The Diversification And The Statistics
It has been studied that the risks related to a well-diversified portfolio are statistically lower than those of a little or non-diversified at all portfolio.
In the case of stocks and bonds you can make different hypotheses. Considering bonds as the safer and stocks as the more risky ones, you can outline different portfolio methods. An investor who wants a conservative portfolio, with low-risk, will allocate at least 2/3 of capital to the purchase of bonds, maybe a small part in deposit fund, and the remainder will be spent in equities .
Vice versa, for those who prefer a more aggressive portfolio, with higher risks but also higher revenue prospects, at least 2/3 of the capital will be allocated to equities, and the remaining on bonds and funds.
Obviously these are very general and indicative guidelines. Within this framework we can build much more specific portfolios, based on the investors preference. In fact, not only you can choose between stocks and bonds, but also between different types.
Taking bonds into consideration, there are different categories based on their level of safety and return, and to identify them we use the rating agencies and the so-called Rate .
So, if you wanted a more conservative portfolio, of the 2/3 of bonds you may allocate a 65% in government bonds or supranational entities, with a AAA or AA+ rating, and the remaining in bond with lower rating but more profitable coupons rate.
The Two Ways For Investing Money
We can basically distinguish 2 major investment categories.
The first: to buy a good, and then wait for this to raise in value over time, so to be able to resell at a higher value and cash the profit.
This is the method that probably everyone knows. The most well known in this context is the purchase of a property. We all have heard or maybe even said I asked for a home loan, its an investment for the future. A person buys a property in the hope of reselling it in the future when prices, its assumed, will be increased.
Another example of this type of investment is the purchase of works of art. In this case, rather than hoping for a value increase based on time, the investor hopes for an increase of the quotation and popularity of that specific artist or type of work.
Finally, one of the most important examples of this type of investment is for sure the purchase of companys shares. By purchasing a share, the investor becomes owner of a piece of that company, and he hopes the value of that company will rise, so he can then sell that piece of the company to a new owner, or another shareholders, at a higher value, and cash the profit.
This is the branch we are interested the most, and its definitely one that has grown and diversified the most over all in the past few decades.
The second: to lend money for a certain period of time and then get them back with the addiction of an interest.
The choice will be up to you.
How To Choose Best Brokers For Your Forex Trading
Every day more and more people are getting connected to the Internet for the first time. It means that the potential market for brokers looking for retail traders increases by the day. Brokers earn a fee or commission for intermediating access to the interbank market. There is stiff competition among brokers and traders have to consider what makes a good forex broker for their specific needs.
In the quest to choose the best broker, traders must start from a regulatory standpoint. Regulated brokers cannot act on their own as they need to follow rules and guidelines set by the regulator. Regulation comes with responsibilities. Regulated brokers protect their clients interest and offer greater confidence than unregulated firms.
Funds segregation in a custodial bank is a must. This ensures a broker cannot use funds to pay other traders withdrawals, thus avoiding malpractices such as a Ponzi scheme. The type of brokerage house is also important. Look to avoid market-makers and opt for ECN or STP brokers. Market-makers can trade against their traders positions, creating a conflict of interest. As such, there is the potential inclination to use customers for their personal gain.
Finally, the type of trading accounts and markets offered are a major consideration. Nowadays, a forex broker does not just provide access to the currency market, but also to commodities, bonds, options, equities, and other asset classes. The more markets offered, the better.
Read Also: Savings Ira Vs Investment Ira
Investing For Dummies: How To Start Investing If You Are Uncertain
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I love the book series “For Dummies” because they take a light hearted approach to making complex subjects easy. That’s why I wanted to create this Investing For Dummies guide because investing is complex – and I want to make it easy for you to start.
The Cheapest Way To Invest In Stocks Is Through A Website Often Called A Platform
You can buy shares or funds from different providers, but for the cheapest offers you’ll want to do it through a website, often called a platform.
It’s actually a two-stage process. First you need to pick which platform to buy your shares or funds from, then you need to decide what investments to buy.
It’s like buying bread in a supermarket. You first need to pick where you want to buy the bread , then choose which bread you want to buy .
