The Ultimate Guide to Investing Money
PART I – Introduction
Investing is the process of buying assets that increase in value over time and provide financial returns in the form of income or capital gains.
In the world of finance, investing is the purchase of securities such as stocks or bonds, real estate, and other valuable assets in the pursuit of capital gains and income.
When done correctly, investing can be a very rewarding experience. Imagine buying a home for $100,000 and selling it for $500,000 - that's a $400,000 capital gain!
Or imagine buying a stock for $50 and watching it rise to $100 - a 100% return.
The key to investing is to find undervalued assets and hold them until they reach their fair value.
Just like a savvy real estate investor who buys a fixer-upper at a low price and sells it for a profit, or an art collector who buys a piece by an emerging artist at a low price and watches its value skyrocket as the artist's reputation grows.
The Importance of Investing
Investing is about creating a better future for yourself and your family, not just numbers and financial statements.
It's about achieving financial independence and living the life you've always wanted, free of financial worries and stress.
Investors can earn a return on their investment and build their retirement nest egg by putting money into assets that have the potential to increase in value, such as real estate, stocks, or small businesses.
For example, if you're a young person looking to save for retirement, investing in a diversified portfolio of stocks and bonds can help you build your net worth over time, ensuring that you'll have enough money to live on when you retire.
If you own a business, you may decide to invest in new equipment or expand your operations in order to increase your revenues and profits.
In a nutshell, investing is important because it allows individuals and businesses to accumulate wealth over time, increase their income, and create financial security.
Different Types of Investments
Stocks, bonds, commodities, and real estate are the four main types of assets that people can invest in.
Mutual funds and exchange-traded funds (ETFs) allow investors to diversify their portfolios by investing in a mix of these assets.
Instead of purchasing each asset separately, mutual funds and ETFs allow you to invest in a group of them all at once.
Stocks
Stocks are companies that are listed on a public stock exchange, which means that anyone can buy shares and become a shareholder.
As a shareholder, you are entitled to income from the company, either in the form of capital appreciation (i.e., the stock price rises) or cash dividends, which companies such as Johnson & Johnson pay out on a regular basis.
Stocks are classified based on their level of risk, with some being riskier than others.
For example, Johnson & Johnson is a well-established, stable company that has been in operation for a long time and generates consistent profits.
As a result, the stock's price is less likely to fluctuate significantly.
Zoom Video Communications Inc, on the other hand, is regarded as a higher risk stock.
This company operates in a rapidly growing industry with numerous unknown variables.
This company's stock price reached a high of $560 in October 2020 and fell all the way to $70 at the time of writing, indicating that it is a volatile stock, meaning that the stock price can change quickly and dramatically.
In short, not all stocks are created equal, and they all carry different levels of risk.
Some stocks are considered safer than others, and when deciding which stocks to invest in, investors should consider their risk tolerance and investment goals.
Bonds
When businesses and governments need to raise capital, they will issue bonds to raise funds from investors.
When you buy bonds, you are effectively lending money to the issuer for a set period of time.
In exchange for you lending the issuer money, the issuer promises to pay you a fixed rate of return as well as the money you initially loaned them (called your principal).
Bonds are sometimes referred to as fixed income investments due to their fixed rate of return.
They are generally less risky than stocks, but not all bonds are considered safe, and some are extremely risky.
A government bond, such as the US Treasury bond, is considered a low-risk investment because it is backed by the full faith and credit of the US government.
On the other hand, if you had invested in high-yield real estate bonds issued by less creditworthy companies in China, you would have lost a significant portion of your capital when those companies began to default on their debt.
In short, bonds are investments in which issuers borrow money from investors and pay a fixed rate of return on the loan principal at the end of the bond term.
Commodities
Energy products and metals like gold and silver are examples of commodities.
These assets are typically raw materials used by various industries, and their prices are determined by market supply and demand.
