best choice from a tax point of view. However, this assumes that your holdings have a return of more than 1.27 percent (2020).
For this reason, it is not a good idea to have interest funds in an ISK or in a KF.
Another disadvantage of ISK and KF is that it is not possible to offset any profit against loss or vice versa.
You cannot have multiple owners (joint owners) of an ISK or KF account, however, KF can be owned by companies, which in turn can have multiple owners.
Share and fund account
If you have shares in a share and fund account, you must pay 30 percent capital gains tax on any profit. On the other hand, you can offset profits against losses in your tax return.
Depending on the type of other business you do, there may be situations when a stock and fund account is better.
This article addresses long-term and relatively “safe” savings in stocks – If you are thinking of taking on more risk, a stock and fund account through your own company (AB) is the best option.
Open a Stock and Fund Account for CORPORATE here!
If you have interest fundsit is advisable to have these in a stock and fund account if the expected return is not higher than 1.27 percent (2020). The same applies if you intend to remain liquid (not invest the money) for a longer period of time.
Both companies and private individuals can have stocks and other securities in a stock and fund account. Finally, it is the only account type that supports joint ownership of securities.
Open a Stock and Fund Account for PRIVATE PERSON here!
ISK, KF or stock and fund account?
Which account do piggy banks choose?
Henrik (the author of the article) and his wife want it to be as simple as possible and therefore have almost all their holdings in ISK.
Interest-bearing securities can be held in a stock and mutual fund account.
The foreign dividend shares can be held in a KF.
Buy shares as a private individual or through the company?
Many people who have sole proprietorships or run limited companies wonder if it might be a good idea to buy and own shares through the company instead of privately. First of all, it should be mentioned that it is not possible to buy shares through a sole proprietorship. This is because the sole proprietorship is not a separate legal entity. The company and the owner are one and the same “person”.
For limited companies, it can be said that there is actually surprisingly little difference between buying privately compared to through the company. However, there are both advantages and disadvantages to the two options, but it varies greatly from case to case.
For example, it may be an idea to save in shares through a limited company if you intend to use the capital within the company at a later date.
Another example is if you do not want to withdraw the money from your limited company, for example for tax reasons. Then it may be a good idea to invest it in shares through the company instead.
Risks with shares
Is your money safe when you have shares? All investments involve taking a risk. The biggest risk with shares is market risk. The stock market and individual shares never go in a straight line upwards.
It fluctuates. Expect dips of 10 to 20 percent from time to time. Sometimes it gets worse with periods when the stock market drops 30-40 percent or more. That's natural. This is good to know in order to be able to be long-term, continue saving and not panic.
Individual shares can lose large parts of their value, for example if the company fails with an investment, starts to decline or is hit by a crisis. This is called company risk. You counteract this risk by diversifying your share portfolio with several holdings. More on this in a moment.
Another risk is liquidity risk. This means that it can sometimes be difficult to sell a share. A lack of liquidity occurs if there are many more sellers than buyers. This creates a so-called spread – a large difference between the bid price and the ask price.
In such a situation, you may not be able to get the price for your shares that you expected. A lack of liquidity in order depth is common in small companies but less common, for example, on the Stockholm Stock Exchange's Large Cap and Mid Cap list.
If you own foreign stocks, you also have a currency risk. For example, if you own stocks in the US and the dollar weakens against the krona, it will negatively affect your return.
Investor protection and deposit guarantee
Another risk that we have to consider is – what happens if the online broker or bank goes bankrupt? The bank or online broker must by law keep your assets separate from its own assets. If there is bankruptcy, the bankruptcy trustee cannot take your shares or funds to pay back the debts of the bankruptcy estate.
On the other hand, you can imagine a scenario where the bank or online broker goes bankrupt just when you have an ongoing stock trade. If the entire system goes down, it can be difficult to figure out who owns the assets. Did the trade go through or not? Then investor protection comes into playin. It is a state guarantee of up to SEK 250,000 per person and institution.
If you have liquid funds (money you have not used to buy shares, funds or financial instruments) in your account, the state deposit guarantee applies. It involves full compensation from the state up to SEK 950,000 per person and per institution.
Keep in mind that investor protection and deposit guarantee apply to ISK and share and fund accounts. The deposit guarantee also applies to savings accounts and liquid accounts. Banks as well as online brokers such as Avanza and Nordnet are covered.
Capital insurance (KF) is not covered by either investor protection or the deposit guarantee. Money that you have in a KF is instead covered by the rules for insurance companies. They are stricter than for ISK and mean, among other things, that policyholders have preferential rights in the event of bankruptcy.
Shares – some tips
It's easier than you think to buy shares. Looking for tips on the best shares is actually completely wrong. At least if you ask us.
Instead, there are a number of things you can do yourself to find the best way to invest – regardless of whether you're going to invest 1 million or a few hundred kronor.
1. Buy high-quality stocks
There's no point in buying stocks that everyone is talking about or that are expected to be the next stock market rocket. It can work, but most of the time, it's nothing of the sort in the end. Buy quality stocks instead.