As a rule, you’ll be charged for using the platform and buying the investment. To stretch the analogy somewhat, imagine each supermarket charges a different price for its shopping bags.
Some supermarket bags are cheaper than others, but the ones that have the most expensive bags may sell the cheapest bread. So it’s a combination of the two factors that needs to be taken into consideration.
Note that while the platform fee is charged by the platform you choose, the company buying the shares on your behalf or running the funds will be charging you for its service.
A stocks & shares ISA is a good place to start your investment journey.
Read Also: How To Start An Angel Investment Fund
Currency Trading For Dummies
The short introduction above is only meant to present you with a brief history of this market and the roots of online trading. Nowadays, trade forex meaning buying and selling currency pairs to speculate on their volatility.
In the forex market, currencies are paired together, so buying one means selling the other. In other words, this is all about valuation. One currency is worth a specific amount when compared with other currency. There always needs to be something else to set a currency against. It is an exchange rate after all.
One of the functions of the foreign exchange market is to present the economic state of different countries or regions around the world. The rule of thumb goes that the stronger an economy is, the stronger the currency will be. For this reason, traders try to anticipate trends in the currency market based on how well an economy performs.
The rest of this article aims to present a currency trading for dummies guide, highlighting the most important things to know when trying to make sense of the world of currency speculation.
Let Someone Do The Work For You
Today there are a ton of roboadviors like , that can invest your money for you and getting better returns than financial advisors.
At its core, Robo-Advisor that takes into account your age and risk tolerance to build you an optimal portfolio.
Not only is your money liquid and available to be withdrawn at a moments notice but you also have a risk slider where you can tone down how aggressively your money is invested.
Expertly diversified with the click of a mouse, its too easy! It also projects a best and worst case scenario for your money so you can count on your money being there when you need it.
Probably the best part of Betterment is how it acts as a savings account. You easily transfer money in and out just like any savings account with no notion of trades. So to convert from your savings account way of life to your Betterment account way of life will be nearly seamless.
The only difference is your money will actually work for you! Take a look at our review.
Recommended Reading: What Are The Best Investment Websites
Forex Trading Style And Timeframe
There are several different types of traders categorized by how long they hold on to their trades, and the timeframes they focus on. As a trader, you can capture more pips with higher time frames but take fewer trades. On the other hand, lower time frames result in more trading opportunities, but very few pips captured.
Most forex beginners think that all traders are intraday traders, meaning they trade all day, every day. On the contrary, there are several trading styles that you need to understand before making a choice.
- Scalpers: Scalpers trade frequently and take small profits, but most of the time, during single-day trading
- Swing traders: Swing traders capture at the earliest so they can swing from low to high of the market trend
- Trend traders: Traders that wait for valid trends and trade with them
- Carry traders: Traders that want to collect interests on the currencies they hold, which potentially provides them with an income
Scalpers trade within the shortest timeframes and carry traders within the longest. This means that scalpers can trade within seconds, and carry traders can hold on for months. The risk and reward are also from the smallest to the highest from the scalper to the carry trader.
How Does Trading Stocks Affect Your Tax Bill
It’s important to understand the tax rules for your investments, especially if you’re going to actively trade stocks. The taxes you pay on stock profits are known as “capital gains taxes.”
In general, you pay more capital gains taxes when you hold a stock for less than a year before selling. You pay less when you hold a stock for more than a year.
This tax structure is designed to encourage long-term investing.
Selling stocks for a profit will increase your tax bill. But selling stocks for a loss will decrease your tax bill. To prevent you from taking advantage of this tax benefit, there’s something known as the “wash sale rule,” which delays the tax implications of any profits or losses if you re-enter the same position within 30 days. In other words, if you sell a stock for a loss, then buy the same stock a week later, your loss will no longer give you tax benefits.
The loss will be accounted for once you sell the stock again.
If minimizing your tax bill is a primary concern, consider a retirement account like a Roth IRA or 401 plan instead of a standard brokerage account.
Recommended Reading: How To Qualify For A Mortgage For An Investment Property
Stay Committed To Your Long
Keady says investing should be a long-term activity. He also says you should divorce yourself from the daily news cycle.
