The world of investing can be baffling for beginners of any age. An understanding of a few simple terms and concepts can make it possible for anyone to become an investor.
What is investing?
The word “invest” can have broad connotations, as dictionary definitions make clear: You might be invested in your children’s lives, perhaps you recently invested in a new car, new business, home renovation, or you consider your education an investment in your future.
But from the point of view of investing. This is different from saving, which is simply putting money aside. The difference is often that investing carries a calculated amount of risk – though, of course, there have historically been cases where cash is also high-risk, such as in hyperinflationary societies like Germany during the Weimar Republic.
What can be considered an investment?
A lot of things can be considered an investment. Whether they’re a good investment is the question. Common investments include stocks, bonds and real estate, all of which can be purchased directly or through a tool such as a mutual fund or exchange-traded fund (ETF). Cryptocurrency is another kind of investment that has gained popularity of late. Some people who are self-employed have a lot of assets in their business, which is also a type of investment. And then there are the oddball so-called investments that are lucrative for some, until the whole structure crumbles: Think Beanie Babies in the 1990s.
Why should you invest?
It’s a good idea to save money for the future. You will probably need that extra cash down the line to cover costs owing to low cash flow from losing your job, or toward a big purchase like a home, or for your kids’ education and retirement. The fewer savings you have available, the more likely you’re going to have to go into debt when sudden expenses arise.
And while having some easily accessible cash on hand is smart, you don’t want all your savings to be hundred-dollar-bills under the mattress, figuratively or literally. Standard bank accounts pay paltry, if any, interest these days, and even the best high-interest savings accounts offer rates that are significantly below inflation. That’s fine for an emergency fund that you might need to dip into sooner rather than later. But for longer-term savings, inflation means that any cash you have put aside is going to lose a lot of value. A dollar doesn’t buy what it used to, and it’s going to buy even less down the road.
That’s where investing comes in. The goal with investments is that your money will grow faster than inflation, meaning it’ll have more buying power when you take it out than when you put it in. It doesn’t always work out that way, but that’s the general idea.
There are some guidelines on when and how much to invest, but it also depends on your personal situation. For instance, women tend to live longer than men and are more likely to have gaps in their earning years, so their retirement plans should be tailored to that reality.
An important thing to keep in mind is that time is your friend when it comes to building wealth. As columnist Tim Cestnick points out, even starting just five years earlier can have a huge impact on the value of your investments over time.
Creating a diversified portfolio
What is considered a ‘good’ investment?
It doesn’t need to be flashy, or a “hot stock tip,” or a particular asset class, like real estate, which many who own it claim is failproof. Instead, a good investment is one that you can be confident will work out for your needs.
Investors should keep in mind that it’s easy to get caught up in hype and trends, notes investment consultant Darryl Brown. “The industry thrives on pushing the emotional envelope and trying to convince investors that this is a game that can be played – and played to win,” he says. “If we let the hype get to us, we’re the ones getting played.”
Brown suggests learning about behavioural finance, which looks at the impact of emotions on how we make decisions with money. This includes things like herd mentality, overconfidence bias – being sure that we’re making above-average decisions – and confirmation bias, the habit humans have of seeking out information that confirms our beliefs and ignoring information that doesn’t.
What is an ‘investment portfolio’?
An investment portfolio is simply all of your investments collected together, whether that’s an ETF or two, or a whole range of stocks, bonds and real estate investment trusts.
You might hear the phrase “balancing” one’s portfolio. This simply means redistributing assets so that the distribution matches your investment plan, such as having a 60/40 split between stocks and bonds.
What’s a good portfolio mix to have?
Investing experts often talk about a “diversified” portfolio. What does this mean? According to Globe and Mail columnist Rob Carrick, it’s “a mix of stocks and bonds or guaranteed investment certificates that reflect your age, your investing needs and your comfort level with the potentially sharp ups and downs of the stock market.” Carrick suggests that “asset allocation” ETFs – a fully diversified portfolio wrapped into a single package – is one easy way to achieve this, and an even easier way is to use a robo-adviser.
