Why We Need To Invest?

 

Why Invest?

Before we get into the question above, let's understand what would happen if one did not choose to invest in. Let's say you earn $ 20,000 a month and spend $ 15,000 on your living expenses, which include housing, food, transportation, shopping, care medical, etc. The balance of 5,000 is your monthly surplus. For the sake of simplicity, we ignore the effect of income tax in this discussion.

To get the message across, let's make a few simple assumptions. Your employer is kind enough to grant you a 10% raise each year. Cost of living is projected to increase 8% year over year. You are 30 years old and planning to retire at 50. This gives you 20 years to earn. You have no intention of going back to work after you retire.

Your expenses are fixed and do not cover any other expenses. The remaining cash of 5,000 per month is held in the form of cash. By deciding to invest the surplus money, your available cash has increased significantly. Cash balance has increased from 5% to 5000%. This is a staggering 5000 times the normal amount of. This means that you are in a much better position to face your life after retirement. Invest at 5% Compounding Going back to the original question, why invest? There are some good reasons to invest.

• Fight Inflation: Investing is a better way to deal with the inevitable rising cost of living
• Create wealth: through investments you can aspire to a better aggregation of savings at the end of the defined period.

In the example above, the period was until retirement, but it could be anything: educating your children, getting married, buying a house, retiring, and so on. To fulfill life's financial aspirations.

Where to Invest

Now that you have discovered the reasons to invest, the next obvious question would be: Where would you invest and what returns can you expect from an investment?

When it comes to investing, one has to choose an asset class that matches the risk temperament and return of the person. An asset class is an asset class with special risk and return characteristics.

Below are some of the most popular asset classes.

• Fixed Income Instruments
• Equity
• Real Estate
• Exchange Traded Funds (ETFs)
• Fixed Income Instruments

They are investment instruments with minimal risk for the Principle and the return is paid to the investor as interest on the respective

Fixed Income Instrument

The interest paid can be quarterly, semi-annual, or annually. At the end of the deposit period (also known as the term), the principal is returned to the investor. Typical fixed income investments include:

• Time deposits offered by banks
• Banko Sentral Government Bonds
• Local Government Treasury Bonds
• Mutual Fund Bonds

In December 2011, the typical yield of a fixed income instrument fluctuated between 4% to 8%

Equity

An investment in stocks involves the purchase of shares in publicly traded companies. There are 271 listed companies in the Philippine Stock Exchange (PSE). Unlike a fixed income instrument, when an investor invests in stocks, there is no capital guarantee. However, as a compromise, the return on equity investments can be good if you can do your homework to choose the right company to invest in that offers good value. Investing in some of the best and best managed companies in the Philippines has produced a good percentage of long-term returns. Identifying such investment opportunities requires skill, hard work, and patience. Capital gains from the sale, exchange or sale of shares in domestic corporations are subject to a final tax rate of 15 percent.

Real Estate

Real estate investment comprises the transaction (purchase and sale) of commercial and non-commercial real estate. Typical examples would be transactions in land, apartments, and commercial buildings. There are two sources of income from real estate investments, namely: rental income and appreciation of the amount invested.

The transaction process can be quite complex and involve a legal review of documents. Cash outlay on investment property is usually quite high. There is no official metric to measure real estate returns.

Commodity

Investing in gold and silver is considered one of the most popular investment options. Gold and silver have increased in value over a long period of time. Investments in these metals have paid off for the past 20 years. There are several ways to invest in gold and silver. It is possible to invest in Exchange Traded Funds (ETFs). Going back to our initial example of investing excess cash, it would be interesting to see how much you would have saved at the end of 20 years, considering that you could invest in investments and fixed-income stocks.

Investing in fixed income securities at an average interest rate of 48% per year will multiply your savings or hard-earned money with compound interest if you do not withdraw the interest and transfer your interest to principal.