Purchasing "physical" commodities entails owning barrels of oil, wheat, and gold.
Because of the complexities of holding physical goods, this isn't how most people invest in commodities.
Rather, investors purchase commodities through futures and options contracts.
Commodities can also be invested in indirectly through companies listed on a stock exchange that trade and deal with commodities such as oil and gold, or through an ETF.
Prices can fluctuate considerably. For instance, the 2011 silver price shock. Due to high demand from investors in the manufacturing industry, prices skyrocketed.
The price reached a record high of $48.58 per ounce, resulting in increased mining and production.
Commodities are typically reserved for high-risk investors, as futures and options trading requires the use of borrowed capital, amplifying profits and losses (known as margin trading).
Real Estate
You can invest in real estate by purchasing a home, raw land, or commercial property such as an office floor.
Real estate investing carries varying levels of risk, and there are numerous ways to profit.
Prices are influenced by economic cycles, mortgage rates, general supply/demand, crime rates, and government policy.
If you are a more passive investor who prefers not to manage physical real estate investments, you should consider purchasing shares of a Real Estate Investment Trust (REIT).
REITs are companies that use real estate to generate income for their shareholders.
You can purchase REITs on a stock exchange through your broker.
Mutual Funds and ETFs
Professional fund management companies manage both mutual funds and ETFs.
These funds invest in stocks, bonds, and commodities using various investment strategies.
The advantages of owning these funds are that when you buy their shares, you can invest in hundreds or thousands of assets at once.
Because of this simple diversification, mutual funds and ETFs are generally less risky than individual investments.
However, ETFs and mutual funds operate slightly differently.
Mutual funds are actively managed and purchase and sell baskets of assets.
The fund managers of mutual funds actively seek to outperform their benchmark index through hands-on management, for which they charge a fee.
This is why mutual funds are generally more expensive than ETFs.
ETFs, like mutual funds, invest in asset baskets, but instead of attempting to outperform a benchmark index, ETFs attempt to mimic its performance.
This is a passive approach to investing that results in lower fees than mutual funds.
Because very few actively managed funds outperform the benchmark after fees, most investors prefer to invest in passive index ETFs rather than mutual funds.
Risk and Return
In general, the higher the return, the greater the risk required to generate that return.
Consider being at a carnival and noticing two games. One game is called "Safe Bet" and the other game is called "High Risk Bet".
"Safe Bet" is a game in which you throw a ball into a large basket to win a small stuffed animal. It's simple to do and has a low risk, but the payoff is small.
"High Risk Bet" is unique in that you can win an iPhone if you can hit a small target from a long distance in three attempts.
The return is high, but you are also taking a significant risk.
This analogy can also be applied to investing.
Investing in government bonds backed by the United Kingdom, Canada, and the United States, for example, is considered a "Safe Bet" because it is backed by wealthy governments.
However, the potential returns are low.
Investing in small startups in the emerging technology space (think AI, space exploration, electric vehicles, etc.) on the other hand, would be considered a "High Risk Bet" game because the payoff can be massive, but the risk is also substantial.
When it comes to investing, understanding the concepts of risk and return is essential.
The greater the risk, the greater the potential return, but also the greater the potential loss.
Before making investment decisions, you must determine your risk tolerance and investment objectives.
PART II – Building a Strong Foundation
Setting Investment Goals
Investment goals are targets that are specific, measurable, and time-bound that guide your investment decisions.
Setting investment goals is a critical first step toward developing a successful investment strategy for you and your family.
Examples of Investment Goals
Saving for a down-payment on a house in 3 years
Building an emergency fund to cover 3 months of living expenses
Saving for retirement in 20 years
Fund your child’s college education in 18 years
Generating passive income to replace your current salary in 10 years
Steps to Setting Investment Goals
Determine your financial priorities
What are your most important financial objectives in life?
Establish specific, measurable, and time-bound goals
For example, saving $60,000 for a down payment in three years.