A longtime guideline for how to allocate your portfolio is the 100 minus age rule: Subtract your age from 100 and invest that percentage in stocks, and the remainder in fixed income. This would result in a 30-year-old allocating 70 per cent of their portfolio to stocks, while a 60-year-old would allocate 40 per cent. This is a good place to start, but some experts think it might be too conservative, so it’s important to also take into account your risk tolerance and personal goals.
“Short-term, returns are often horrible,” says personal finance author Andrew Hallam. But he adds: “Investing isn’t a sprint. It’s a marathon. Over long periods, a diversified portfolio is far less risky.”
While Carrick is a big fan of the “slow and steady” approach to building wealth – making regular contributions to a diversified portfolio – he suggests that those who do want to experiment with riskier investments treat them as a “side hustle.” This means taking a small proportion of your overall holdings (say, 5 per cent) that you can put into investments that you want to try but aren’t a part of your regular portfolio.
Can you lose money investing?
There are many ways in this world to lose money, and investing is one of them. The goal is to have a strategy in place that sets you up for success – which means ensuring your portfolio matches your risk tolerance and time horizon.
In many cases, whether you lose money depends on when you sell. This is why higher-risk investments, which are more volatile, are best to hold for the longer term, as you don’t want to be forced to sell when prices are low. “Don’t be rattled by market setbacks,” advises Globe columnist John Heinzl. “Investors who stay the course during bad times, or use the downturn to acquire additional shares at cheaper prices, make out well in the long run.”
How do you measure and manage risk?
Risk is a big part of investing. Higher-risk investments often offer a higher potential for gains – but also more of a chance of losses. Lower-risk investments, on the other hand, are safer, but tend to have lower rewards.
The 100 minus age rule is based on the idea that your risk tolerance matches your age. Younger investors, the theory goes, will have their money in the market for longer, and therefore more time to ride out any market fluctuations and sell when they’re up. Investors who are close to retirement, or already retired, are likely already taking money out of their portfolios to cover day-to-day living costs, and can’t afford to take as much of a chance on higher-risk opportunities.
But there is also a personal factor at play here. Some people simply don’t like risk, while others are comfortable with uncertainty. This is partly due to personality and partly based on what kind of safety net you might have, be it a high salary or net worth, family money or other kinds of retirement support.
Investment advisers, robo-advisers and other investment tools will often ask you what your risk tolerance is. Some things to think about include:
- How soon will you need this money?
- How would you feel if the value of your investments plummeted?
- What is your future earning potential?
- Do you have other assets you can depend on if these investments don’t do well?
Ways to invest
What are ESG, socially responsible or green investments?
The primary goal of investing is to make money, but that isn’t necessarily the only goal. Many investors want to be selective about the kinds of things they’re investing in. This preference has become more popular in an age of climate change and fossil fuel divestment, where people want to be confident their investments aren’t accelerating global warming. Social issues are a factor, too; for instance, you might prefer to invest in companies who treat their workers fairly and have diverse representation at the board and executive level.
ESG, which stands for environmental, social and governance, is one term that’s important in this space. ESG has no formal definition, but the general framework includes: promoting environmental sustainability and reducing a company’s carbon footprint; fostering social justice and responding to concerns of local communities; having an independent board of directors and a diverse management team; and consistently allocating capital effectively to the benefit of shareholders and stakeholders.
Socially responsible investing, or SRI, and green investing can be seen as related terms that also refer to someone’s desire to choose investments based on moral as well as financial factors.
What is DIY investing?
Do-it-yourself investing is pretty much what it sounds like: a method of managing your investments by yourself. Carrick points out that DIY is an especially appealing method for younger investors, who tend to have smaller portfolios that are not worth paying an adviser to help manage.
One reason to go DIY is to keep fees low. Investment fees are charged either on a percentage basis or as a flat fee – for making a specific trade, for example, or paying an adviser to help you organize your portfolio – and they can add up. The downside: the higher the fees, the lower the returns on your investments. Which means, notes Carrick, that too-high fees could even delay your retirement.
Carrick offers some guidance to investors looking to make regular investment contributions without having to pay too much in fees. He notes that some apps, robo-advisers and online brokers offer a range of options with no-fee purchases, and that you should check whether there are maintenance or other fees associated with the account.
How can you get help managing your investments?
The world is full of people who want to help you invest. The question is, how can you find advice that’s trustworthy, and how much are you able to pay?
