You don't need to take an economics or finance course to learn how to invest, but it is important to understand these basic investment concepts.
Risk and return
Return and risk always go together. The higher the potential return, the higher the risk. You should never blindly pursue high-return investments. Bear in mind your investment goal, investment period and risk tolerance. Always choose an investment that is suitable for you.
Risk diversification
Any investment involves risk. You cannot avoid it, but you can manage your risk exposure with the right strategy to reduce the chances of major losses. The simplest and best way is to diversify your investments and spread your risk. An effective way is to diversify your investment to different asset classes, such as stocks, bonds, deposits etc.
Dollar-cost averaging
This is a long-term strategy. You regularly (e.g. monthly) invest a fixed amount, whatever the share price. In the long run this balances out the cost of buying shares and lessens the effect of short-term market fluctuation.
Compound Interest
Your principal (original money paid in) grows because of the interest earned, so you get a higher return. It’s a snowball effect – the longer you invest, the more you benefit from compound interest. Therefore, it is important to start saving and investing early.
Inflation
For the past few decades, there has usually been inflation in Hong Kong. Your investment needs a return rate that matches or beats inflation. If not, then your money will be worth less.
Find out more from our animation series to help you better understand the basics of investing.
In this blog, we will look at five key things to consider when you start investing: being patient, making clear goals, knowing your risk tolerance, diversifying your portfolio, paying fees and expenditures, and diversifying your investments.
Have a plan, prioritize saving, and know the power of compounding. Understand risk, diversification, and asset allocation. Minimize investment costs. Learn classic strategies, be disciplined, and think like an owner or lender.
Select investments—Choose what to buy and when. Monitor—Evaluate your investments periodically for changes in strategy, relative performance, and risk. Rebalance—Revisit your investment mix to maintain the risk level you are comfortable with.
The 4% rule entails withdrawing up to 4% of your retirement in the first year, and subsequently withdrawing based on inflation. Some risks of the 4% rule include whims of the market, life expectancy, and changing tax rates. The rule may not hold up today, and other withdrawal strategies may work better for your needs.
Accepting, understanding, empathathizing, sympathetic, compassionate, kind to other people, that's the zest of life. It's that great grand connection that ultimately makes us feel, as human beings, fulfilled: because we loved. So love others on your journey. Make it a practice.
Buffett's headline rule is “don't lose money” and his second rule is “don't forget rule one”. This might sound obvious. Of course, it is. But it's important to look at the message within.
How much money do you have to invest? How much money can you afford to lose? Will you operate alone or will you have partners? Will you need financing?
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