Determine your risk tolerance
How much risk are you willing to take in order to achieve your objectives?
Develop an action plan
Determine the types of investments that are congruent with your objectives, risk tolerance, and time horizon.
Review your plan
Review your progress and make changes to your plan on a regular basis.
Because your goals and objectives change over time, your plan must adapt to reflect these changes.
Action Items
Make a list of your financial priorities and set goals for each of them.
Determine your risk tolerance level. How much volatility can your portfolio withstand?
Allocate your assets across asset classes that conform to your risk tolerance and investment objectives
Understanding Risk Tolerance
Investing is all about taking calculated risks in order to achieve a return on your money that meets your risk tolerance level and investment goals.
It is usually determined by factors such as age, income, profession, and investment horizon.
A young investor of 25 years old, for example, will most likely have a long time horizon.
If he or she has a high income, it is possible that they have a high risk tolerance and would be willing to invest a significant portion of their portfolio in high-risk, high-return assets such as individual stocks.
An older investor approaching retirement, on the other hand, may have a lower risk tolerance and may prefer to invest in safer, fixed-income assets such as bonds or blue-chip stocks to preserve capital.
Risk Tolerance Scale
A risk tolerance scale may help new investors in understanding and assessing their risk tolerance.
Here’s an example of a 5-point risk tolerance scale:
Conservative
Investors who are risk averse.
They prefer bonds, cash, and blue-chip stocks as investments. They are willing to accept lower returns in exchange for capital preservation.
Moderately Conservative
Those who have a low risk tolerance.
They are willing to take some risk in their portfolio in exchange for the possibility of a higher return.
They could put their money into a mix of bonds, dividend-paying stocks, and balanced funds.
Moderate
Investors with a moderate risk tolerance would be well-balanced.
They are willing to accept moderate risk in exchange for higher returns.
They may invest in a mix of low-risk assets such as index funds, ETFs, and blue-chip stocks.
Moderately Aggressive
Investors who are willing to take on moderately high risk.
Willing to take on more risk in their portfolio in exchange for higher returns.
They may invest in a variety of high-risk assets, including small-cap stocks, individual stocks, and emerging market funds.
Aggressive
Investors who are willing to take on a high level of risk.
In exchange for higher returns, they are willing to accept higher risk in their portfolio.
They could put their money into individual stocks, options, or venture capital funds.
Developing a Savings Plan
If you are a new investor, it is best if you create a savings plan so you can better understand how much money goes into your account and how much money you spend each month.
That way, you'll know how much money you have to invest. If you're a new investor, here's a guide to creating a savings plan:
Determine your investment goals
Determine your investment objectives before you begin investing.
Are you putting money aside for a down payment or your child's college education?
Know your risk tolerance
View the risk tolerance scale above.
Where do you stand? This will determine the types of investments best suited to you and your financial objectives.
Create a budget
Make a list of your income and expenses.
This will determine how much money you can invest each month.
Start small
Begin by allocating small sums of money to your investments.
Increase the amount gradually as you gain experience.
Be consistent
Set aside money for investing every month, whether it's a fixed amount or a percentage of your income. Stick to your plan.
Diversify
Diversification helps to manage risk.
Do not put all of your eggs in one basket; instead, diversify your investments across asset classes, sectors, and geographies.
Review your progress
Review your investment portfolio and make any necessary changes based on your lifestyle and income sources. Continue to be patient and consistent.
Understanding Asset Allocation
Asset allocation refers to the process of dividing an investment portfolio among various asset classes such as stocks, bonds, and cash.
Here's a quick guide to asset allocation for new investors:
Understand the different asset classes
The most popular asset classes are stocks, bonds, and cash.
Stocks represent ownership in a company and are typically the most risky with the highest potential return.
Bonds are debt securities issued by corporations or governments that have a lower risk and lower return.
Cash is the most liquid and stable asset class, and it can act as a buffer during market downturns.