One economical option is robo-advisers. Carrick notes that these tools are ideal for newer investors with less budget to pay for management advice, but also extremely cost-effective for those with a higher net worth. Investing with a robo-adviser means setting up an account and paying a small fee to have a portfolio that fits your requirements designed and then managed. Then, all you have to do is keep adding to your account and the new funds will be automatically invested.
Searching online is another good place to start. The internet is teeming with free investment advice, writes columnist Bridget Casey. A lot of it is geared toward people who are just starting out on their investing journey. And while being charismatic on TikTok isn’t a reliable qualification for giving out stock tips, the fact is, says Casey, much of the investing information you can find online is actually really good.
When looking for investment advice, one important thing to think about is the motivation of the person or organization giving the advice. This is what Carrick has in mind when he says, “I’d rather see someone use a robo-adviser than go to a bank branch to buy mutual funds from a salesperson.” Salespeople are paid by – and primarily motivated by – the owner of the product they’re selling, not the needs of the customer. A financial consultant who earns income solely from investors paying for their guidance is motivated only by the needs of their customers, at least in theory.
If you’re looking for a fee-for-service financial planner to help you create an investment plan, Carrick suggests it might cost in the range of $1,500 to $4,000, or more. He suggests getting in touch with a planner to get an idea of what precisely they offer and what it will cost you.
What are some good stocks to invest in?
Ready to start investing? Here are some guides to help you get started:
The bottom line
What is investing? Three things to remember
- Common investments include stocks, bonds and real estate
- A good investment doesn’t need to be flashy – it only needs to match your financial needs
- Investing earlier in life is a smart strategy
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FedDev Ontario Investment Contribution to TRCA Will Support Enhanced Visitor Experiences at Bruce's Mill Conservation Park – TRCA
August 9, 2022, Toronto, ON – Visitors to Toronto and Region Conservation Authority’s (TRCA) Bruce’s Mill Conservation Park in Stouffville, ON will enjoy enhanced experiences thanks to an investment contribution from the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) that will help to revitalize the park infrastructure.
The Honourable Helena Jaczek, Minister responsible for the Federal Economic Development Agency for Southern Ontario and Member of Parliament for Markham-Stouffville made the funding announcement today at Bruce’s Mill.
The investment contribution of up to $740,715 will support improvements at Bruce’s Mill intended to positively impact both the local community and visitors to the park, allowing more people to re-engage with their communities and nature.
These improvements include: the installation of two new picnic shelters, the addition of 15 new accessible picnic tables for community use, and the upgrading of three washrooms to improve accessibility and physical distancing components. In addition, the park access roads and parking lots will be paved and repaired.
“Our government is investing in community infrastructure to support the mental and physical health of Canadians by promoting social interaction and physical activity. This Canada Community Revitalization Fund investment for Toronto and Region Conservation Authority will help revitalize the Bruce’s Mill Conservation Park’s public infrastructure. This revitalization will help draw visitors to Bruce’s Mill, where they can come together, enjoy the outdoors and be active.”
— The Honourable Helena Jaczek, Minister responsible for the Federal Economic Development Agency for Southern Ontario
“The investment by FedDev Ontario will not only improve visitor experiences at Bruce’s Mill but will accommodate the increased demand for outdoor recreation and provide safe alternative recreational activities as we all recover from the COVID-19 pandemic. It is investments like these that allow TRCA to keep our parks and trails in a state of good repair while increasing community connection and improving accessibility to our visitors.”
— – Michael Tolensky, Chief Financial and Operating Officer, Toronto and Region Conservation Authority (TRCA)
TRCA’s Bruce’s Mill Conservation Park
Conveniently located off Highway 404, Bruce’s Mill Conservation Park is a popular destination for the five million residents within our jurisdiction and from many tourists from around the world. In addition to picnic areas and trails, recreational facilities at the park include a professionally designed golf driving range and a BMX cycling track. To learn more visit trca.ca/bruces-mill.
About Toronto and Region Conservation Authority (TRCA)
With more than 60 years of experience, TRCA is one of 36 Conservation Authorities in Ontario, created to safeguard and enhance the health and well-being of <span data-trca-tooltip="
The entire area of land whose runoff water, sediments and dissolved materials (nutrients and contaminants) drain into a lake, river, creek, or estuary. Its boundary can be located on the ground by connecting all the highest points of the area around the river, stream or creek, where water starts to flow when there is rain. It is not man-made and it does not respect political boundaries.” class=”glossary-term”>watershed communities through the protection and <span data-trca-tooltip="
To repair or re-establish functioning ecosystems; the process of altering a site to establish a defined, native, historic ecosystem; the goal is to emulate the structure, function, diversity and dynamics of a specified ecosystem.” class=”glossary-term”>restoration of the natural environment and the <span data-trca-tooltip="
Ecological services are defined as the overall benefits to humans arising from a functioning healthy ecosystem, which includes improved water quality and quantity, air quality, soil stabilization, flood mitigation, balanced hydrologic regimes, biological processes and biodiversity. Ultimately, the streams in TRCA’s watersheds run into Lake Ontario and have a direct influence on the water quality and habitat along the waterfront.” class=”glossary-term”>ecological services the environment provides. More than five million people live within TRCA-managed watersheds, and many others work in and visit destinations across the jurisdiction. These nine watersheds, plus their collective Lake Ontario waterfront shorelines, span six upper-tier and 15 lower-tier municipalities. Some of Canada’s largest and fastest growing municipalities, including Toronto, Markham and Vaughan, are located entirely within TRCA’s jurisdiction.
To learn more about TRCA, visit trca.ca.
Senior Manager, Communications, Marketing and Events
Toronto and Region Conservation Authority (TRCA)
Short Term vs Long Term Investments: Gauging the saving spectrum – Economic Times
Quick wealth creation is what financial markets consider; however, investing as a practice is a long-term process. While an investor’s capital can be invested in the short-term and long-term, both forms of investment have their merits and demerits.
Typically, short-term investments involve less risk than long-term investments. Long-term investments give the investor’s money a substantial period to grow and recover from major dips in the market.
Having clear and crisp financial goals can help the investor decide whether to choose short or long-term investments and which vehicles within those categories aim towards personalized investment gains.
Before choosing any investment strategy, the investor ideally needs to do proper research on which asset types suits their need.
What is suitable for one investor might not be in sync with another’s financial objectives, so one must consider their overall goals along with the risks one is willing to take.
Short-term investments have a validity period typically up to three years – high liquidity instruments, generally involving lesser market risks.
Also, these temporary investments are mostly used for parking excess funds for a short period. Short-term investments are highly liquid and hence are used by investors to meet expected near-future expenses.
Less risky in nature, these short-term investment products have a short tenure and give predictable returns as compared to long-term investments be it –
● Treasury bills which can be redeemed within 91 days and is a high liquidity instrument.
● Gilt Funds which invest only in government securities and owing to zero credit risk, are safe investment funds.
● Ultra-short-term debt funds wherein the maturity period ranges between three to six months and provides comparatively higher returns.
● Low duration debt funds whose maturity period ranges between six and 12 months, these funds invest in debt and money market instruments.
● Money market funds that invest in money market instruments and have a redemption period of up to one year.
● Bank fixed deposits that can be renewed on maturity and their tenure can range from 14 days to 10 years. Also, liquidity can be a concern here as some banks don’t allow premature withdrawals.
● Company fixed deposits can have a tenure of more than one year
● Post office time deposits have tenures ranging from one to five years and similarly Recurring deposits can open an RD for a duration as low as six months. Sweep-in-Fixed Deposits as against low returns on savings accounts, these offer comparatively higher returns, with a minimum tenure of around 12 months.
On the other hand, long-term investments are investments that can offer high returns after several years, typically five years or more – involving more market risks.
Be it via stocks, ETFs, mutual funds, etc. Investments in stocks earn quite high returns if patience is kept high (Of course, this cannot be guaranteed but you should assess your risk-taking capacity before thinking of investing in stocks).
Having a deeper understanding of the market movements so that the investor makes wiser financial decisions and when to sell the stocks, investing in stocks and securities requires a trusted financial partner, who can provide hassle-free features to open an online Demat and Trading Account.
Another long-term investment avenue for receiving higher returns is Equity Mutual Funds where the investor gets to pick from small, mid-cap, and large-cap equity mutual funds for the long term to achieve greater financial goals.
