Is there a solution for increasing capital and generating stable passive income, as well as fully protecting assets from inflation? Yes, and one of the most effective options is to buy stocks. In this article, we’ll look at how to build a proper investment strategy and what pitfalls exist in this area. Our guide will be useful for both beginners and experienced investors.
What are stocks and how do they work?
Shares are securities that certify ownership of a share in a company. By purchasing shares, the investor becomes a de facto co-owner of the business with the possibility of making a profit. Typically, shares are issued to raise capital for the development of a joint-stock company. They can be purchased on the stock market. If successful, the investor receives a double benefit: dividends and an increase in asset value (if the shares rise in price).
Main types of shares
Two types of shares are available for purchase:
- Ordinary shares give you the right to vote at shareholder meetings. They also receive dividends. However, ordinary shares do not have a clear amount and frequency of payments.
- Preferred shares. Their peculiarity is that they do not give voting rights, but guarantee a fixed dividend, even if the company does not make a lot of profit. In the event of a company’s bankruptcy, preferred shareholders receive shares of assets before ordinary shareholders.
Stock yield – how to make money?
Earning money on stocks attracts investors of different levels. The classic option is the accrual of dividends. This is a share of the company’s profit that is distributed among shareholders according to the number of securities they own. This usually happens once a quarter or a year.
Another popular way to make money is to resell shares when their value rises. The investor’s income is the difference between the purchase and sale price.
What are the risks of buying shares?
Investing in stocks carries certain risks. First, due to a combination of different factors (changes in the company, political events, or economic crises), the value of shares can fall significantly. There is also a sectoral risk, as certain sectors can be problematic and affect the shares of companies operating in that area. There is also financial risk: any company can go bankrupt, causing shareholders to lose their investments.
That is why it is important to conduct a detailed analysis of the company and weigh the pros and cons before investing. Diversification of the asset portfolio is also important.
How to buy shares in Ukraine? Step-by-step instructions
How to buy stocks in Ukraine is an important question for many people. To get off to a successful start, it is important to familiarize yourself with the basic steps of purchasing securities and managing them effectively.
Step 1. Choosing a broker or bank
To buy shares, you need an intermediary. It can be either a broker or a bank that has the appropriate license. Be sure to pay attention to:
- whether the broker is licensed by the National Securities and Stock Market Commission (abbreviated as the NSSMC);
- the amount of commissions for transactions;
- convenience of the trading platform.
Step 2. Register and open an account
Typically, the registration process involves providing personal data (passport and identification code) and signing a securities account agreement. After completing all the steps, the intermediary provides access to the trading platform and opens an account for further transactions.
Step 3. Deposit funds and choose assets
To be able to buy shares of Ukrainian companies, you need to fund your account in advance. To do this, make a payment through a bank or payment system. After that, you can proceed to the selection of assets. It is important to carefully analyze the financial condition of the selected company, assess the prospects for future growth, and familiarize yourself with the dividend policy.
Step 4. Purchase of shares
How to buy shares of Ukrainian companies? The functionality of the chosen trading platform will help you with this. To do this, enter the company name or its short stock code in the appropriate field. When purchasing shares, specify the desired number of shares and the type of order: market (when the purchase process is carried out at the current market price) or limit (when you specify the price at which you want to buy shares and wait for a suitable offer).
Step 5. Monitoring and managing your portfolio
Buying shares is only half the battle. It is important to monitor regularly, keeping track of price movements and the company’s financial reports. It is imperative to check for opportunities on a regular basis: suddenly, conditions may arise to sell shares at a profit or buy other assets.
Where can I buy shares in Ukraine?
While the nuances of purchasing securities are more or less clear, the question of where to buy shares in Ukraine is still relevant. Let’s look into it and find the answer.
Buying shares through Ukrainian banks
You can invest in shares through Ukrainian banks: OTP Bank (through OTP Capital), Sense Bank, Monobank, Privatbank, FUIB. To purchase securities, you need to open a brokerage account with a bank, fund it, and select available shares. The advantages of this method include high reliability and simplicity of the process. However, there are also disadvantages: higher commissions and a limited selection.
Buying shares through brokers (local and international)
If you are not satisfied with the stock market in Ukraine and want to buy securities of foreign companies, you can do so through brokers. They offer a wider selection of assets and lower commissions. There are both local and international brokers. Local ones are licensed in Ukraine. These are, in particular, Univer Capital. International brokers provide access to global markets. The leaders in the industry are RoboForex, eToro, and Interactive Brokers. Their disadvantages include some difficulties with depositing or withdrawing funds. However, it depends on the conditions of a particular platform.
How to buy shares of foreign companies?
The stock market of the United States and other countries provides ample opportunities for investment. You can really make good money there. However, it should be borne in mind that during martial law, the National Bank of Ukraine has imposed certain restrictions on currency withdrawal and foreign investment.