Know your investment goals and risk tolerance
As previously stated, knowing where you fall on the risk tolerance scale will help in deciding your asset allocation strategy.
Use asset allocation models
The "60-40" model, which suggests allocating 60% of your portfolio to stocks and 40% to bonds, is one of the most popular asset allocation models.
Another model is the "100 minus age" model, which suggests subtracting your age from 100 to determine the percentage of your portfolio allocated to stocks.
Diversify within asset classes
Investors should diversify within asset classes rather than across asset classes.
So, rather than investing your entire stock allocation in one company, spread the risk across several companies.
Review and rebalance your portfolio
As asset prices fluctuate, so will the values in your asset allocation breakdown.
You should review your portfolio on a regular basis to ensure that you are still on track with your investment goals and risk tolerance.
Alternative Asset Allocation Models
Aside from the “60-40” and “100 minus age” models, here are a few more popular asset allocation models:
“Three-Fund Portfolio” model
This model recommends investing in three asset classes: domestic stocks, international stocks, and bonds.
“Tangible Asset” model
According to this model, you should allocate a portion of your portfolio to tangible assets such as gold, real estate, and other physical assets.
The idea is that tangible assets can protect you during periods of high inflation and provide diversification benefits.
“Endowment” model
The asset allocation strategy used by endowments such as university endowments is the basis for this model.
It recommends allocating a large portion of your portfolio to alternative investments such as private equity, hedge funds, and real estate.
“Dynamic” model
This model recommends adjusting your portfolio allocation based on market conditions.
It suggests allocating more to bonds during a recession and allocating more to stocks during an economic expansion.
PART III – Building a Diversified Portfolio
Importance of Diversification
If you are not a professional investor, you should diversify your portfolio by investing in a variety of asset classes, sectors, and geographies.
Here are a few key points to keep in mind:
Diversification reduces risk
If an investment doesn't do well, it won't hurt the overall performance of your portfolio as much.
Diversification helps maximize returns
By investing in many different types of assets, you increase the chances that different types of assets will do well at different times.
Some hedge funds call themselves "absolute return" funds because they try to do this.
Diversification is about managing risk
If one asset performs poorly, another asset may perform well, and your overall performance does not suffer.
Investors experience drawdowns, particularly during market downturns.
Diversification cushions the blow to your capital during market stress.
Diversification Examples
Warren Buffet, Berkshire Hathaway CEO
Warren Buffett, one of the most successful investors of all time, has achieved success by investing over long periods of time and across a wide range of asset classes and industries.
Warren has investments in the oil, insurance, retail, and financial industries, allowing him to diversify his risk and maximize his returns.
Ray Dalio, Bridgewater Associates Founder
Ray Dalio, the founder of one of the world's largest hedge funds, uses his expertise in markets and macroeconomic analysis, as well as trend following, to help him reduce risk in his portfolio.
Ray employs a continuous learning and adaptation process that allows him to quickly rebalance his portfolio in response to changing market conditions.
He employs a technique known as "risk parity," which is a method of allocating capital across different investments in order to balance the level of risk in a portfolio.
Choosing Asset Classes
Individual Stocks
Individual stock investing can be a good way to grow your wealth over time, but it's critical to understand the risks before getting started.
Here are a few key points to remember:
Understand the company
Before purchasing a stock, you should conduct research on the company and understand how it makes money.
Analyze their financial statements, as well as industry trends and current competition.
Diversify holdings
Hold multiple stocks rather than just one to spread your risk.
Invest in a variety of companies from various industries.
Keep emotions in check
During times of market stress, stocks can become volatile.
Remember that stocks are businesses, so don't sell when a stock falls in value out of fear.
The key to successful investing is sticking to an investment plan and not making rash decisions based on short-term market fluctuations.
Understand the risks
Individual stocks are riskier than diversified index funds.
