Beginner Investing Tips

Published: November 2nd 2010
in Economics » World

Example of stock price index

I've been investing in the financial markets for over twenty years. I never made millions nor did I lose millions. Sometimes, there were years when I smiled all the time. In other years, like 2008, my face was sour, my mood was down – like many others I lost a lot.


2008 is a wonderful example for any potential young investor. Before risking your money, ask yourself a question:


How will I sleep at night if I lose over 50% of my money in one trading day?


If you are okay with this outcome, then stocks and options may be your field of interest.


However, if you cannot bear the thought of losing a penny, then you should focus on channels that are much more solid and certain. If this is the case, you should focus on fixed interest saving plans, Governments' Bonds and other financial investments that have relatively low fluctuations but also low yield.


Most of us are somewhere in between. As we know, life is neither black nor white - it's probably more grey than anything else, and we are all probably somewhere in between.


For example, one may invest his money as following:


Cash – 20%


Government's Bonds – 30%


Stocks in the local market (TSX) – 15%


Long term saving plans – 35%


When analyzing the portfolio, one can tell that most assets (85%) are steady and have high certainty.


The person who holds this portfolio "hates risks.” He will probably get a positive performance of 1-4% per annum. If the stocks he is holding go 20% higher, then the contribution to the portfolio will be an extra 3%.


However, if the stocks lose 40% of their value, his portfolio will lose a maximum of 2-3%, which is a figure the portfolio holder can live with.


Another investor bought the following in January 1st, 2010:


Stocks – 30%


Industrial sector bonds – 20%


Cash – 20%


Savings – 20%


Australian Dollar – 10%


This portfolio gave our investors a fine performance of 11% in ten months, or 1% on monthly basis, which is 12 times more than the basic interest of short term savings – impressive.


But if the same portfolio had been bought in January 2008, the losses would be 21%.


Can you live with losing 21% of your money?




Before you consider investing, first learn who you are. Then decide the amount you are willing to put at any risk.


Consult professionals about various scenarios in your portfolio.


After that you may "tailor" your own suit.


Good luck!

Related articles: (investing, banking, stocks, saving)
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