I know, thinking about investing right now might sound crazy amid this coronavirus crisis. Many people have lost their jobs, some people have seen their contracts changed, and many others are struggling to keep their jobs. For people that have spare money, or some savings this could be an opportunity not just to invest but to learn about investing. I will be sharing a series on Investing 101, over the next few weeks, starting with 3 things you know should know before investing your money.
- Assess your risk profile: Probably you have heard or read before that understanding and knowing your risk will provide you with a much richer insight into the willingness that you have when deciding the type of investment you want to make. This can show you how much money you can lose or win according to a specific risk. In finance, there are 3 scenarios where you might fit (conservative, moderate and aggressive), although there are some other classifications in between. The lower your investment risk tolerance means that you would rather have little risk and have less probability of huge losses or wins on your portfolio. Another variable to add in identifying your risk is time horizon: is it money that you're saving for retirement? Are you just saving money to buy a car next year?
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- Know all your investment options: When it comes to investing, stocks are the top-of-mind. However, stocks are just a small portion of the wide range of options that you have. Usually, investments are divided into traditional assets and alternative assets:
Fixed Income (bonds)
For every subcategory, you will find also different classification. For example, on equity, you will have a classification based on region (US, Europe, Emerging Markets, Asia, etc), or it could be based on sector (Energy, Telecom, Consumer Staples, Technology, Health Care, etc), or it could also be in terms of market capitalization (small, medium or large-cap).
Most of the investment vehicles mentioned above were solely exclusive for wealthy individuals due to the ticket sizes, but now thanks to technology advances all of us have access to some of them.
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- Identify where to buy the investment vehicles of your preference: Some years ago, the only way you could buy any of these investments was through a bank. However, today there are many options. Some of these are neobanks or digital banks (Revolut) where you can buy stocks. There are even some other platforms where you can invest not only in stocks but in ETFs (exchange-traded funds, I will be talking about it next week). Examples of the former are Etoro, RobinHood and Plus500.
In the following weeks, I will be sharing more advice on investing. If you would like me to discuss a specific topic, please contact me at firstname.lastname@example.org