Individual stocks are subject to industry-specific risks that can be unpredictable at times.
Individual stocks are influenced by the general economy, specific industries, and overall market sentiment.
Some stocks perform exceptionally well, such as Amazon (AMZN), which has returned more than 600% in the last ten years at the time of writing.
Other stocks fail, wiping out all equity holders.
This occurred with Enron (ENE) in 2001 as a result of massive accounting fraud, which led to the company's demise, as well as Lehman Brothers in 2008, an investment bank that went bankrupt during the financial crisis due to heavy exposure in the toxic mortgage market.
These are just a few examples of the risks associated with equity investing, and as an investor, you must ensure that you are well diversified in case an investment thesis does not pan out.
Before investing, conduct research and learn about the company of interest.
Bonds
By investing in bonds, you give yourself the opportunity to earn fixed income from issuer distributions on a monthly or quarterly basis.
Before you decide to invest, keep the following points in mind:
Understand bond basics
Bonds are loans issued by governments and corporations to help finance projects.
When you buy a bond, you are lending money to the bond's issuers in exchange for regular interest payments.
The bond issuer promises to repay the bond's principal (i.e., face value) when it matures.
Types of bonds
When it comes to bond investing, diversification is essential.
Understand that there are numerous types of bonds available, including government bonds, corporate bonds, municipal bonds, and so on.
Each bond type has its own set of risks and rewards.
Issuer creditworthiness
Each issuer carries risks.
Low risk issuers, such as US government bonds, are considered the safest, whereas corporate bonds carry more risk and will pay higher interest rates to compensate investors for taking on the risk.
Maturity dates
Bonds have maturity dates, which indicate when the issuer will repay the bond's face value.
Short-term bonds mature in less than five years, intermediate-term bonds in five to twelve years, and long-term bonds in more than twelve years.
The higher the risk of holding bonds due to interest rate fluctuations, the longer the maturity.
It's worth noting that government bonds issued by the US government are widely regarded as among the safest bonds in the world to invest in.
Subprime mortgage bonds, which were backed by mortgages issued to borrowers with poor credit, were examples of bad bonds.
As many borrowers defaulted on their mortgages and the value of the bonds plummeted, these bonds played a significant role in the 2008 financial crisis.
Bond investing is generally regarded as safer than stock investing and can be a great way to earn a consistent income while diversifying your holdings.
Always conduct your own research and be aware of the risks involved.
Index ETFs & Mutual Funds
The most striking similarity between mutual funds and exchange-traded funds (ETFs) is that both are professionally managed baskets of individual stocks and bonds.
Both asset classes provide a low-cost, convenient, and diverse way to invest in the market.
Be aware that index ETFs are less expensive than mutual funds, and in general, very few mutual fund managers outperform the index.
Having said that, the process of purchasing index ETFs and mutual funds is quite simple. Here's how you can begin:
Open a brokerage account
Once you've determined your investment goals and risk tolerance, you should open an account with a company that offers both index ETFs and mutual funds.
Many brokerages provide this service, with low minimum investment amounts.
Research funds
Once you've opened an account, you'll need to research the various funds that correspond to your investment objectives.
Morningstar is a good place to start because it allows you to research and compare funds.
Select your funds
After researching funds, select those that meet your investment objectives, risk tolerance, cost estimates, and so on.
Some popular exchange-traded funds (ETFs) track the S&P500 index, whereas other mutual funds follow select baskets of stocks based on value, growth, or a combination of the two.
Make your purchase
After you've narrowed down the funds in which you want to invest, you can make your purchase through your brokerage account.
Keep in mind that the price of the ETF or mutual fund will fluctuate depending on market conditions.
Monitor your investments
After you've purchased your funds, keep an eye on them and make adjustments as needed based on your investment objectives and risk tolerance.
This could include rebalancing your portfolio, selling underperforming mutual funds managed by active managers who charge exorbitant fees, and so on.