What is it? Look for companies that are profitable, companies with management that seems trustworthy, and companies that are growing and expanding.
It doesn't necessarily have to be the biggest companies. There are many small companies that are profitable and have dividends.
The point is: skip the hopeful companies and high-risk stocks and buy shares in companies that manage to show results year after year.
Open an ISK account here! Open a KF account here!
2. Build a diversified portfolio
Don't put all your eggs in one basket. It happens that stocks perform worse than expected. Sometimes individual companies are hit by a crisis and the share price drops. That's why you should always have a diversified stock portfolio.
How many stocks should you buy? Far too many Swedes have 1 or 2 stocks in their portfolio. That's way too few. We would suggest at least 15 stocks is a good goal. Then the exposure for each stock will be just under 6.7% (100/15), which is an OK risk.
If one of the shares loses half its value but the rest of the shares remain at the same level, the portfolio has only decreased by 3.3 percent. Feels safe.
It's up to you how many shares to have in your portfolio, but think about it this way: Enough to get a good spread of risk but few enough to be able to keep track of them. You usually end up with 15-20 shares.
Don't be afraid to sell bad shares! Take the loss and move on.
3. Rebalance regularly
This is something that almost everyone forgets. Some of the stocks in the portfolio will increase in value much more than others. Some stocks will lose value during certain periods.
By rebalancing regularly, for example once a year, you ensure that each holding is worth as much as the others.
Why should you rebalance your portfolio?
It has to do with risk. Imagine that you have 15 stocks in your portfolio and one of the stocks manages to rise much more than the other stocks year in and year out. After a number of years, it may happen that this stock accounts for, for example, half of the portfolio's value.
It's great that you made so much money, you may think, but unfortunately the risk is far too great. If something happens to the company and it loses 50 percent of its value (it happens sometimes), then you will lose 25 percent of the portfolio value in one fell swoop.
No, then it is better to sell some of the stocks that have done well once or twice a year and buy more of those that have done worse. This gives a more even development and lower risk for your savings. This is also called having a good risk-adjusted return or high Sharpe ratio.
Open an ISK account here! Open a KF account for companies here!
4. Don't try to time the stock market
Historically, the stock market has always risen in the long run. Every now and then, however, there is chaos and share prices fall. During the financial crisis, the prices of many shares fell by 50 percent or more. Losing half the value of your savings? Disgusting! Nevertheless, it has been shown that the best thing to do is not to try to time the stock market.
Why shouldn't you try to time the stock market? The reason is that almost no one succeeds in doing so in the long run. Even stock market professionals with many years of experience have difficulty timing when to buy and sell stocks. The result is often that you sell when the stock market has fallen a bit and then buy again when it has risen more than that.
Instead, you should take a long-term view. Imagine that you should be able to save the money for at least 3 years, but preferably at least 5 years. Ideally 10 years or longer, but remember to rebalance regularly.
Only then can you build a long-term stock portfolio where you don't risk falling for the temptation to try to time the stock market just because you're afraid of losing money. AND that the truly effective compound interest effect takes almost 10 years to build up.
Exceptions: There may sometimes be exceptions, if not trying to time the stock market then at least selling out a little earlier, for example: “We plan to buy a house and will use a large part of the share capital for the purchase.
We should have the right house in the right area so it may take 1-2 years before there is a purchase” – In such a situation, or something similar, selling all or part of the stock is just common sense.
Best stocks 2020
What is actually the best investment? It is of course difficult to know in advance which are the best stocks in 2020.
Many believe that stock tips are not about pointing to a specific stock or a few top stocks. Instead, it is about finding the right approach as we explained in the section above.
Good stocks to buy
That said – if you are a beginner and want to get started quickly and buy shares, we have a buying tip for shares that we want to share with you: Buy shares in investment companies.
What is an investment company? These are companies that buy shares in other companies. There are several large and fine investment companies in Sweden that are partners in both listed companies and shares that are not on the stock exchange.
The beauty of investment companies is that they are run by long-term investors and that with a single share you become a part owner in several good companies. It's a bit like owning funds but without paying any fund fees!
Many investment companies have historically beaten the index. These are often good shares. This is how the development of the five largest investment companies on the Stockholm Stock Exchange has looked over the past five years:
Investment companies Price development 5 years1 Investor 77% 2 Lundbergföretagen 131% 3 Industrivärden 53% 4 Latour 187% 5 Kinnevik -6%
Source: Borsdata.se. Historical returns do not guarantee future returns.
Another tip for stocks for 2020 is to build a portfolio of dividend stocks. There are no “safe stocks” but dividend stocks are much more defensive than many other stocks. Here's how you can think about it:
- Look for stocks that have regular dividends that increase year after year.
- Choose stocks where the dividend ratio (dividend as part of the profit) is not too high. Say a maximum of 70-80%. If the company distributes all its profit as dividends, there is no money left to reinvest in the company.