Ultimately, the short-term investment gives levy to the investor to achieve their financial goals within a short span and with lower risk (depending on which asset you pick), if the investor has a greater risk appetite, and wants higher returns, they can select a long-term investment avenue.
To further simplify, if the investor wants to preserve their capital and is happy with moderate returns then they may choose short-term investments but, with the expectation of a higher return, the investor may invest in long-term investment avenues.
(The author is Senior Vice President, at mastertrust)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Hong Kong Investment Bank’s 2,325% Surge Baffles Local Investors – BNN
(Bloomberg) — Another little-known Hong Kong-based financial services firm is mystifying investors with a dramatic price surge following its US listing.
Magic Empire Global Ltd., which provides underwriting and advisory services and has helped just one company go public since 2020, surged 2,325% in its debut session Friday in New York to a market capitalization larger than football club Manchester United Plc. Magic Empire is the seventh firm this year from Hong Kong or China to experience similarly surprising moves.
“This price level has clearly shown it is not sustainable,” said Ken Shih, head of wealth management in Greater China at Saxo Capital Markets HK Ltd., adding that without knowing who is doing the buying, it is hard to be definitive. “At this point, downside risk for investors clearly outweighs upside.”
Last week, Hong Kong financial services provider AMTD Digital Inc. briefly became bigger than Goldman Sachs Group Inc. after a 14,000% gain in less than a month. The moves are particularly notable at a time of otherwise muted IPO activity and with Chinese companies Alibaba Group Holding Ltd. and JD.com Inc. threatened with delisting if they fail to comply with American auditing standards.
Magic Empire reported revenue of $2.2 million in 2021, a 17% drop from a year earlier. The company’s operating entity, Giraffe Capital Ltd., completed just one IPO in 2020 and none last year “due to COVID-19 and volatile outlook of the Hong Kong capital market,” according to the prospectus. Friday’s price surge brought Magic Empire’s market capitalization to $1.9 billion.
“The wild swings are likely due to the concentrated ownership, which certainly raises red flags,” said Kakei Lam, fund investment officer at Metaverse Securities Ltd. “I don’t see a resemblance to the meme-stock mania, given the thin trading volume.”
Magic Empire’s chairman Gilbert Chan Wai-ho and chief executive officer Johnson Chen Sze-hon co-lead Giraffe Capital, which obtained a license to provide corporate finance services in 2017. The firm mostly works on IPOs on GEM, the small-cap exchange, and often engages other small local brokerages as underwriters, including KOALA Securities Ltd., HKMonkey.com and Yellow River Securities Ltd. Chan and Chen own most of Magic Empire, with a combined stake of about 63%. The firm had just nine employees as of December 2021, according to its prospectus.
Hong Kong’s Scandal-Plagued Small-Cap Exchange Left for Dead
About half of the companies Giraffe Capital has taken public jumped on the first day, some by as much as 125%. Seven are now trading 30% to 92% lower than IPO price and another has been delisted.
Magic Empire didn’t respond to an email request for comment and calls to the phone number listed on its website weren’t answered.
In the first half of this year, fundraising in the Hong Kong IPO market dropped 92%. With the tiny companies that make up their customer base under close regulatory watch, small- and mid-sized financial advisory firms like Giraffe Capital have had a particularly tough time.
In 2017 and 2021, the Securities and Futures Commission and the Hong Kong stock exchange issued two rounds of warnings about so-called ramp-and-dump schemes tied to small-cap IPOs. These schemes manipulate very thin trading volume to inflate prices, luring unwary investors before shares collapse.
The SFC declined to comment for this article, but has previously identified four typical features of problematic IPOs:
- Market capitalization barely meets the minimum threshold
- Price-to-earnings (P/E) ratio is very high given the firm’s fundamentals and the valuations of its peers
- Underwriting commissions or other listing expenses are unusually high
- Shareholding is highly concentrated in a limited number of shareholders
Magic Empire’s relatively modest revenue means it qualifies as an “emerging growth company” under American legislation, according to its prospectus. These firms enjoy reduced reporting requirements compared to larger US-listed public companies, with only two years of audited financial statements required and disclosure obligations regarding executive compensation pared back.
(Updates with Kakei Lam’s comments.)
©2022 Bloomberg L.P.
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