PART IV – Monitoring and Managing Your Portfolio
How to Review and Rebalance Your Portfolio
Once you've chosen an asset allocation strategy that aligns with your investment goals, you must monitor your portfolio to ensure that the asset allocation weighting is appropriate for your risk profile and investment objectives.
The asset allocation weightings change as the market value of your securities fluctuates over time and earns a different rate of return.
Portfolio rebalancing is the process of adjusting the weightings of each asset class in your portfolio to ensure that they are consistent with your risk tolerance.
Portfolio Proportion
Here’s an example rebalancing a $100,000 portfolio:
Let's assume your original desired allocation is 60% stocks and 40% bonds, and over time the value of your stocks has increased so that they now make up 70% of your portfolio while your bonds make up 30%.
To rebalance, you would sell some of your stocks and use the proceeds to purchase bonds to get back to your original 60/40 allocation.
Assuming the value of your stocks is now $70,000 and the value of your bonds is $30,000, you would sell $5,000 worth of stocks and use the proceeds to purchase $5,000 worth of bonds.
After this transaction, the value of your stocks would be $65,000 (60% of $100,000) and the value of your bonds would be $35,000 (40% of $100,000), bringing you back to your original 60/40 allocation.
In this example, we assumed the value of your stocks increased from the original 60% allocation, so we can calculate the increase as follows:
Original stock allocation value: 60% of $100,000 = $60,000 Current stock allocation value: 70% of $100,000 = $70,000.
Therefore, the stocks have gone up in value by $10,000, or 16.67% ($10,000/$60,000).
In the same example, we assumed the value of your bonds decreased from the original 40% allocation, so we can calculate the decrease as follows:
Original bond allocation value: 40% of $100,000 = $40,000 Current bond allocation value: 30% of $100,000 = $30,000.
Therefore, the bonds have decreased in value by $10,000, or 25% ($10,000/$40,000).
Consequences of Portfolio Imbalance
Portfolio imbalance can have several consequences, including:
Increased risk
When a portfolio becomes overly concentrated in one asset class, the portfolio's overall risk level rises.
For example, if your $100,000 portfolio is 80% invested in stocks, the risk of the portfolio rises because stock prices are more volatile than bond prices.
Missed opportunities
You may miss out on potential gains from other asset classes if your portfolio becomes imbalanced.
For example, if your $100,000 portfolio is heavily invested in bonds, you may miss out on potential stock market gains.
Reduced diversification
A well-diversified portfolio spreads risk across various asset classes.
When your portfolio becomes imbalanced, your risk is concentrated in a smaller number of assets, reducing the overall diversification of the portfolio.
Inefficiency in tax planning
If you have a taxable investment account, portfolio imbalance can lead to inefficiency in tax planning.
For example, if you have gains in one asset class and losses in another, you may be unable to realize the losses to offset the gains for tax purposes.
It is critical to review your portfolio on a regular basis to ensure that it remains balanced and aligned with your investment goals and risk tolerance.
Portfolio rebalancing can help to reduce the consequences of portfolio imbalance and keep your portfolio on track.
How to Rebalance Your Portfolio
Many factors, including transaction costs, personal risk references, tax considerations, and whether or not your capital gains or losses will be taxed at short-term or long-term rates, will influence how frequently you rebalance your portfolio.
Rebalancing is also affected by your age.
If you're still in your twenties and thirties, you may not need to rebalance your portfolio as frequently as you would when you're nearing retirement and need to maximize your capital gains.
Rebalancing your portfolio once a year is reasonable; however, if some assets in your portfolio have not appreciated significantly, the rebalancing period may need to be extended.
Here are some steps to consider when rebalancing your portfolio:
Determine your investment goals and risk tolerance
This will help guide your asset allocation strategy.
Establish an initial asset allocation
Decide how much you want to allocate to each asset class such as stocks, bonds, and other investments based on your investment goals and risk tolerance.