Some of the news cycle, at times it becomes 100 percent negative and it can become overwhelming for people, Keady says.
One strategy for beginners is to set up a calendar and predetermine when youll be evaluating your portfolio. Sticking to this guideline will prevent you from selling out of a stock during some volatility or not getting the full benefit of a well-performing investment, Keady says.
How To Trade Forex Successfully Technical Analysis Explained
Traders use technical and fundamental analysis to form an opinion about a market. Technical analysis refers to building a forecast or a market scenario only considering historical charts.
Nowadays, all forex brokers offer at least one trading platform to log in and trade the market. All currency pairs have charts that show the previous price action on various timeframes, starting from one to five minutes, all the way up to a monthly timeframe.
Technical analysis deals with interpreting the charts to build a forecast, or to base an educated guess on future price action. More precisely, traders use information from the past to predict the future.
It may sound to many like wizardry, but it isnt. Technical concepts have stood the test of time, and many of them have existed for over hundreds of years. The idea is not to forecast all future price action, but the next stage in the market. Depending on the volume traded, it is enough to speculate on the largest market in the world successfully.
Technical analysis evolved from basic trend following to complicated theories and indicators. Nowadays, traders use sophisticated oscillators to interpret the market, as well as trading theories like Elliott Waves, Drummond, Gann, as well as tools like Fibonacci ratios or Andrews Pitchfork to name a few.
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Stock Trading Vs Buy And Hold
The goal of most investors generally is to buy low and sell high. This can result in two quite different approaches to equity investing.
One approach is described as “trading.” Trading involves following the short-term price fluctuations of different stocks closely and then trying to buy low and sell high. Traders usually decide ahead of time the percentage increase they’re looking for before you sell .
While trading has tremendous potential for immediate rewards, it also involves a fair share of risk because a stock may not recover from a downswing within the time frame you’d likeand may in fact drop further in price. In addition, frequent trading can be expensive, since every time you buy and sell, you may pay broker’s fees for the transaction. Also, if you sell a stock that you haven’t held for a year or more, any profits you make are taxed at the same rate as your regular income, not at your lower tax rate for long-term capital gains.
Be aware that trading should not be confused with “day trading,” which is the rapid buying and selling of stock to capitalize on small price changes. Day trading can be extremely risky, especially if you attempt to day trade using borrowed money. Individual investors frequently lose money by trying to use this approach.
Buying And Selling Bond Funds
This can be a little tricky to wrap your mind around it so Ill do my best to explain it.
Lets say you purchase a bond fund for $10. The the interest rate on that bond fund is 4%.
Next week, you find out the funds interest rate drops from 4% to 3$%.
But remember, you own a bond that has a yield of 4%. Anyone else who buys the bond will only get 3%. Therefore, your bond is now more desirable which means the price of that bond went up.
Similar to how a stock goes up in value, same holds true for a bond.
The easiest way to remember how bonds work is this: As interest rates go up, bond prices go down. As interest rates go down, bond prices go up.
Fa Vs Ta Which Is Better
It entirely depends on the trader profile. Do you want to be the kind of trader that prefers to get in and out of trading positions multiple times a day ? Then crypto technical analysis will be your best friend. Instead, do you prefer to research and make informed bets every time ? Then a mix of both is the way to go.
Note: As a trader, you cant have enough tools in your arsenal. Applying both FA and TA will give you the best chance of identifying the best trading and investing opportunities in the crypto market. This is because the two techniques complement each other in so many ways.
For instance, you may use FA to determine that an asset is worth investing in. What you may not uncover with FA, however, is the right time to invest. For this, you will have to rely on technical analysis. Conversely, if you are using TA to work out future price movements for a given asset, you can use FA to confirm whether or not the price trend you are witnessing is poised to continue.
Therefore, there are advantages to using either technique over the other at various moments in your research, but to have a more complete picture, use both.
Why You Can Trust Bankrate
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Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our investing reporters and editors focus on the points consumers care about most how to get started, the best brokers, types of investment accounts, how to choose investments and more so you can feel confident when investing your money.
The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal.