[Donghak Gaemi One Month] Stock Market Newcomers, Let's Make Sure to Know This Before You Go

[Asia Economy Reporter Eunmo Koo] Recently, due to the impact of the novel coronavirus disease (COVID-19), domestic and international stock markets have sharply declined, leading to a rapid increase in individual investors seeking to buy at low prices. In particular, the influx of novice investors, commonly called 'Joorini' (a portmanteau of 'ju' for stock and 'rini' for children), is notable. For successful investing, it is pointed out that rather than blindly jumping into investments, one should participate in the market after acquiring a basic understanding of the stock market and stock investing.

Experts advise that before starting stock investment, one should first assess whether stock investing suits them. Stocks generally offer higher expected returns than deposits or bonds but are also considered investment products with greater volatility. Therefore, it is advisable to evaluate one’s investment temperament before beginning stock investment.

Beom Gwangjin, Head of Retail Division at KB Asset Management, said, "Understanding the characteristics and nature of various investment products should precede investing," adding, "It is preferable to compare these and enter the stock market only when you judge that you can tolerate the volatility and risks that may arise from stock investment."

If you decide to invest in stocks, you should establish basic principles for your investment style. A representative example is distinguishing investment targets based on company size, such as large-cap and small- and mid-cap stocks. Beom said, "If you aim for relatively stable, mid- to long-term investment, you should focus on large-cap stocks and the KOSPI; if you seek relatively higher expected returns with higher investment risk, you should set criteria to invest mainly in small- and mid-cap stocks and the KOSDAQ."

You should also determine the proportion of stocks within your total assets. Experts generally recommend that the higher your risk tolerance and the longer your stable economic activity period, the higher the stock proportion you should hold; conversely, if these are lower, you should reduce the proportion.

If you proceed with individual stock investment, you must be able to assess the company’s value. Stock investment fundamentally involves predicting and forecasting the price of investment assets, buying when prices are expected to rise, and selling when prices are expected to fall. Therefore, trading decisions should be made after analyzing the intrinsic value of the investment target.

Kim Taekang, Deputy Branch Manager at DB Financial Investment Bundang Branch, emphasized, "A common mistake individual investors make is trading based on unpredictable supply and demand, themes, or rumors," adding, "Stock investment is fundamentally about matching the company’s future performance, so it should be approached with value logic."

If judging individual stocks is difficult, starting with Exchange-Traded Fund (ETF) investment is also a method. ETFs are superior in terms of stability compared to individual stocks. ETFs are index funds listed and traded like stocks, and stock-type ETFs must diversify investments across at least 10 stocks.

Kim Jonghyup, Strategy Operation Team Leader at Kiwoom Asset Management, explained, "Individual investors often find it difficult to accurately measure a company’s valuation (price level relative to performance) and tend to be swayed by supply and demand," adding, "Investing in ETFs, which consist of multiple stocks, offers relatively less volatility and allows individuals to calculate valuations more easily."

Interest in domestic stock-related taxation should not be overlooked. There are four types of taxes imposed on stock trading in the domestic market: securities transaction tax, dividend income tax, comprehensive income tax, and capital gains tax. Notably, the securities transaction tax is levied when selling stocks, applied at a rate of 0.10% for KOSPI and 0.25% for KOSDAQ based on the transaction amount. Dividend income tax is imposed on dividend income earned while owning stocks, with a rate of 14% (15.4% including resident tax) for amounts under 20 million KRW.

Experts emphasize that smooth investment activities ultimately require studying the stock market and investing. Investments made without prior understanding of the market are bound to encounter problems eventually. Access to investment information is currently higher than ever. In particular, securities firms have opened YouTube channels and are competitively releasing investment information content, so it is advisable to refer to these resources.

Attention to the market is also necessary for successful investing. Especially for new investors, it is pointed out that understanding the inherent risks of the stock market in a short period is difficult, so special caution is required. With the recent massive influx of individual investors into the securities market, the Financial Supervisory Service (FSS) has also issued warnings to new investors.

The FSS highlighted five precautions: ▲High expected returns come with high risks ▲Invest considering investment period and fund usage ▲Stock investment using loans carries greater risks ▲So-called 'all-in investment' or 'blind investment' is risky ▲All results of stock investment belong to the investor.

An FSS official stated, "Past high returns do not guarantee future profits, and investing simply because stock prices have fallen is very risky," emphasizing, "Investment decisions and scale should be made considering investment experience, investment risks, and loss tolerance."