5 Basics You Must Know Before You Start Investing in Stocks

If you start investing with the mindset of “I’ll just open an account and buy one share first,” you will usually pay the most expensive tuition right away. In stock investing, the fundamentals that come before the “technique” of buying and selling have a much greater impact on returns. This article is not a stock-picking guide. It is a reference guide summarizing five foundations you should have in mind before pressing your first buy button. (This is not a recommendation to buy any specific stock or product; investment decisions and responsibility are your own.)

1. Separate your emergency fund from money you can afford to lose

The first step in investing is not choosing stocks, but dividing your money into three buckets: ① living expenses you need right away, ② an emergency fund for 3 to 6 months, and ③ investment money you can leave untouched for at least 3 years. For example, if your monthly spending is 2.5 million won, you should separately secure 7.5 million to 15 million won as an emergency fund in savings or installment savings accounts. If this money is in products covered by deposit protection, principal and interest are currently protected up to a combined 100 million won per financial institution. Without an emergency fund, you may end up selling stocks at exactly the lowest price to cover living expenses when the market falls.

2. Diversify instead of going all in on one stock

Diversification is not a technique for “raising returns,” but a seat belt that prevents you from being wiped out all at once. If you put 10 million won into one stock and that company falls by -50%, your loss is 5 million won. If you split the same 10 million won into 1 million won each across 10 different types of holdings, even if one is cut in half, your total loss is limited to 500,000 won (-5%). If choosing individual stocks one by one feels burdensome, index ETFs, which diversify across hundreds of companies at once, are often mentioned as a starting point for beginners.

• Stock diversification: spread your money across multiple companies and industries, not just one company
• Asset diversification: mix assets with different characteristics, such as bonds and deposits, instead of relying only on stocks
• Time diversification: use regular installments by buying the same amount every month instead of going all in at once
• Regional diversification: consider overseas index products as well instead of concentrating only on the domestic market

3. Get a feel for compounding and the “Rule of 72”

Time becomes a weapon in investing because of compound interest. Compounding is a structure in which the return earned on principal becomes part of the principal and generates more returns. The “Rule of 72” is a mental calculation tool for estimating how quickly your money doubles. The formula is simple: 72 ÷ annual return (%) = the approximate number of years for your principal to double.

1. At an annual return of 6%: 72 ÷ 6 = 12 years → 10 million won becomes about 20 million won
2. At an annual return of 8%: 72 ÷ 8 = 9 years → the same money doubles in 9 years
3. Conversely, if prices rise 3% every year: 72 ÷ 3 = 24 years → the value of money is cut in half in 24 years

The key point here is that “differences in returns are amplified over time.” A difference between 6% and 8% per year may not look like much over 1 year, but over 30 years the gap becomes enormous. However, remember that the Rule of 72 is only a rough estimate, and actual market returns fluctuate from year to year.

4. Choose the right “container” so taxes do not leak away

Even if you buy the same stock, your after-tax return can vary depending on which account holds it. Instead of using only a regular brokerage account, a key basic is to prepare tax-advantaged accounts as your “container” first. Typical examples include ISA, pension savings, and IRP accounts.

• ISA (Individual Savings Account): profits and losses inside the account are combined, and for the general type, net profit up to 2 million won is tax-free; the excess is taxed separately at a lower rate of 9.9%
• Pension savings + IRP: together, they provide a tax credit on up to 9 million won per year. A 16.5% rate applies if total salary is 55 million won or less (or comprehensive income is 45 million won or less), and 13.2% applies above that
• Tax credit refund example: if you contribute the full 9 million won, you receive about 1.485 million won back in the 16.5% bracket, or about 1.188 million won in the 13.2% bracket, through year-end tax settlement

5. Write down your own rules in advance

The most common way beginners lose money is not failed analysis, but emotion. They buy more out of greed when prices rise, then sell at the bottom out of fear when prices fall. The way to prevent this is to write your rules in sentences “before investing.” For example: automatically invest 500,000 won on the 25th of every month / keep any single stock below 20% of the total portfolio / review only once per quarter even when the news is noisy.

In summary: ① separate your emergency fund → ② diversify → ③ understand compounding and time → ④ use tax-efficient containers → ⑤ set your own rules. These five points are foundations that do not change no matter what stock you buy. If you choose stocks before building a foundation, you may get lucky once or twice but eventually return to square one. If you build the foundation first, even ordinary choices can make time work in your favor. This article is for educational and reference purposes only and is not a recommendation of any specific product or a guarantee of returns. Before actually opening an account or buying, review your own income, tax rate, and investment horizon once more.