- Be skeptical of excessively high dividend yields. A dividend yield of over 4-5% is often too much to be interesting in the long run.
The piggy banks have found a number of stocks that match these criteria. NOTE! This is not an investment tip, just some free inspiration:
Company Dividend ratio Dividend growth per year, 5 years Dividend growth per year, 10 years Direct return %Hexpol 51% 13.9% 36.88% 2.6% Vitec Software 33% 12.4% 19.6% 0.6% Vitrolife 25% 23.2% 23.9% 0.4% Fenix Outdoor 23% 24.6% 19.6% 1.2% Hexagon 30% 13.8% 19.5% 1.2 % Lagercrantz 46% 10.8% 17.5% 1.6% Loomis 46% 10.8% 14.2% 2.9% Nolato 56% 10.5% 16.7% 2.5% Latour 34% 10 .8% 13.8% 1.6% Wallenstam 27% 11.1% 13.4% 1.5% Beijer Ref 52% 16.0% 12.4% 1.2% Indutrade 37% 11.7% 12.1% 1.3% AarhusKarlshamn 36% 13.3% 11.5% 1.2% Assa Abloy 43% 10.1% 11.3% 1.5%
Source: Borsdata.se. Historical returns do not guarantee future returns.
Questions and answers about shares
Should you buy stocks or mutual funds?
Whether you should buy mutual funds or stocks depends on how much you want to invest in your savings.
Stocks require a little more time, but it's easier than many people think. You can save a lot of money by buying stocks instead of mutual funds because you avoid expensive management fees.
Funds are good, especially index funds, such as Avanza Zero, if you want savings that require no time at all. Savr is a platform that offers over 1,300 funds, they only offer funds and have quickly become known for low fees.
Which is best – Avanza or Nordnet?
Both Avanza and Nordnet are good online brokers with extensive experience and user-friendly interfaces. Avanza has more functions and more information. Nordnet has a larger selection of securities. The prices (brokerage) are about the same.
The conditions for lending the share portfolio differ slightly. Which platform is the best is a matter of taste. All in all: it pays off for most people. Try both and choose the one you like best!
Which shares should you buy?
You have the best chance of getting rich with stocks if you buy shares in companies that are already profitable. Try to find companies that are growing and have sound management. Look for regular dividends – that is often a good sign. Avoid promising companies.
How can you learn more about stocks?
Keep up with what's happening on the stock exchange. Read stock news. Follow company reports. Play with a stock screener to get a feel for different key figures. Reading a book about stocks is also a good idea!
Is it good to buy foreign stocks?
It can be good to have certain foreign stocks alongside Swedish stocks in your portfolio, for example American stocks. This provides increased risk diversification. At the same time, you have to remember that you have a currency risk. If the value of the krona decreases, the value of your holdings decreases. The reverse is also true, of course.
How do you find stocks worth buying?
One way to find stocks worth buying is to look for companies that are undervalued. To do that, you need to learn a little about stock valuation.
A quick way to value stocks is by looking at key ratios such as P/E or P/S. P/E shows the price in relation to earnings. P/S shows the price in relation to sales. A low value signals that they are cheap stocks.
Look for companies that have a low P/E or P/S value in relation to their historical value and in relation to similar companies in the same industry. Just keep in mind that sometimes there is a reason why a stock is undervalued and then it may not be worth buying anymore.
Are there several stock exchanges or similar in Sweden?
If we look at Sweden and the world of the Swedish Financial Supervisory Authority, there are two types of marketplaces:
- Regulated markets: Stockholmsbörsen, NGM
- Multi Trading Facility (MTF): NGM MTF (same company as above but a different market), Spotlight and First North.
The rules are more relaxed for MTFs. It is easier for companies to be listed there. That is why Spotlight and First North are popular among smaller companies that need to raise capital. There is of course more money on Nasdaq Stockholm, but it is more difficult to get in there. Certainly also more expensive.
Spotlight was previously called Aktietorget. Not only small and obscure companies there either. Bahnof is located here, for example. Focus on Sweden but also Danish companies. NGM, just like Nasdaq First North, has its sights set on the Nordics. NGM is a subsidiary of Boerse Stuttgart. Focus on supporting the listed companies in their development.
Then there are other smaller platforms for trading, e.g. crowdfunding platforms and the like. The boundaries between stock exchanges, trading venues and alternative investments have been blurred somewhat.
How do you get rich with stocks?
To get rich with stocks, you must have a long-term view. Only invest in stocks in companies that are profitable. Save in stocks regularly, preferably every month. Don't sell just because the price drops, but continue to save.
Keep the risk down by buying 15–20 different stocks. Rebalance the portfolio regularly, e.g. once a year.
Reinvest the dividends!
Repeat and be patient!
Good luck!
Share pairs – Fund pairs – Avanza!
Please note that Sparpisarna does not provide any investment tips. All information on this page is intended to serve as inspiration only! We always recommend contacting a licensed independent financial advisor.
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