An important aspect of investing is understanding the product before you put your money in it. You might ask:
- What are the product’s benefits, risks, limitations and transaction costs?
- What is the maximum you can lose in the worst case, and how might this happen?
- Will this product complement, supplement or replace your existing investments?
- Will you become over-exposed to a particular risk if your portfolio is not sufficiently diversified?
What Is A Bear Market?
A bear market is a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Typically, bear markets are associated with declines in an overall market or index like the S&P 500, but individual securities or commodities can be considered to be in a bear market if they experience a decline of 20% or more over a sustained period of time – typically two months or more.
The U.S. major market indexes fell into bear market territory on December 24th, 2018. The last prolonged bear market in the United States occurred between 2007 and 2009 during the Financial Crisis and lasted for roughly 17 months. The S&P 500 lost 50% of its value during that time.
What Is A Bull Market?
A bull market is the condition of a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies and commodities. Because prices of securities rise and fall essentially continuously during trading, the term “bull market” is typically reserved for extended periods in which a large portion of security prices are rising. Bull markets tend to last for months or even years.
A bull market is a market that is on the rise and is economically sound, while a bear market is a market that is receding, where most stocks are declining in value.
Basic Principle Of Life: Higher Risk, Higher Return
What Is the Risk/Reward Ratio? Many investors use a risk/reward ratio to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns.
Higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return. This trade off which an investor faces between risk and return while considering investment decisions is called the risk return trade off
What Kind Of Are Out There?
A cash bank deposit is the simplest, most easily understandable investment asset—and the safest. Not only does it give investors precise knowledge of the interest they’ll earn, but it also guarantees they’ll get their capital back. On the downside, the interest earned from cash socked away in a savings account seldom beats inflation and loses around 2% a year
A stock (also called a share) is a part of ownership in a company. It represents a claim on the company’s assets and earnings and what that entitles you to do is to attend the Annual General Meetings (AGMs) and dividends payout if declared by the company. So essentially by buying into this company, you are betting that the management team and company fundamentals are able to get you more returns.
Bonds are debt instruments in which investors effectively loan money to a company or agency (the issuer), in exchange for periodic interest payments, plus the return of the bond’s face amount, once the bond matures. Bonds are issued by corporations, the federal government, and many states, municipalities, and governmental agencies.
Exchange-traded funds (ETFs) have become quite popular since their introduction back in the mid-1990s. ETFs are similar to mutual funds, but they trade throughout the day, on a stock exchange, just like shares of stock. Unlike mutual funds, which are valued at the end of each trading day, ETF values fluctuate intra-day.
Example of a Forex Trade: The EUR/USD rate represents the number of US Dollars one Euro can purchase. If you believe that the Euro will increase in value against the US Dollar, you will buy Euros with US Dollars. If the exchange rate rises, you will sell the Euros back, making a profit.
Think of this as a sexy new version of a stock, where the underlying thesis is the idea of decentralised ownership and value. For any other currencies in the market it is debt-based and backed by the respective monetary authorities. This also means that they are free to increase or decrease the supply to implement their policies on the market. For cryptocurrencies, they are limited in supply, hence the free market is completely at play here (demand and supply).
Don't Put All Your Eggs In One Basket
We all know the saying ‘don’t put all your eggs in one basket’, but it’s particularly important to apply this rule when investing. Spreading your money across a range of different types of assets and geographical areas means you won’t be depending too heavily on one kind of investment or region.
That means if one of them performs badly, hopefully some of your other investments might make up for these losses, although there are no guarantees.