The only way to achieve financial well-being is through careful money management. I say this as someone who has not always cared about investing, saving, and portfolio diversification. Over the years we have seen financial markets expand and contract accordingly. Fortunately, investors with enough necessities have made tremendous returns on Wall Street since 2009-10. For the past 6 years the Wall Street Bulls have been charging fees and many financial portfolios have benefited accordingly.
There’s only one problem: I was a little late on the market. Facebook, Google, Twitter, Tesla, Microsoft, and other big-name tech companies were soaring as I was shopping in the markets. Even so, I am confident that growth will continue and my portfolio will look much healthier than it is now. I’ve learned from experience that the best financial portfolios are those that reduce market risk over time. In other words, dollar / cost averaging is the best form of investing in financial markets.
Don’t be afraid to invest
Instead of investing a lump sum in mutual funds, individual stocks, ETFs, or 401 (k) investments every few months, break that value into manageable pieces and invest monthly. That way you get a pretty even spread when buying stocks. Note that Apple Inc. (AAPL) is up 39% for 2017 (June 1, 2017), Facebook is up 33.52% for the current year, and Google is up 26.40% for the year to date . If I had invested in Google three years ago, my returns would be 77.08%, Facebook returns 137.98%, and Apple returns 70.08%. These are huge increases to your portfolio, and they are perfectly possible if you invest early in your career.
If you’re wondering what I’ve been doing with my money all this time – I had it in interest-free bank accounts. And guess what? The banks told me to keep my money in their vaults. Many people sitting on the fence about investing in the financial markets cite market volatility as their reason for not getting involved. They fear that if the markets collapse, their entire nest egg could be wiped out. Is that possible? Yes it is.
Remember the crash that wiped trillions of dollars off Chinese stock exchanges when the Shanghai Composite Index and the Shenzhen Composite Index crashed? This happened in 2015/2016 when the stock market bubble in China burst. At that point, China’s GDP was well over 7%, but it dropped to 6.7%. The demand for raw materials fell and the global stock exchanges withdrew. However, China’s stock markets have rebounded and the world’s second largest economy is back on track with strong gains. This is the nature of financial markets. Remember, what goes up has to come down and vice versa. Even in a declining market climate, there are viable investment opportunities that are significantly better than money in a bank account.
Protect your investments by diversifying your portfolio
Hedging is one such practice that protects the value of your investments when components of the financial markets turn sour. Gold is considered one of the best safeguards against equity weakness. When geopolitical uncertainty mounts, investors pull away from equity markets and emerging markets and sink their money into gold. The same applies to the Japanese yen, Japanese oil and Japanese government bonds.
A good trick I learned from a leading Lionexo options trading broker was this: Break down your investments into a balanced mix of domestic stocks, overseas stocks, bonds, mutual funds, ETFs, and currency holdings. You can even go a step further and diversify with contrary trading options in the form of CFDs and other derivatives deals. Many of us expect a quick return on investment. This is hardly ever the case.
Important considerations when investing
Without exception, unless you speculate in leverage, margin, and higher risk futures markets, you will have to wait for your underlying assets to appreciate over time. Cash in the bank is at best a cushion against volatility in the stock markets. It won’t do well in one Era of hyperinflation and low interest rates. Still, a balanced portfolio remains the ideal option for planning your retirement. The age-old aphorism: Never put all your eggs in one basket applies in every respect. A conscious mix of asset classes (indices, currencies, commodities, government bonds and stocks) is the best choice these days.
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