Investing in the Stock Market: How to Start Investing and Avoid Common Mistakes

There is no need to romanticize Wall Street and associate a brokerage account solely with the dream of yachts. It is not a ticket to the billionaires’ club, but a tool for managing personal assets. Through it, capital starts working, and money gains meaning. Financial literacy in action — not in theory.

What Is a Brokerage Account and Why Is It Needed

Every operation in the stock market — whether it’s buying stocks, bonds, or currency — requires an intermediary. This function is performed by a broker, and an investment deposit becomes a technical platform through which all monetary and asset flows pass.

A brokerage deposit is not an alternative to a bank deposit. It is a bridge to financial instruments with potential profitability that can exceed inflation. It is used for transactions on the exchange, where securities of over 3000 issuers are traded — from state-owned companies to startups.

The calculation is simple: the average return on S&P 500 stocks over the last 90 years is around 10% per annum. For deposits, it’s around 6% in an optimistic scenario. It is needed for investing, earning passive income, and working with capital in real-time.

How a Brokerage Account Works

The functionality of the account resembles a personal investment cabinet. Funds are deposited into it, allocated to assets, and participate in trading. Purchased securities are held in a depository, and information about each transaction is stored in the broker’s accounting system.

Access to it is round-the-clock. Transactions are carried out in a mobile application, over the phone, through a terminal. The minimum entry threshold is from 1 ₽. Even with 100,000 ₽, you can diversify across 5-6 sectors and a dozen issuers.

How to Open a Brokerage Account: Step-by-Step Guide

Opening an account takes from 5 to 15 minutes. Documents required — only a passport. Signing up — through public services, electronic signature, or courier. All done remotely.

What is needed for this:

1. Choose a broker. Compare commissions, reviews, licenses from the Central Bank of Russia.
   
2. Register. Complete identification, sign a contract.
   
3. Transfer funds. Via bank transfer or card.
   
4. Set up the application or terminal. Choose a suitable interface.
   
5. Start buying. Choose assets, place orders.
   

Investment platform in the top 3 for convenience:

1. Tinkoff Investments.
2. VTB My Investments.
3. Alfa-Investments.

Commission — from 0.03% per transaction. Deposits and withdrawals — instant.

Brokerage Account for Beginners: Mistakes and Pitfalls

Beginners often make the same mistakes that lead to losses:

1. Ignoring diversification. Investing the entire sum in one company can result in losses with any drop in stock prices.
2. Buying on hype. The rise of Tesla or Nvidia stocks does not guarantee growth after purchase.
3. Lack of strategy. Without a goal (e.g., “accumulate 3 million ₽ in 5 years”), the deposit turns into chaos.

The platform works effectively only with clear actions, calculations, and analysis.

Where to Earn Through a Brokerage Account: Real Scenarios

How to earn on the stock exchange — a non-rhetorical question. Dozens of strategies operate in the market. Several working scenarios:

• Growth stocks: investing in companies with high dynamics (e.g., Yandex, Ozon, Gazpromneft). Potential — up to 40% per annum;
  
• Dividend stocks: stable payouts from large issuers (Surgutneftegaz, Severstal). Income — up to 15% per year;
  
• Federal loan bonds: a reliable instrument for capital preservation. Coupon — from 8% to 12%;
  
• Currency investments: buying dollars, euros, yuan through an investment platform protects against devaluation.
  

Combining instruments allows for creating a balanced portfolio and reducing risks.

Brokerage Account and Taxes: How Not to Lose on Formalities

Any profit through such a deposit is subject to taxation. The standard rate is 13% of income. But the tax burden can easily be reduced with legal instruments.

Example: with an income of 120,000 ₽ per year, the tax will be 15,600 ₽. But with an Individual Investment Account (IIA), you can get back up to 52,000 ₽ annually — with contributions up to 400,000 ₽. This structure makes the deposit particularly advantageous for long-term investors.

Additionally, there is an exemption from profit tax when holding an asset for more than three years — under the “long-term ownership benefit.”

In practice: investing 300,000 ₽ in stocks and holding for over 36 months allows you to eliminate taxes when selling even at a profit.

Risks and Asset Protection in a Brokerage Account

An investment platform does not guarantee profit. Losses can occur with falling stock prices, issuer bankruptcy, currency fluctuations. But risks can be controlled.

Client funds are kept separate from the broker’s assets. Even if the intermediary’s license is revoked, the assets remain under the owner’s control. The depository is an independent structure that records each security.

To protect capital, investors use:

• limits on losing trades (stop-losses);
  
• regular portfolio review;
  
• diversification: including different assets and sectors;
  
• switching to protective instruments during volatility — bonds, currency, gold.
  

With a responsible approach, a brokerage account not only reduces inflationary losses but also helps accumulate capital in a predictable manner.

How to Choose a Broker and Avoid Mistakes

The market offers dozens of companies. Choosing a stockbroker affects not only comfort but also trading efficiency. A difference of 0.1% in commission with active operations can “eat up” tens of thousands of rubles per year.

Key criteria:

• possession of a license from the Central Bank of Russia;
  
• commission size for transactions, deposit/withdrawal of funds;
  
• convenience of the application and the presence of a terminal;
  
• reputation and user reviews;
  
• availability of IIA, analytical reviews, technical support.
  

By the end of 2024, the largest players were Tinkoff, Sberbank, VTB, and Alfa. Each of them provides an investment account with different functionality but guaranteed asset protection. Commissions range from 0.03% to 0.3%.

Who Is Already Using an Investment Platform and Why

According to the Moscow Exchange data, by March 2025, there were over 32 million brokerage accounts opened. However, activity is maintained in only 15% of them — the rest remain empty due to fear, lack of knowledge, or absence of a strategy.