Investing In Stocks at an Average Interest Rate of 15% Per Year

Obviously, you get the best returns on stocks, especially if you have a multi-year investment perspective. Not depending on the sale of the shares, but on the long-term holding that generated dividend income. You can transfer the dividend income to your capital and do it over time in, say, 20 years. You'll be surprised at the compound interest you get on.

A Note on Investments

Ideally, investments should have a strong mix of all asset classes. It is advisable to diversify your investment between different asset classes. The technique of dividing money into 4,444 asset classes is known as "asset allocation." For example, a young professional may be at greater risk given his age and the years of investment available. Typically, investors should invest about 70% of their investible amount of in stocks, 20% in precious metals and the rest in fixed income.

For the same reason, a retiree could invest 80 percent of his savings in fixed income, 10 percent in stocks and 10 percent in precious metals. The ratio of, with which investments are distributed among asset.

Lesson 5: Education

As Warren Buffett said, “The best investment you can make, is an investment in yourself. The more you learn, the more you'll earn.”

Innovation and automation are ubiquitous in many industries around the world. It looked shocking, but some problems followed. More and more people were replaced by robots and had to be retrained or entered another field. In order for people to do these things, most people tend to choose to go back to school instead of considering other options. Although going back to school may help, you can always consider studying on your own. Perhaps that option was unrealistic a long time ago, but with high-quality information and other factors, it is now worth considering educating yourself.

What does self-study mean?

The meaning of educating yourself is to have a series of habits to promote how to educate yourself. Go into the finer details. These habits are part of the system and can help you stay up to date with related topics that you are passionate about. As I mentioned before, this method has only merged as an effective option in recent years. The reason for this is that the information is not available. Decades ago, our information came from newspapers, radio and television.

But now, every day, thousands of people create information through blog posts run by professionals or large companies. Due to the Internet and its greater expansion, the quality and quantity of information has increased. Indeed, the meaning of self-education lies in the use of information on the Internet.

1. Keep Up With Finance and Investment Industry News

Not only news from your industry, but also from other areas of your interest. As I said, the industry is changing because something will always happen. One way of self-education is to understand what is happening in the industry. Like in my case I always update myself with the current prices of local stocks through https://www.pse.com.ph/ Philippine Stock Exchange or through my broker website. The only thing you need to remember is that there are many ways to keep up you can have your own search say not only stocks but currencies, and commodities too. You don’t need to pay to subscribe to multiple brokers to keep up. Go to social media and search for related hashtags or keywords, or sign up for a media distribution list. There are many free options.

2. Enroll In Online Courses

The information is very rich, there are all kinds of courses. Today, online learning is also a very effective way to learn. You can turn to sites like Udemy or Skillshare, which offer thousands of courses particularly trading and investment. There's also education that you get from your online brokers and banks.

3. Find Mentors

One good thing with Finance and Investing industry has technical talents who are willing to teach others. With years of experience in this field, they can impart valuable experience that other classrooms cannot teach you. This is another reliable method, because the instructor is likely to stay ahead. Your years of experience and knowledge of the industry can lead to more specific suggestions. After all, traditional colleges and universities tend to focus on general information rather than the information you really need to know. Mentors are another way to get a personalized experience.

4. Develop These Learning Habits

4.1 Have A Learning Environment.

You don't have a classroom, so it's best to turn the place you often go to a study place. It can be a library, a room at home, or a coffee shop. In any case, there must be a place where you can study and study with determination.

4.2 Highlight Information.

If you like to buy books or e-books, use a stabilo pen. You can also consider other note-taking apps where you can store specific bits of information. Applications like Evernote or Google Keep are perfect for this.

4.3 Learn From Various Media.

We can use different learning methods, although we like one or two of these methods best. Find out which ones you like and challenge yourself to learn in different ways.

4.4 Set Goals.

To learn as a way of life, it is important to maintain this habit. The goal is a great way to keep up with the habits you want to have. Consider tutoring. Not only can you get paid by tutoring others, but you can also consolidate what you have learned. Guidance is also a way to verify and ensure that what you have learned is also with you.

Final thoughts

Self-study is about various methods of how to educate yourself. Although going to webinars, on-line classes, or joining a Facebook finance and investing group is still an effective option, the vast amount of information available allows anyone to learn about any subject. Therefore, you can save a lot of time, money, and consider the waste of these habits. Over time, these habits will pay off.

Lesson 4: Don't Understand The Risk

 

Lesson 4: Don't Understand The Risk

Risk is one of the most important factors to consider when trading. Everyone has a different tolerance for risk. If you are a long-term trader and the market has fallen by 20%, can you calm down and survive the plunge? If not, you may wish to diversify to add bonds to your investment.

Are you investing in more than one pair of stocks? If you do not properly diversify your investment, you will take a lot of risk and should be spread across many different stocks, not just a few stocks.

If you are a trader, do you limit your capital exposure by using stop losses and sufficient risk for each transaction? As far as the risk of each transaction is concerned, many traders determine their maximum risk, and will not assume more than that maximum risk for any stock. For example, the risk of many traders in a single transaction does not exceed 1% of their total investment portfolio capital. This means that you will add a stop loss and sell any positions that fall by more than 1% of your total portfolio (1% risk per transaction). For example, if your account balance is P 100,000, you will not risk losing more than P1,000 in any transaction. If you buy P 100,000 of Jollibee stock and the price of your position drops to P95,000, you will sell your position to avoid an additional loss of more than 1% of your capital.

By limiting the percentage of portfolio loss for a transaction, you can avoid huge losses in any transaction. Proper risk management can determine the success or failure of the stock market.

Lesson 3: No Strategy

Whether you are a long-term investor or a trader, developing a strategy is the key to your success. Investors and traders have different strategies. Here are a few important strategies to remember.

Long-term Investor Strategy

Pesos Average Cost

Pesos average cost is the process of investing a certain amount of capital each month regardless of market changes. The average cost of pesos helps investors obtain higher returns during a bear market and reduces the volatility of overall returns. In the table above, if you have the average cost of pesos in 2015, your return will be greater than 3.26%. We'll talk about it later in our succeeding series of this blog about averaging and different types of strategies in which averaging is one of them.

Diversification

Diversification is the process of buying multiple shares instead of buying a single share. Building a diversified equity portfolio is important because the stock market is unpredictable. If you buy a stock, the company goes bankrupt or performs poorly, you may lose a lot of money. Conversely, if you buy ten stocks and one of them fails or performs poorly, you have nine or more stocks to rely on. Diversification to diversify your investment risks.

Trader Strategies

Develop a Trading Plan

Your trading method will depend on your risk tolerance, your personality, the amount of money you can invest, and so on. Because every operator is different, it is important to develop a business plan that you will stick to. The trading plan should include everything from the maximum allocation of your investment portfolio and the risk of each transaction to your preferred risk/reward ratio.

Win Rate

As mentioned above, a healthy win rate is an important strategy for traders. Of course, it is difficult to increase your profit margin, but if you plan your trading strategy and the technical indicators you follow, you can maintain a constant profit margin through a suitable strategy. All other things being equal, traders who profit from 25% of trades will do better than traders who profit from 50% of trades but have a lot of losing trades.

Risk/Reward Ratio

The risk/reward ratio is closely related to the winning ratio. If you can create a healthy profit margin and a healthy risk/reward ratio, it can help you become a successful trader. For high risk/reward ratios, you can pair trades with high-profit potential with suitable stop losses. By limiting the amount you can lose while increasing the amount you can earn, you can make huge profits through trading. Combine a high rate of profit with a high rate of risk-return, and you can become a trader.

Lesson 2 Unrealistic Expectation

 

Children are often burdened by unrealistic academic expectations throughout their lives. However, parents, teachers and mentors must teach them that there is more life beyond the scorecard. All the work is worthwhile if they grow up and become kind, considerate, and helpful people to those in need. Because life is more than just numbers. What matters is the journey and the quality of the journey.

