Round-Up Discussion

 

Before you invest, make sure you fully understand the product disclosure statement (PDS)[93] and beware of scammers offering investments or asking for payment using e.g. crypto-assets [94]. The PDS explains how your investment works, the risks, fees and charges involved, how long you should invest, legal and tax implications, etc.

What kind of investor are you? According to your FID discussed above, you may select either defensive or growth investment. Defensive investments include cash and fixed interest short-term investments. Long-term growth investments are higher risk and offer a higher potential return compared to defensive investments. They aim to give capital growth and some provide income (e.g. dividends for shares or rent for property).   

But what is the best asset allocation for your age? The rule of thumb used to be that you should subtract your age from 100 - and that's the percentage of your portfolio that you should keep in stocks. For example, if you're 30, you should keep 70% of your portfolio in stocks. 

Key Takeaways [1]:

* The key to successful long-term investing is preserving capital,  i.e. diversifying holdings over different asset classes and choosing assets that are non-correlating (that is, they move in inverse relation to each other).

*  Even though both hard and trailing stop-loss orders protect you against rapidly falling share prices, they need to be well-planned.

* Owning stable companies that pay dividends is a proven method for delivering above-average returns. Companies that pay generous dividends tend to grow earnings faster than those that don't. Faster growth often leads to higher share prices which, in turn, generates higher capital gains.

* By investing in blue-chip companies that both pay dividends and possess pricing power, you provide your portfolio with protection that fixed-income investments—with the exception of TIPS—can't match.

* Dollar-cost averaging (DCA) allows the investor to reap a greater gain from mutual funds over time. 

* Investors who want aggressive growth can look at technology, healthcare, construction and small-cap stocks to get above average returns in exchange for greater risk and volatility.

Comments

  1. VA DigHiSciFebruary 6, 2022 at 11:57 AM

    The Bottom Line: These are just some of the simpler methods that can control the amount of risk taken and amplify the possible gains that can be made.

    ReplyDelete

Post a Comment

Popular posts from this blog

Appendix B: More Real World Examples

Image
  Risk/Reward Ratio Let’s consider the following example to understand RRR. Investor A wants to create a balanced portfolio using the following input data: Asset Value 10000 Accepted Risk 0.1 Time Period Y 1 Predict Growth 0.2   This is about investing $10000. He is willing to accept 10% of the risk with the expected 20% of the return on a short-term investment of 1Y. He shortlisted the two stocks, AAPL and MSFT, at the current prices $157 (AAPL) and $330 (MSFT) per share. He analyzed both stock trends using historical market data. According to his stock BI analysis, the predicted AAPL share price range is $100-200, whereas the predicted MSFT share price range is $300-400 in a period of 12 months: Stock Current Price Stop Loss Target AAPL 157 100 200 MSFT 330 300 400
Read more

Heads-Up: Upswing Resilient Investor Guide - Min(Risk) Control

Image
  Credit ratings  of companies and countries are most popular universal tools for helping investors to gain insight into different investment environments and to understand the risks and advantages these environments pose [1]. Globally, there are three main ratings agencies that provide credit ratings: Moody’s, S&P, and Fitch. Figure 1 gives an idea of the different rating symbols that Moody's and Standard & Poor's issue [1]. These ratings are considered to be investment grades consistent with the TLS Red “Junk”, Amber BBB and Green (A, AA and AAA) scores. For completeness, it is worth mentioning the monthly Zacks Stock Rank [18] that will help you find the best mutual funds to outperform the market. The Zacks Industry Rank is the average Zacks Rank  for all companies within a specific industry group. Most risk ratings determine the enterprise risk which consists of the business risk (volatility of cash flows) and the financial risk of the capital structure. A firm with
Read more

Max(Reward) Control

Image
   At the end of the day, we are interested in measuring the probability of gaining max(Reward) from an investment. In doing so, we calculate Return on Investment (ROI) as follows [1,3]: ROI=[(Net Return)/Cost]*100%= (Capital Gains)-Commission+(Dividend Yield) and Annualized ROI = [(1+ROI)**(1/n)-1]*100%, where n is the number of investment years.   It is clear that the negative values ROI<0 mean that total costs are greater than returns (red score), whereas positive values ROI>0 indicate that net returns are positive because total returns are greater than any associated costs (green/amber). Even though ROI is a direct measure of profitability, it does not adjust for risk. Both ROI and Return On Equity (ROE) are popular measures of financial performance and profitability [1]. While ROI is total profit divided by your initial investment ,  ROE, on the other hand, measures how much profit a company generates when compared to its shareholders' equity.   Because shareholders'
Read more