The typical account owner profile is a man aged 30-45 from a large city with above-average income. But with the development of mobile platforms, the share of female investors has increased to 38%, and the average age has started to decrease.

Reasons for opening:

• saving for retirement or children’s education;
  
• passive income;
  
• an alternative to deposits;
  
• protection against inflation and currency instability.
  

A brokerage account for beginners is no more complicated than a banking application. The principles are the same: depositing, allocating, controlling. And the result is capital formation.

Conclusion

The stock market is no longer a closed club. Now, a brokerage account is not a symbol of elitism but an accessible mechanism. It structures the approach to money, disciplines thinking, enables action rather than waiting. Long-term investments, real profits, tax savings — everything works if you engage your mind, not emotions.

In the world of investments, betting on just one thing means exposing your capital to high risk. A narrowly focused portfolio is vulnerable: one mistake or failure in a specific asset can wipe out all savings. To protect against such threats and ensure investment stability, investors use portfolio diversification. It’s not just about allocating funds to different assets, but a powerful technique that allows minimizing overall risks without significant damage to potential returns. In this article, we will delve into how diversification of an investment portfolio works.

What Is Diversification

The stock market crash of 2008, the 2020 pandemic, the banking shock of 2023 — each time, those who diversified their investment objects across baskets came out ahead.
Diversifying investments reduces the correlation between investment instruments, allowing some sectors to grow while others decline. It’s not a panacea, but a shield that absorbs part of the blow.

Distribution Mechanics

Without a thoughtful distribution of assets, the investment structure turns into a speculative lottery. To understand how portfolio diversification works, it’s important to break down its construct:

1. Economic sectors — for example, including pharmaceutical, IT, and energy stocks offsets a decline in one segment.
2. Types of assets — stocks provide growth, bonds offer stability, ETFs provide flexibility, currency acts as inflation protection.
3. Geography — investments in different countries mitigate regional risks.

It’s the distribution that reduces volatility and ensures a manageable level of risk.

Essence of the Strategy: How Portfolio Diversification Works

How to diversify a portfolio is not a template but a task tailored to a specific goal and horizon. An investor focused on 5–7 years doesn’t use a pension fund scheme. Three approaches are popular:

• Asset classes — the allocation of stocks, bonds, currency, and ETFs considers volatility and correlation;
• Countries and regions — USA, Europe, Asia, emerging markets;
• Sectors — healthcare, technology, finance, resources.

How does portfolio diversification work in these strategies? It reduces dependence on a single risk zone. For example, a drop in the S&P 500 won’t nullify the returns from Chinese or European securities.

Examples of Investment Portfolio

The model “beginner investor, 30 years old, horizon — 10 years” implies moderate aggressiveness. Here’s one of the working scenarios:

• 45% — stocks of emerging markets via ETF;
• 25% — federal bond securities;
• 15% — gold and silver (via a fund);
• 10% — equal parts in dollars and euros;
• 5% — technology sector company stocks (e.g., NVIDIA, ASML).

How does portfolio diversification work in this case? Stocks bring growth, bonds and precious metals hedge against declines, and currency protects against exchange rate fluctuations.

Advantages and Limitations

No strategy eliminates risk entirely. Distributing investment objects makes it predictable and manageable. Among the pros are resilience to market fluctuations, the ability to optimize the “risk/return” ratio, and capital protection during force majeure events.

At the same time, the pros and cons of diversification are evident.

Pros:

• Reduced dependency on a single investment instrument;
• Increased stability;
• Decreased drawdowns in crises;
• Flexibility in management;
• Increased likelihood of long-term profitability.

Cons:

• Increased costs (commissions, taxes);
• Complicated structure;
• Decreased profit potential in over-diversification;
• Need for constant monitoring.

Understanding how portfolio diversification works forms a realistic view without blind faith in the universality of the method.

Rebalancing: Automatic Security Mode

The market changes. The proportions of investment objects “shift” — gold rises, IT falls, currency depreciates. Imbalance occurs. Portfolio rebalancing is the response to such asymmetry. It returns assets to their original proportions. Once every six months is the optimal interval.

How does portfolio diversification work in conjunction with rebalancing? The combination helps mitigate risks and lock in profits when a specific investment object grows.

Best Diversification Strategies for Beginners

For a smooth entry, three formats are suitable:

1. 60/40 — classic: 60% stocks, 40% bonds.
2. ETF combo — one fund for stocks (e.g., Vanguard Total Stock Market), one for bonds (BND), one for emerging markets.
3. Global multi-asset — equal shares in stocks, ETFs, bonds, gold, currency.

Each demonstrates how portfolio diversification works, even with minimal knowledge. The key is stability, not chasing super returns.

Assets in Portfolio: Quality Over Quantity

Increasing the number of positions doesn’t guarantee risk reduction. Effective asset allocation is achieved not by quantity but by combination. Diversity across classes is the main condition for stability.

A standard set includes:

• Stocks — growth engine (up to 70% in an aggressive strategy);
• Bonds — stability base (up to 50% in a balanced model);
• ETFs — a simple way to buy the entire market;
• Currency — protection against currency risks;
• Real estate/precious metals — anti-inflationary assets.

It’s important to consider volatility, liquidity, and tax implications. Together, they paint a clear picture of how the mechanism of distributing investment objects in a portfolio works in practice.

Conclusion

Asset allocation is not magic or protection against all risks. It’s logic, mathematics, and discipline. It doesn’t guarantee growth but minimizes losses and provides time for recovery.

An investor who understands how portfolio diversification works not only gains capital protection but also the ability to build a resilient strategy considering cycles, events, and trends.