Restrictions and legislation in Ukraine
The National Bank of Ukraine has gradually simplified currency legislation, allowing individuals to make investments abroad. Currently, due to the martial law, there are two ways to invest:
- purchase of securities and shares abroad with further holding them in Ukraine;
- purchase of shares of foreign companies for national currency in Ukraine.
The purchase of shares in foreign companies is possible for individuals with a limit of up to EUR 2,000 thousand per year. All transactions must be conducted through banks with mandatory verification of the origin of funds. A mandatory step is the declaration of income from foreign investments.
Using the E-limit to purchase shares
E-limit is a special mechanism that allows you to legally withdraw funds abroad for investment. Automation of the process saves time, reduces costs and the likelihood of errors. To purchase shares of foreign companies using the E-limit, you must:
- open a bank account and submit an application;
- provide documents confirming the source of income;
- obtain permission to transfer funds;
- open an account with a foreign broker and then purchase the desired shares.
What documents are required to buy foreign shares
How to buy shares of foreign companies? The first step is to prepare a set of documents. It should include your passport and TIN, tax return or income statement. It is also necessary to conclude a contract with a broker and have a confirmation of the transfer of funds in accordance with the e-limit.
What taxes do I have to pay when buying shares?
Buying shares is always a good idea, as it allows you to make a profit. However, any income in Ukraine is taxable. Let’s take a closer look at this issue.
Personal income tax (PIT)
Profits from stocks are subject to the standard taxation system with an 18% personal income tax rate. The tax is paid only on the net profit – the difference between the purchase and sale price. For example, you bought Tesla shares for $1200 and sold them a year later for $1800. In this case, the net profit is $600. The personal income tax in this case will be $108 in the hryvnia equivalent.
Military duty
In addition to personal income tax, you must pay 5% of the military tax on your profits. That is, for our example with a profit of $600, it will be $30.
Thus, the total amount of taxes paid by the investor is 23%. In our example, we can see that $138 of taxes and fees must be paid from a profit of $600.
How to declare income from investments?
To declare investment income, you need to fill out a tax return on the property status and income of individuals. It must be submitted once a year: online through specialized services or to the tax office at your place of residence. The declaration must indicate the source of income, the total amount of profit, and the amount of taxes accrued.
How to choose profitable stocks? Analysis methods
To make investing in stocks really profitable, you need to learn how to choose the right assets. To do this, it is recommended to use a professional approach that includes fundamental and technical analysis.
Fundamental analysis
Fundamental analysis is a mandatory step for every investor. It includes the study of the company’s financial statements, namely the analysis of the balance sheet, income statement, and assessment of the company’s financial condition. Special attention is paid to familiarization with financial indicators: P/E (price-to-earnings), return on equity, Debt-to-Equity, etc. It is mandatory to compare the company’s performance with that of its competitors and the average results in the industry.
Technical analysis
It includes the study of price and trading volume charts. For this purpose, different types of charts are used: line charts, bar charts, which visualize price movements. Trend lines and indicators are used to determine where the stock price is headed. Special attention is paid to analyzing trading volumes. The final decision is made based on the analysis.
Dividend stocks vs. growth stocks
If you want to invest in stocks, you should decide on the type you want. For example, dividend stocks provide a steady income and are less prone to sharp fluctuations. They are ideal for long-term investment.
There are also growth stocks that provide high capital gains but are more risky. They usually do not pay dividends, but reinvest profits.
Common mistakes made by novice investors
Investing is a rather complicated process, especially for people who have no experience in financial markets. That is why you need to consider the nuances in advance to help you make the right decisions.
Lack of a strategy
You should never invest money without a clear plan. This can lead to random purchases and subsequent panic selling during a crisis. Instead, you should clearly define your goal, develop a strategy, and stick to the plan, even if the market fluctuates.
Buying stocks on emotion
Just because someone in your inner circle decided to buy Netflix shares doesn’t mean you should do the same. Likewise, you shouldn’t rush to sell securities just because someone else is doing so. Emotional mistakes are the enemy of a novice investor. Instead, it is recommended that you analyze market history and make informed decisions.
Ignoring risks and diversification
Beginners mistakenly believe that all available capital should be invested in one company or industry. However, if the company goes bankrupt, there is a risk of losing all capital. Instead, it is worth distributing investments among different assets. For example, you can buy McDonalds shares and also invest in Amazon or Google. Be sure to consider the risks and never invest more than you are willing to lose.
Conclusions
Is it worth buying stocks in Ukraine now? Given the economic instability in the country, investing in securities is a really interesting idea. However, you should take into account your individual financial capabilities and risks. Investing ensures long-term capital growth, protects assets from inflation, and provides an opportunity to earn passive income. If you have reserve capital and want to learn and plan investments for years to come, you should definitely try to increase your capital through stocks.