Similarly, when making an investment, return is not the only thing you need to consider. I hope something big is a good thing, but achieving financial goals based on unrealistic assumptions can make it go downhill.

In the past, many stocks may have performed very well. However, remember that your future performance does not depend on your historical temperament. Consider the following points to fully understand the investment situation with the following:

The trade-off between risk and return. In the past, sometimes you were attracted by investment products provided by account managers and investment agents only by considering the rate of return provided. However, as an investor, you should also evaluate many other factors. One of the most important factors is risk. You will see that everything has a price, including your return on investment. In order to obtain greater profits, you must have sufficient risk tolerance. In other words, the high return on your investment is the premium you get for taking high risks. This is the so-called risk-benefit trade-off. Almost all investment products face various risks, but at different levels. Therefore, before investing your hard-earned money, it is important to understand the risk-return tradeoffs of each asset class and the investment path in it to assess whether it is appropriate for your risk profile. It is not advisable to rely solely on rewards.

Properly allocation of assets. Pay attention to asset allocation. Define your asset allocation based on age, income and expenses, assets and liabilities, risk appetite, investment goals, investment scope and financial goals. Asset allocation refers to the allocation of investable surplus among asset classes (such as stocks, debt, gold, real estate or even holding cash). Therefore, when allocating assets, you are actually adopting an investment strategy that can balance the risks and returns of your portfolio, taking into account your risk profile, financial goals and investment time frame. As mentioned above, every asset has a certain degree of risk and expected return.

Investment time frame. Asset allocation varies with the time frame available before the financial goal occurs. For those who have a short-term investment period of less than 3 years, it is recommended to allocate them to fixed-income securities, and to avoid assigning them to asset classes such as stocks and gold due to their variable rate of return, so the risk is higher. Due to the short investment time. For the medium-term investment period like 5 years, you can allocate a portion of the investable surplus to stocks and gold to take advantage of the higher risk-return ratios provided by these categories, but you will not be enthusiastic.

For longer investment periods like 10 years above, you can allocate a larger proportion of the funds to higher-risk asset classes in order to use the power of compounding over a longer time frame. That is to say, maintain some (if not too high) exposure to bonds and gold so that the risk can be mitigated to some extent. For investors, it is crucial to recognize the risk-return trade-offs of any asset class, and to be realistic in the expected returns, and to wisely evaluate the performance of their investment portfolios.

"Time to market" instead of "timed market". Everyone wants to enter when the market is low and exit when the market reaches its peak. However, regardless of market research and analysis, it is impossible to always accurately predict the direction of market development. Take 2010 as an example Philippine Stock Exchange (PSE). When valuations were really cheap, many investors missed the stock market's reversal and missed buying opportunities. On the other hand, in 2011, when the market was in trouble, many retail investors left the market. I believes that you should focus on long-term financial goals and commit to a fund that continues to invest in order to optimize the level of risk return. Achieving your life goals requires a disciplined investment method and perseverance to ignore market momentum. Trading is meaningless, because it may endanger your wealth and health. Remember, traders are good commodities only before the last transaction. The bottom line to achieve your financial goals, first assesses your risk appetite. Once is determined, stable investment will begin. In addition, diversify your investment in all asset classes and monitor your investment portfolio every six months.

Lesson 1 Learn To Understand Trading and Investing

 

In life, we all make mistakes. When investing in, some beginners will take huge risks and learn difficult methods. Some people will take a thoughtful approach and learn simple methods. Although errors can help you learn as an investor, they can also jeopardize the future of your investment. It is important to know what not to do when you start investing. In order to make you a successful novice investor, please avoid the following five common investment mistakes.

Learn From The Mistakes of Newbies Investors

I Don't Understand Trading and Investing

Many new investors don't decide their investment strategy in advance. Beginning investors can be divided into two main categories: traders or investors. Although both trading in stocks and investing in stocks are common forms of investment in the stock market, their execution methods are different. Trader is an active investor, quickly buying and selling stock positions for profit. One way for traders to be successful is to earn a higher profit rate.