Monitor your portfolio regularly
Keep track of the value of each asset class in your portfolio and make sure it remains within your desired allocation range.
Rebalance when necessary
If one asset class has grown significantly larger or smaller than its target allocation, consider selling some of the over-weighted asset class and using the proceeds to purchase under-weighted asset classes.
Consider tax implications
If you are rebalancing a taxable investment account, consider the tax implications of your actions and use tax-loss harvesting strategies where applicable.
Consider market conditions
If the market is in a downturn, you may want to hold off on rebalancing until conditions improve.
Repeat the process
Regularly monitor and rebalance your portfolio to ensure it remains aligned with your investment goals and risk tolerance, while also mitigating the consequences of portfolio imbalance.
Understanding Market Conditions and How they May Impact Your Portfolio
Certain indicators can be used to assess current market conditions and predict how they will affect your portfolio.
Economic indicators, interest rates, political events, corporate earnings, and global events can all influence stock and bond markets, and thus your portfolio.
This is why portfolio rebalancing is critical, as it ensures that your portfolio remains aligned with your risk tolerance and investment goals regardless of market conditions.
This is why portfolio rebalancing is so important; it ensures that your portfolio remains aligned with your risk tolerance and investment objectives regardless of market conditions.
Here's a basic primer on market conditions and how they may affect your portfolio:
Economic Indicators
GDP, unemployment rate, and inflation rate all change over time and can indicate whether a country is under economic stress or growing healthily.
If the indicators are strong, it is likely that the economy is doing well and that people have more confidence in the market, which leads to higher stock prices.
This can occur, for example, when unemployment is low and GDP is increasing.
Interest Rates
These are some of the most closely watched figures in the world, with significant implications for stock and bond markets.
When the Federal Reserve raises interest rates, regular consumers' spending power falls as personal debt rates rise, causing stock prices to fall as well.
However, when interest rates are low, the economy is generally stimulated, resulting in increased spending power and general stock price appreciation.
Political Factors
Trade deals, government policies, and general elections can all have an impact on market conditions.
Any political event that creates uncertainty, such as elections or trade wars, can reduce investor confidence and cause stock prices to fall
Company Earnings
Some large companies' earnings reports can have a significant impact on stock market sentiment and overall market conditions.
Stock prices are likely to fall if a major US corporation reports weak earnings, and vice versa if major corporations report strong earnings.
Global Events
Some global events have the potential to have a significant impact on market conditions.
COVID-19, natural disasters, and geopolitical tensions such as the Ukraine war are examples of this.
Here are some additional market factors that can influence market conditions:
Market Liquidity
This is the ease with which an asset can be bought or sold without affecting its price.
When the market is liquid, it is easier to sell a position without causing the market to move.
Some asset classes, as well as specific stocks and bonds, have low liquidity, making it difficult to exit a large position.
Regulatory changes, global events, and interest rates can all have an impact on liquidity.
Commodity Prices
These include oil, gold, silver, and other natural resource prices.
When commodity prices are high, inflation rises, which affects interest rates and thus market conditions.
Technological Advances
AI and machine learning breakthroughs can open up new investment opportunities and have an impact on markets.
New technologies can also increase competition and reduce market share for established businesses.
PART V – Conclusion
Investing is a fun and exciting way to take control of your finances and reach your money goals.
Think of it like planting a garden - you're laying the groundwork, choosing the right seeds (assets), making sure they all grow well together (diversification), and checking in on their progress (monitoring).
And just like a garden, you might need to adjust things over time (rebalance) to make sure everything stays healthy and thriving.
Starting your investing journey can seem overwhelming, but by following a few simple steps, you'll be on your way to a bright financial future.
Get to know the basics, set your money goals, pick assets that match your risk tolerance, and keep a watchful eye on your investments.
And remember, investing is a marathon, not a sprint - so take it slow and enjoy the ride!