5 Basics You Must Know Before You Start Investing in Stocks

If you start investing with the mindset of "let me just open an account and buy a share or two," you'll usually pay the most expensive tuition first. In stock investing, the "fundamentals" that come before the "technique" of buying and selling determine your returns far more than the trading itself. This article isn't about picking stocks for you; it's a reference guide that organizes the five foundations you need to lay in your mind before you press that first buy button. (This is not a recommendation to buy any specific stock or product, and all investment decisions and responsibility rest with you.)

1. First, separate your emergency fund and your "money you can afford to lose"

The first step in investing isn't picking stocks—it's dividing your money into three buckets. (1) Living expenses you'll use right away, (2) an emergency fund covering 3–6 months, and (3) investment money you can leave untouched for at least 3 years. For example, if your monthly spending is 2.5 million KRW, set aside 7.5 million–15 million KRW as an emergency fund in deposit or installment savings accounts. As of September 2025, this money is protected by deposit insurance up to 100 million KRW in principal and interest combined, per financial institution, across primary banks, savings banks, mutual finance, and the like (raised from the previous 50 million KRW). Without an emergency fund, when prices fall you'll end up selling stocks at the very lowest price to cover your living costs.

2. Diversify instead of going all-in on a single stock

Diversification isn't a technique for "boosting returns"—it's a seatbelt that keeps you from getting wiped out all at once. If you put 10 million KRW into one stock and that company drops 50%, your loss is 5 million KRW. If you spread the same 10 million KRW across 10 different companies of differing characters, 1 million KRW each, then even if one gets cut in half, your total loss is just 500,000 KRW (-5%). If picking individual stocks one by one feels burdensome, index ETFs—which diversify across hundreds of companies at once—are an oft-cited starting point for beginners.

• Stock diversification: Spread across multiple companies and multiple sectors, not a single company
• Asset diversification: Mix in assets of differing character such as bonds and deposits, rather than going all-in on stocks
• Time diversification: Instead of dumping it all in at once, buy in fixed monthly amounts (dollar-cost averaging / split buying)
• Geographic diversification: Don't concentrate only on domestic markets—also consider overseas index products

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

The reason time becomes a weapon in investing is compounding. Compounding is a structure where the returns earned on your principal become principal themselves and go on to generate more returns. The tool for mentally estimating how quickly your money doubles is the "Rule of 72." The formula is simple—72 ÷ annual return (%) = roughly the number of years for your principal to double.

1. At a 6% annual return: 72 ÷ 6 = 12 years → 10 million KRW becomes about 20 million KRW
2. At an 8% annual return: 72 ÷ 8 = 9 years → the same money doubles in 9 years
3. Conversely, if prices rise 3% a year: 72 ÷ 3 = 24 years → your money's value halves in 24 years

The key here is that "differences in returns are amplified over time." 6% versus 8% looks like nothing over a single year, but compound it over 30 years and the gap widens enormously. That said, remember that the Rule of 72 is only a rough estimate, and actual market returns swing up and down from year to year.

4. Choose the "vessel" that doesn't leak taxes first

Even if you buy the same stock, your after-tax return changes depending on which account you hold it in. Don't just use an ordinary brokerage account—the fundamentals start with securing a tax-saving account as your "vessel" first. The leading examples are the ISA, plus pension savings accounts and the IRP.

• ISA (Individual Savings Account): Within the account, gains and losses are netted together (loss-offsetting), and under the general type, net profit up to 2 million KRW is tax-free, with the excess taxed separately at a low rate of 9.9%
• Pension savings + IRP: Combined, up to 9 million KRW per year qualifies for a tax credit. A 16.5% rate applies for those with total salary of 55 million KRW or less (or comprehensive income of 45 million KRW or less), and 13.2% above that
• Tax-credit refund example: Fill up the 9 million KRW and the 16.5% bracket gets back about 1.485 million KRW, while the 13.2% bracket gets back about 1.188 million KRW at year-end tax settlement

5. Write down your own rules in advance

The most common path by which beginners lose money isn't failed analysis—it's emotion. The pattern of getting greedy and buying more when prices rise, then getting scared and selling at the bottom when they fall. The way to prevent this is to set your rules down in sentences "before you invest." For example: auto-deposit 500,000 KRW on the 25th of every month / keep any single stock's weight under 20% of the total / check only once a quarter even when the news is noisy.

The most realistic way to beat the market isn't to predict the market—it's to tie down your own wavering self in advance.

To sum up: (1) separate your emergency fund → (2) diversify → (3) compounding and time → (4) the tax-saving vessel → (5) your own rules. These five are the foundation that doesn't change no matter which stock you buy. If you pick stocks before laying the foundation, you'll return to square one after a lucky run or two—but if you lay the foundation first, even ordinary choices put time on your side. This article is for educational and reference purposes and is not a recommendation of any specific product or a guarantee of returns. Before you actually sign up or buy, weigh it once more against your own income, tax rate, and investment horizon.