A trader who makes a profit on 60% of the trades does a better job than a trader who makes a profit on 30% of the trades. For traders, another important factor is the risk-reward ratio. If traders buy and sell positions with high potential gains and low potential losses, they can get higher returns on average. Long-term investors use different strategies than traders. First, investors cannot buy and sell stocks quickly. It is the long-term purchase and holding of shares, long-term investors will use more of the company's financial information to determine whether it is a good action. This includes looking for companies that increase profits over time and sell them at a favorable share price. Long-term investors will purchase a diversified portfolio of company stocks and seek to expand that portfolio in the coming years.

If you start investing without defining yourself as a long-term investor or trader, it is difficult to use established strategies to be successful. If you decide to trade stocks and make long-term investments at the same time, you can divide your funds into two categories and manage each part according to your strategy. Next we will be discussing Lesson No. 2. To be continued...

Theoretical Basis of Currencies

Currency Introduction, Major Currencies and Reasons For Conducting Foreign Exchange Transactions

Exchange Rate Definition

Forex (Forex) is currency trading between countries and is the largest and most liquid financial market in the world. There are an estimated 1.5 trillion US dollars worth of currency transactions in one day, dwarfing the transactions of other types of commodities. Unlike any other commodity transaction, there is no centralized transaction in foreign exchange and transactions are primarily conducted through banks, brokers, merchants, financial institutions, and individuals. Because financial institutions have this ability to trade currencies, the currency market is open 24 hours a day, 5 days a week (closed on Saturday mornings).

Before the late 1990s, currency trading was just a practice of institutional traders. Although retail traders were able to trade the forex market, it has only recently become popular, with individuals trading currencies for huge profits. Most currencies of different countries in the world float freely; this means that they retain personal value and will appreciate and depreciate relative to other currencies. Currencies are always listed in pairs because they require another currency to compare.

Reasons For Foreign Exchange Trading

There are many purposes for foreign exchange trading, and you will be surprised at the many trading levels that affect you without you even realizing it. For every purchase you make, the content, ingredients, by-products, parts or materials are not necessarily national. It can be purchased internationally, so foreign currency exchange must be carried out.

From a financial point of view, some people may trade in the foreign exchange market for huge profits. By using cross-currency pairs, they can exchange currencies for foreign currencies in the hope that the value of their own currency will depreciate, so when you exchange, you will get more income than the initial income.

A great opportunity for international importers or exporters of goods and services to enter the international market. However, with fluctuations in international exchange rates, payments can sometimes be difficult. Initially, the company sells at an agreed price, and then on the date of payment, the agreed value is significantly less than the agreed value, which is caused by currency fluctuations (called exchange rate risk).

You will find that all types of businesses, from large financial institutions to small retail freight forwarders, will conduct currency hedging. In short, these companies will take steps to ensure that the agreed payment value represents the same value on the day of payment, regardless of currency fluctuations.

Eight (8) major currencies Internationally, there are eight (8) currencies whose trading volume exceeds other currencies. They are often called professions. These coins are as follows:

USD - Unites States Dollar

JPY - Japanese Yen

GBP - British Pound

CAD - Canadian Dollar

EUR - European Currency Unit

CHF - Switzerland Dollar

AUD - Australian Dollar

NZD - New Zealand Dollar.

Some parts of the world trade on Saturday during part of the time, because other markets are still trading on Friday. The financial institutions in these countries/regions may deal with the foreign exchange market during working hours. Therefore, the foreign exchange market is open and operates 24 hours a day, 5 days a week. For people living on the east coast of Australia, the trading hours of the relevant market are summarized as follows:

New York session opens at 10:00pm and ends around 7:00am

Sydney session starts at 7:00am and ends around 4:00pm

Tokyo session begins at 9:00pm and ends around 6:00am

London opens at 5:00pm and ends around 2:00am.